One of the several advantages I enjoy from my solo practice, as contrasted to my former days as a partner in a large Bay Street law firm, is my freedom to actively shape and mould my practice. Lawyers in big shops are mandated to maximize their total annual billable hours and their hourly rate in furtherance of the firm business plan. Unless a client is a real cost-hawk, there is no incentive to enhance your efficiency. Some lawyers are naturally more efficient than others, but mostly the question is how much in fees will a client bear before squealing or leaving?
My practice perspective is a bit different. It’s not because I don’t want to maximize my earnings – I do – but rather, it’s different because I want to control my own destiny and skew my time towards the type of work and type of clients I prefer. Secondly, in working with small business, invariably owner-operated, total legal costs are almost always an issue, so efficiency and productivity are constant concerns.
It’s my view that it’s not just the absolute amount of legal fees: it’s the perceived value of the services delivered by the lawyer. Value is composed of a subjective mix of total cost, responsiveness, results obtained, quality of services, professional expertise and relationship. Value is rarely, if ever, simply a multiplication of an hourly rate times the number of hours spent. However, that calculation has become de rigueur though it is inappropriate in many instances – everyone understands it, so it has acquired a grudging legitimacy by both clients and lawyers for the most part.
The problem for the small business client has been that big law firms have become slaves to the rate X hours formula. Law firm CFO’s have cracked the whip to continually raise the hourly rates and to ‘capture’ all time spent on a file. High rates and heavy pencils on time sheets have made a lot of money for mega firm partners.
The other problem for small business clients is the reality that small deals or matters often involve the same or even more legal issues, problems and documents than do transactions that are 10 or a hundred times as big. Example: a $1.5 Million secured debt financing, or purchase of assets or shares, is almost always as timing consuming for the lawyer as a $10 Million or larger deal.
One of the factors is delicate: the service providers (lawyers, accountants, bankers) that do the big deals are real pros; they know how to do these things, they do lots of them, one after another, the talent is deep, and the clients usually don’t question what is being done – they’ve done it before. Smaller deals often involve service providers and clients who are much less experienced and expert. The professionals are obliged to spend additional time explaining the deal, explaining why they should or must do certain things, and then follow-up is needed for completion. It’s not always the case, but mostly it is.
So, the lawyer runs up more time on a smaller deal than for one ten times larger. The client has a hard time understanding why their little deal costs so much in legal expenses and accounting fees.
Coming back to my practice perspective, I strive to grow my practice of long term, growing clients, so I can’t take a ‘no prisoners taken’ approach to billing. My way of dealing with this ongoing issue – which is part of the value equation – is to encourage file efficiencies wherever I can. I constantly innovate my procedures, documents and systems, and there are lots of things that small business clients can do to create efficiencies and save on legal costs. Let’s look at some of these.
Some Tips (and Why)
1. Call your Lawyer at the ‘Right’ Time: better to be called too early than too late, so I don’t have to un-do something that doesn’t legally work, or re-negotiate terms unintentionally given away. Don’t let the lawyer control the deal, but do vet the proposed deal terms with your lawyer early on.
2. Ask your Lawyer for Checklists: and then use them! Use and respond to point form, not random narratives that inevitably leave out some items. This helps to avoid missing important steps, problems or action items. Deals are complex in details, too much to remember without a list.
3. Use Email Effectively: wherever possible, I use email as the main communication mode; I seek clear and detailed instructions, facts and contact info early; prompt responses by both client and I keeps things moving. If you don’t have an answer to something, say so in your response, don’t just ignore it. Be sure your answer really answers the question – it might take more than a couple words. If the emails go like this (each line a separate email message), it isn’t working for you or the lawyer:
A: Wanna go for lunch?
B: Sure, when?
A: Tuesday? Wednesday?
B. Sure, either is good.
A. How about Tuesday then?
A. Where shall we go?
B. How about Tom’s Place?
A. What time?
B. I dunno, what do you think, 12 or 1?
and so on, and on.
Painful, right? This actually happens. Emails aren’t conversations, like a chat room or phone call. Emails are more like memos. So, I might suggest something like this:
A: How about lunch tomorrow at 12 at Tom’s Place, meet you there?
B: OK, confirmed.
4. Take Notes, Please: clients who sit thru a two or three hour meeting on a complicated matter, without taking any notes, scare the hell out of me! Notes are needed to reinforce memory, provide a record, provide a basis for follow-up and serve as a To – Do List. The real deal pros use a bound notebook for all notes of phone calls and meetings on a transaction.
Otherwise, my experience is that I have to repeat advice, nag on items not resolved, progress is lost, and extra time is burned up. I just don’t believe that 99% of people remember most of the key points of a meeting without some notes. Sometimes, a deal will suffer a lengthy delay, and if there’s no notes of where things last stood, everyone will have to do a complete file review to catch-up. But, if you have a cumulative checklist, you’ll know exactly where you left off before the delay.
5. Agendas for all Meetings: you and your lawyer should read from the same point form agenda for all meetings to keep focused and ensure key issues are addressed. Usually, I prepare a short agenda for meetings and some phone calls.
6. Same Side Politics: different lawyers have different approaches, but I don’t believe my role is to be a mindless cheerleader of every idea raised. Clients want a thoughtful, independent view. So, hard questions sometimes need to be asked and answered, but that doesn’t mean I’m not on your side. Remember, your lawyer is the one person you can, and should for your own good, tell everything relevant to the matter. If you filter the information on important things told to your lawyer, disaster is inevitable.
7. No Question is Stupid: never go forward if you have nagging doubts or don’t understand absolutely everything. Never be afraid to ask any question – you’re paying a lot of money, it’s your time, and you deserve a clear answer to any question. No legal concept is too complex to explain – unless the lawyer doesn’t understand it!
8. Pay as you Go: I tend to bill ongoing work or long term projects on a monthly basis, as this tends to avoid nasty surprises for both client and lawyer. Some lawyers like to delay their billing on a transaction until after the very end of the file, because they think they can scoop a premium (more than hours times hourly rate) more easily. This may be true. Also, sometimes, a client can’t pay much until the deal is completed – a financing for example. However, my experience is that billing every 30 – 45 days works best for the relationship and cash flow management of both parties. If the client can’t pay until the deal is done, that might be fine, but it’s still a good idea to communicate how costs are adding up in the meantime.
9. Do your Homework: I frequently give clients the choice of doing certain aspects themselves to save money: getting copies of documents from third parties, pursuing consents and waivers, completing forms for governmental registration, reconciliation of factual information (especially financial stuff). If the client actually completes the item, it will permanently save legal costs. However, there are lots of times when the client’s time is more expensive (or scarce) than mine, and I’m happy to do these things instead.
10. Keep it Simple: Everyone declares allegiance to this axiom, but few actually follow it, especially in buying a business and shareholder agreements. Those are two areas that enjoy time-tested precedents and practices that do save time and money. My rule of thumb is “The smaller the deal, the messier it will be.” Lawyers use precedents to save both drafting time and interpretation risk if contested. Creating new and unique terms and structures is very enjoyable for commercial lawyers, but it costs!
I personally guarantee the regular application of one or more of these tips will save you much legal time and therefore, legal costs.