Small Business Feature by Clive Rich: Legal representation and the small business

November 22, 2013

You can view the original article here.

Good legal protection is often overlooked by small business owners. Clive Rich, of online legal service LawBite, explains why it’s worth looking into.

As a small business owner, you’ve probably shed blood, sweat and quite a few tears building up your company from scratch.

Whether you run a start-up or a long-standing family firm, you’ve tried to plan for everything the business world can throw at you.

Business plan – check. Long hours – check. Enthusiastic staff – check. Accountant – check. Lawyer – erm, maybe not.

The truth is few businesses ever consider that they might one day need the services of a lawyer. The prospect of complicated advice or contracts, and more importantly hefty legal fees leads many of us to bury our heads in the sand, which is when the law can become stressful, complicated and costly. Resorting to the law after events have created their own momentum is never a good place to be.

Why are SMEs putting off using lawyers?

Every business will need legal advice sooner or later. Rather like choosing a bank account and an accountant for your company, one of the first services you must enlist is that of a lawyer. And in this holy trinity of essentials, striking the balance between premium quality and what’s affordable is crucial. But this is easier said than done.

Earlier this year, a poll of 9,000 small businesses by the Legal Services Board (LSB) found that many SME owners are reluctant to use professional legal services at all.

A mere one in eight small business owners felt lawyers provide a cost-effective solution to solving their legal needs. The reason was what they perceived as the exorbitant charge-out rates of lawyers.

The upshot is that many SME owners are afraid to pick up the phone to a lawyer lest they be faced with the tick-tock of the hourly rate clock. Yet this approach can put a business at grave risk if it leaves itself open to litigation. It can also leave it in a vulnerable position when it comes to trading relationships. Margins, profits and exit values can all go west if business is not taken care of contractually.

My company has examined the fee structures of a number of high street lawyers and larger firms. We found they charged between £250 and £600 for only an hour of their time.

Yet the average start-up owner may not even earn that in a week. With an hour’s phone call to a solicitor costing the same as a week’s salary, no wonder many SME owners are tempted to “wing it” and try to handle legal matters on their own.

What might an SME need legal assistance for?

Anything and everything is the answer! It might be that you’ve recently taken on a new member of staff or a consultant and need to draft a safe, secure contract.

Perhaps you’re thinking of selling some shares in your company, or taking in investment or a loan and could really use some legal guidance on how this might work and where you stand. You might even be in the middle of some tough negotiations with a new business partner and want to reach a successful outcome with as little fuss as possible. Maybe you are commissioning software, licensing content, distributing, supplying or manufacturing.

And what about the worst case scenario? The prospect of a litigious client suing for breach of contract, or a disgruntled ex-employee accusing you of unfair dismissal and threatening an employment tribunal – all very emotional, time consuming and potentially expensive.

Understandably, for matters of this nature, you might prefer to settle out of court. But even if you take this route, you will still need expert assistance from a top legal team or support in mediation. So whether it’s day-to-day legal matters or more critical legal problems, DIY law is highly risky.

While we’re not in the business of scaremongering, it is clear that the last thing businesses should do is bury their heads in the sand. Taking a few prudent steps now will protect you and your hard-won assets in the future.

What is the solution?

Our view, having been in the legal profession for many years, is that the law must becomes more accessible for everyone, and particularly for small businesses. Rather than leaving business owners to ‘chance it’ on their own, law firms ought to be actively winning over their SME customers.

We are not slagging off the legal profession – many great lawyers provide excellent value and for bigger companies high-cost, complicated advice can seem valuable too. However, we’re calling for the ‘democratisation’ of the law, ie making readily available the legal advice small businesses need to survive — and in a language they can understand. We’re not alone. The LSB’s chief executive, Chris Kenny, says that for businesses this legal counsel and practical help are ‘almost as important as access to bank capital’.

Never forget that, as you grow your business, having adequate legal protection is as important as profit.

 

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