You can take some simple steps to make sure your lawyer doesn’t waste time on your projects. Every lawyer has wasted time on something, and even a great lawyer such as Abraham Lincoln acknowledged that some legal tasks are inherently a waste of time and money. Back in 1850 he wrote, “Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often a real loser—in fees, expenses, and waste of time. As a peacemaker the lawyer has a superior opportunity of being a good man. There will still be business enough.”
I polled my closest colleagues and came up with a set of tips for what you can do to keep legal bills down and maximize your lawyer’s effectiveness.
A quick discussion when you start planning a new venture can set you on the right path and avoid expensive mistakes. If you don’t consult your lawyer until you are ready to seal a deal, you might be surprised by delays for things such as time-consuming registrations or unintended problems. For example, if you are going to hire an independent contractor to write inventory-management software, your lawyer can tell you up front that you need to have a contract saying that you own the software when it’s finished. Unless there’s a contract transferring ownership, the contractor will own the product. If you wait until you’ve already paid the contractor, it may be too late to negotiate an agreement that gives you ownership of the software. A lawyer can give you a contract that the developer is likely to sign before the project starts. As another example, if you are selling beauty products over the Internet, you should have a chat with your lawyer before you start planning to expand your brick-and-mortar stores into another state. Otherwise you might be surprised to learn that all of your Internet sales into that state will be subject to sales taxes, and the lease you just negotiated costs you more than you had thought. A lawyer can’t give you a quick fix for this issue, but you can have a better idea of what you are getting into in advance.
This early discussion doesn’t have to be extensive or expensive. If you brainstorm your plans, your lawyer should be able to point out some pitfalls to avoid. Your lawyer should identify for you any other potential problems that he or she would need to research further and give you a choice of whether you want that research done now or later.
[Image: Courtesy of Barry Burns]
If you have investors, lenders or partners, your lawyer should give you pointers on what kinds of issues you need to think about before you start working with the other people on your team. Each person should agree on what their responsibilities are, how much time each person will devote to the project and how each person will be paid or repaid for loans. If one person is providing the financing, make sure that person is really on board and you understand what is expected in return. Is the money a loan or an investment in return for a percentage of the business? If you are all already in the beauty store business, can one partner import a competing product without involving the other partners? What happens if one of the partners dies? Can the other partners buy out that share and continue in business, or does the partner’s child inherit a share, which may give the child a right to force the business to dissolve? If one person goes to Cosmoprof North America, what expenses will the business cover, and can someone else go the next time? Once you have discussed these issues, make sure everyone really agrees by signing a contract.
It’s important to get a list of questions from your lawyer, and then think through and agree on all the answers before you ask your lawyer to draft up a contract. That way you won’t waste time and money on drafting a contract that the other people will reject out of hand. It can be very expensive to learn about a disagreement because the other person rejects a draft your lawyer spent a lot of time on.
Term sheets or letters of intent are usually just an extra step that you can safely skip, with some exceptions. Both term sheets and letters of intent are preliminary lists of the important terms of your deal. They can be binding or nonbinding. If they are going to be binding on you, you should really think through and reach agreement on all of the terms. If you don’t address an issue and there’s a dispute about it later, then a court might be able to impose a term that’s standard in the industry, but that you never would have agreed to if you had thought about it. Other times you may lose your bargaining position by agreeing to a concept in the term sheet that becomes unattractive once the other terms are negotiated later. Even something that seems straightforward, such as the percent ownership your investor will have, might turn out to be a problem once the investor tells you that he wants to transfer that ownership to a competitor of yours. So you may as well skip this less formal step because you will be better served by a formal contract with all the concepts fully thought out.
If the term sheet is not going to bind you to a deal, it can be useful to help everyone focus on the details and make sure you are on the same page, but it has to be written carefully and you should get legal advice on drafting it. It should say clearly that it is not binding and that you will have obligations only if both parties sign a formal written contract. Even so, it is often just as easy to go straight to a draft of the formal written contract.
Think about the issues that are important to you, and write out a bullet-point list for your lawyer. Your lawyer can take that list and help craft a plan that helps you achieve those goals.
But don’t bother writing out a fully developed contract. Then your lawyer will have to analyze the contract you wrote, distill out the important points, substitute contract provisions that are either generally accepted or have been interpreted by courts and, finally, check to make sure you didn’t miss anything. That takes a lot more billable time than starting with a well-thought-out list of important points and building a contract around them. Most lawyers have developed their own contracts that they know will hit all the important points already and will be generally accepted in your field.
