For many small businesses and entrepreneurs, the idea of consulting a lawyer conjures up frightening visions of skyrocketing legal bills. While there’s no denying that lawyers are expensive, the good news is there are more ways than ever to keep a lid on costs.
Start by learning about the various ways lawyers bill their time:
- Hourly or per diem rate. Most attorneys bill by the hour. If travel is involved, they may bill by the day.
- Flat fee. Some attorneys suggest a flat fee for certain routine matters, such as reviewing a contract or closing a loan.
- Monthly retainer. If you anticipate a lot of routine questions, one option is a monthly fee that entitles you to all the routine legal advice you need.
- Contingent fee. For lawsuits or other complex matters, lawyers often work on a contingency basis. This means that if they succeed, they receive a percentage of the proceeds — usually between 25 percent and 40 percent. If they fail, they receive only out-of-pocket expenses.
- Value billing. Some law firms bill at a higher rate on business matters if the attorneys obtain a favorable result, such as negotiating a contract that saves the client thousands of dollars. Try to avoid lawyers who use this method, which is also sometimes called “partial contingency.”
If you think one method will work better for you than another, don’t hesitate to bring it up with the attorney; many will offer flexible arrangements to meet your needs. When you hire an attorney, draw up an agreement (called an “engagement letter”) detailing the billing method.
If more than one attorney works on your file, make sure you specify the hourly rate for each individual so you aren’t charged $200 an hour for legal work done by an associate who only charges $75.
This agreement should also specify what expenses you’re expected to reimburse. Some attorneys expect to be reimbursed for meals, secretarial overtime, postage and photocopies, which many people consider the costs of doing business. If an unexpected charge comes up, will your attorney call you for authorization?
Agree to reimburse only reasonable and necessary out-of-pocket expenses.
No matter what type of billing method your attorney uses, here are some steps you can take to control legal costs:
- Have the attorney estimate the cost of each matter in writing, so you can decide whether it’s worth pursuing. If the bill comes in over the estimate, ask why. Some attorneys also offer “caps,” guaranteeing in writing the maximum cost of a particular service. This helps you budget and gives you more certainty than just getting an estimate.
- Learn what increments of time the firm uses to calculate its bill. Attorneys keep track of their time in increments as short as six minutes or as long as half an hour. Will a five-minute phone call cost you $50?
- Request monthly, itemized bills. Some lawyers wait until a bill gets large before sending an invoice. Ask for monthly invoices instead, and review them. The most obvious red flag is excessive fees; this means too many people–or the wrong people–are working on your file. It’s also possible you may be mistakenly billed for work done for another client, so review your invoices carefully.
- See if you can negotiate prompt-payment discounts. Request that your bill be discounted if you pay within 30 days of your invoice date. A 5-percent discount on legal fees can add thousands of dollars to your yearly bottom line.
- Be prepared. Before you meet with or call your lawyer, have the necessary documents with you and know exactly what you want to discuss. Fax needed documents ahead of time so your attorney doesn’t have to read them during the conference and can instead get right down to business. And refrain from calling your attorney 100 times a day.
- Meet with your lawyer regularly. At first glance, this may not seem like a good way to keep costs down, but you’ll be amazed at how much it reduces the endless rounds of phone tag that plague busy entrepreneurs and attorneys. More important, a monthly five- or 10-minute meeting (even by phone) can save you substantial sums by nipping small legal problems in the bud before they have a chance to grow.