October 23, 2009 (Original publish date) • By Dennis Beaver
“I recently lost my job as a claims adjuster with a large insurance company in Fresno and decided to go into business with my brother-in-law, Dan. We’re negotiating to buy an office-cleaning business from a member of our church. Dan and I are both in our early 40s, had some college and we consider ourselves to be fairly knowledgeable, able to understand contracts and handle challenges of the business world.”
“We have been reading your column for several years. Our wives insist that we ask you if it is a good idea to involve an attorney before the sale of the business goes through, or if we should wait to see if any legal problems come up later. Also, we have heard pros and cons about having a lawyer on some sort of a monthly retainer, and would like your thoughts.”
“Without trying to sound insulting or sarcastic, we are trying to save money, and know that lawyers can be expensive. If we don’t need a lawyer at this time, the money saved will go to other needed things. Thanks. Burt, from Kingsburg.”
Pay a little now or a lot more later
“Your reader has asked an extremely important question,” White Plains, N. Y. business attorney Andrew Karlen commented when I read him Burt’s e-mail. Karlen has written extensively on these issues, and gave me one of the best explanations as to why Burt’s thinking is often flat-out dangerous.
“One of the biggest generators of large legal fees is people who are not willing to spend money for smaller legal fees at the right time. What tends to drive lawyers crazy are clients who are in the process of buying a business, but wait to hire an attorney until after the deal has been negotiated, and then simply to prepare the paperwork.”
“When that happens, it’s no surprise that we find real issues, such as tax problems or things the parties may have done that are not good for either of them. Then, getting it back on the right track can be expensive,” he points out.
“Let’s say you plan to buy a business, but do not know the difference between a stock sale or an asset sale. The differences are huge and can be very meaningful, in terms of taxes you’ll owe and liabilities for all kinds of things. Especially when you’re thinking of buying a business, you absolutely must have a CPA and business attorney involved. It can easily be financial suicide not to,” Mr. Karlen maintains.
“Often, we find that clients have not asked the right questions, because they simply did not know what to ask. This is critical. Success in business is a combination of being good at what you do, and having an easily accessible professional support system. I tell our clients that my job is to keep you out of trouble. It isn’t what you pay me; it’s what you won’t have to pay.”
A monthly retainer helps keep you out of trouble
Often people who are going into business for the first time have had little contact with lawyers and are understandably afraid of what might seem as high hourly charges to have simple questions answered. Business lawyers will tell you that most minor problems can be taken care of with a phone call, but so often that call is never placed. So, what starts out small, can rapidly get very large indeed.
“If you’re in business, you need access to a good lawyer without the fear of high charges. That’s where having a lawyer on a monthly retainer works well,” Mr. Karlen believes.
“Once a business is up and running, questions always come up. Business issues almost always have a legal connection. For example, not being paid by a customer is both a business and legal issue. When you have a local attorney on retainer, then it’s easy to pick up the phone and discuss the problem, and not worry about getting a bill for just talking.”
“A lawyer provides advice — that’s what this profession deals in. The idea of a monthly retainer is simple. The client pays a reduced rate for access to the lawyer, and this easy access buys peace of mind. If I can keep you headed in the right direction — away from making a wrong decision — then you save money. In fact, I earn less, and like it that way,” the New York business lawyer told me.
So, let’s say that this idea is interesting to you. What should you know before signing up on a monthly retainer? What are the services you should expect? What’s reasonable to pay? We’ll answer those questions next time.
Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.