You can help streamline your legal tasks by making sure you get a good proposal from contractors. For instance, if you are planning to hire a public relations firm, find out what the going rate is and what kind of services you can expect. Then get a written proposal from the firm you select that spells out all of the services it will provide you, and its fees. With that thorough background work already done, when you ask your lawyer for a contract, all he needs to do is refer to the proposal for the scope of services and then focus on the legal terms, such as procedures for approving travel expenses, confidentiality, copyright ownership, avoiding conflicts of interest and when you can terminate the contract.
If you do the same kind of deal often enough, it will probably be cost-effective to develop a model contract. If you have independent sales representatives, a model contract will cut down your waiting time to get started with a new rep and give you a baseline set of terms that the last few people agreed to. If you develop a lot of products, ask your lawyer for a model nondisclosure agreement that you can take with you to manufacturers to protect your trade secrets. That will always be more economical than reacting to each new potential manufacturer’s form nondisclosure agreement. Instead of starting from scratch each time, your lawyer can tell you if the changes the other person proposes are reasonable.
There are two opposite approaches for starting every negotiation. Some lawyers try to get every possible advantage over the other party, while some are more flexible and start with terms that are reasonable compromises for both parties while trying their best for a good deal for you. Sometimes you can get another person to agree to a one-sided contract where everything is stacked in your favor, but most of the time you will get pushback on every issue. While you are haggling for negotiating superiority, your competition will be out making deals and moving forward. As Lincoln pointed out, if you need to win on every point, you could be the real loser because you will spend too much time and money arguing. To make matters worse, everyone will start out suspicious of each other’s commitment to the venture.
When your potential business contacts give you drafts that have security protections so they can’t be copied or changed, the only way to comment on them is to print them and handwrite on them. Even worse, when the next version comes back, the lawyer will need to proofread it word for word. That’s another waste of billable time. When you get a draft, make sure it isn’t password-protected—and if it is, ask for a copy that can be redlined. Then all the people who comment on it can add their comments and compare versions electronically.
Sometimes you need to put a deal aside while you focus on other priorities. There are often very good reasons for ignoring a deal for a while. But if too much time passes, then everyone will have to review the full history and refresh their recollections about the goals of the venture. When time passes, you may be paying your lawyer to review old notes and make sure nothing was forgotten during the interim.
If a deal is important to your business’ survival, it merits a contract before you start implementing it. A contract can prevent misunderstandings and makes everyone focus on what they are contributing, what they are obligated to accomplish and what they are getting in return. A good contract may prevent disputes. It’s important to sign the contract before either person puts in a lot of effort or pays the other person because going in the parties are more likely to be reasonable. Once someone has already developed that software for you and you have paid 80% of the price, they are less likely to compromise over price or terms. A contract can help prevent misunderstandings and lawsuits that can take years to resolve and divert you away from your business, not to mention the expense for you, your employees’ time and your legal fees. Even if you do end up in litigation, a contract will set out the parties’ objectives and methods, and give a court a basis to try to discern the parties’ intents.
Most lawyers still bill by the hour, so it’s important to have an engagement letter with your lawyer that says what you have to pay per hour. Many states require lawyers to have written engagement letters depending on the circumstances of your matter. You should know if you have to pay your lawyer’s travel time or time spent waiting in court. Your engagement letter should spell out the rates that you will be billed for your lawyer’s young associates if any will work on your matters.
Many lawyers will negotiate alternative billing arrangements, and those may be an opportunity for you to save money. Some will cap the fees for a particular matter or give you reduced hourly rates in return for a guaranteed minimum number of hours of work each month. But, even if you don’t pay your lawyer by the hour, don’t fool yourself that you can afford to waste time. Your lawyer will build in the charges for anticipated wasted hours during the next project.
And don’t spend time worrying about your lawyer as you use him or her more economically. As Lincoln noted, a lawyer who doesn’t waste time will have business enough.
Many thanks to New York attorneys Miriam V. Gold and Marilyn A. Druck for sharing insights about how they deliver legal services efficiently.
This copyrighted article is intended to help make you aware of some of the issues that you may face, but it is not exhaustive and does not constitute legal advice. You should consult your lawyer for legal advice about the particular circumstances of your beauty store business.
Jean Warshaw is a lawyer in private practice in New York City. She provides advice on business and environmental law. She can be reached at 212.722.2240.