Cover charge: prepaid plans put routine legal services within your budget

Entrepreneur, August, 1996 by Steven C. Bahls, Jane Easter Bahls

"Legal fees can be devastating for a small business," says Robert Andrysco, owner of Talking Pets Inc., a Columbus, Ohio, firm that offers books, tapes and special products for pet owners. From routine contracts, tax questions and debt collection to trademark and copyright concerns, Andrysco frequently needed to consult a lawyer - at $150 an hour. Although he paid the law firm $3,000 to $15,000 per year, his business was a small percentage of the firm's client base. "I felt I wasn't important enough to them," he says.

Then a friend approached him about a prepaid legal plan for small businesses. For $59 per month, Andrysco could receive unlimited telephone consultation with a lawyer, review of three contracts per month, unlimited review of other business documents, up to 10 debt collection letters per month and discounts on other legal services. Andrysco signed up with Pre-Paid Legal Services Inc., a rapidly growing company based in Ada, Oklahoma, that has provider firms in most states.

A week later, a former vendor attempted a $2,100 credit card charge-back for equipment he claimed he had returned to Talking Pets but did not. Andrysco called Pre-Paid Legal Services Inc. The lawyer suggested how to word a letter to the credit card company. "I faxed it over, the attorney made changes and faxed it back, with a powerful closing," Andrysco says. The letter convinced the company not to debit his account. Since then, Andrysco has used the service to review agreements, consult on tax matters and have letters prepared. "I see it as saving problems in the long run," he says.

Prepaid legal plan services are growing rapidly. Although most are designed for individuals, a few nationwide firms offer legal plans tailored to small businesses. By making legal advice affordable, the plans encourage business owners to prevent problems before they happen.

Preventive law makes a lot of sense, but many cash-strapped small-business owners take their chances rather than pay for it. When you've prepaid for legal counsel, though, you're more likely to ask for advice. "Prepaid legal plans encourage you to call before a problem becomes big," says Alec Schwartz, executive director of The American Prepaid Legal Services Institute, an American Bar Association affiliate.

Some observers compare prepaid legal plans to Health Maintenance Organizations (HMOs) because of the wide range of services offered for a low, set price. Like HMOs, prepaid legal plans have collective bargaining power. Many doctors and lawyers find it worthwhile to offer low-cost services in exchange for a greater volume of business. Typically, a plan contracts with one law firm in each state to handle routine matters; specialists are usually available at reduced rates.

* QUICK ANSWERS

Caldwell Legal, U.S.A., based in Sacramento, California, is the oldest prepaid legal network. "My father, Don Caldwell, founded this industry in 1967," says Crystal Virtue, executive vice president.

Caldwell's Business Protector Program provides a legal service office in each state, staffed by attorneys who handle telephone consultations, document review, letters and other membership services for a monthly fee of $20. The plan includes unlimited hours of toll-free phone consultation during the year.

"Our experience shows 73 percent of all legal problems [members bring] to us can be resolved with a single telephone call," Virtue says. The assigned attorney will draft collection letters or call debtors for $10 each rather than charging the usual one-third of the money collected. More extensive legal service is available from the company's referral network for $70 per hour.

"[We] make it easy to run your business," says Trish Weaver of Pre-Paid Legal Services. Although routine matters go to the same law firm, they don't necessarily go to the same lawyer. "It depends on the question," Weaver explains. Typically, a provider law firm has a computer-assisted file accessible to all its attorneys, with information about the most recent questions.

Because both Caldwell and Pre-Paid contract with only one provider in each state, they're usually that firm's biggest client. This gives questions from small-business members a warmer welcome than they might receive at a big firm.

That pleases Andrysco. "I see myself as the biggest fish in the pond now," he says. "It gives me access to the legal system like I've never had before." His plan includes 75 hours per year of legal work if his business is involved in a lawsuit; those hours accrue over the years. "I see it as a legal defense fund I'm building up," he says. Because he's taking a lot of preventive steps, he doesn't expect to be sued. "But if I am [sued], I'll have this."

* LOOK BEFORE YOU LEAP

When considering a prepaid plan, look carefully at the services included or offered for reduced rates. "The number of services at a reduced fee may be limited," says Jerry Van Hoy, an assistant sociology professor at Purdue University who studies the legal profession. "Check the plan to make sure they've got what you might need. What do they charge for the other stuff?" A set fee for additional work may be preferable to a discount on the firm's "usual fee."