How You Can Corral Legal Costs

Nation's Business, Feb, 1999 by Michael Barrier

The basic rules for halting the stampede: Choose your lawyers carefully, tell them what you 're trying to accomplish, and don't be afraid to haggle over prices.

Christine Sullivan, president of Hawthorne Associates, a nine-employee marketing firm in Belmont, Mass., thinks she knows why entrepreneurs and lawyers don't always get along. "Entrepreneurs like to get things done," she says. "You don't want a bunch of people who sit around telling you why you can't do things."

But as Sullivan also knows very well, entrepreneurs can't do without legal help. That reality began pressing in on her in 1997, when her small company hired its fifth employee. Although various federal laws banning employment discrimination kick in when a company has 15 employees, the thresholds in many states' laws are lower. In Massachusetts, for example, five is the magic number.

Hawthorne markets training materials--seminars, books, videos, and software--for U.S. and foreign producers, and a lot of those materials deal with employment law. "When the business grew to five employees," Sullivan says, "something in the back of my head, from all the work we do, said, 'Christine, you ought to look at this as a business issue for yourself."'

She started trying to find out what the law required her to do. "I really didn't know," she says, "and when you're a small, growing business, you don't have a lot of time to find out."

Other kinds of legal issues--intellectual property, for instance--were beginning to loom larger for Sullivan's business, too. She was entering a twilight zone that most growing small businesses will enter sooner or later--a stage where controlling legal costs becomes more important, and more difficult, than it was when the company was getting started.

A very small company will most likely pay attorneys relatively insignificant amounts for clearly defined services--drawing up incorporation papers, for instance, or collecting overdue bills. But as the company grows larger, it begins to fall under laws--particularly employment laws-that can expose the company to potentially ruinous lawsuits.

Employment laws aside, you can face increased legal scrutiny as your business grows because of the nature of the work being done; environmental laws are an obvious example. Even as a sole proprietor, Working out of your home with few or no employees, you may run afoul of local zoning laws. Likewise, if you have dreams of franchising your very small business someday, you may need to see a lawyer about trade-marking its clever name.

A Solution For Small Firms

The problem for many small companies is that getting specialized legal help can cost more than the company can afford. 'We'd already gone past the kind of lawyers we could use before," Sullivan says, "and I was really troubled about how I was going to go to some huge Boston law firm and afford them."

Hawthorne Associates and about three dozen other small and midsize companies, including some from outside the Boston area, have found a solution in what is called the Emerging Businesses Practice Group, which Nicholas P Alexander heads within Morrison, Mahoney & Miller, LLP, a 200-attorney Boston law firm.

The practice group is explicitly geared to serving businesses on the way up. The group charges hourly rates for its services, typically $180 to $200 an hour for a partner's time--relatively low in today's market for legal services--but with the understanding that as the clients grow and they require more-sophisticated services, the rates will rise. Eight or nine attorneys in the firm spend "a significant portion of their time" doing work for the practice group, Alexander says.

The practice group is a form of "law-firm venture capital," says Barton Watson, a Morrison, Mahoney & Miller client and the owner of CyberNET Engineering, an 80-employee information-technology company based in Grand Rapids, Mich.

According to a number of knowledgeable observers, the Morrison, Mahoney & Miller example is not one that has been copied by many other law firms yet. Most small-business people, when they seek out legal advice, will not be walking into law firms that have tried to tailor their services to small-business needs.

But the owners of small companies have available an arsenal of techniques they can use to get the best possible legal representation at prices they can afford. Here are some guidelines:

Think prevention.

Busy small-business owners tend to let legal issues slide, says Fred S. Steingold, an Ann Arbor, Mich., attorney and the author of The Employer's Legal Handbook (Nolo Press, $29.95). "They're anxious to do the substantive work they're involved in, and they're impatient with the details. But it's always better to get preventive advice and to have the lawyer involved early. Sometimes that can save a lot of money."

One example: You may avoid a discrimination lawsuit if you wait to fire a problem employee until after you've consulted an attorney on the best way to do it.

Richard C. Reed, a Bellevue, Wash., attorney who now works as a consultant to law firms on billing practices and other management issues, suggests hiring an attorney to look over your business and determine where you're exposed to risk.