Pay your lawyer less

Written by Stephen Bradford

As an entrepreneur, you are a skilled deal-maker. But do you use that talent when it comes to negotiating more favorable fees from your lawyer?

Yes, you read it right the first time: you can bargain with your legal counsel. And despite the icy reception your request for a price break might engender, you should never be afraid to raise the issue of reduced fees.

To help you negotiate from a position of knowledge, here is PROFIT’s inside look at six tried-and-true approaches that could save you thousands of dollars in legal fees each year.

Ask for a discount

Like any well-run business, law firms hate to see a profitable customer walk into the arms of a competitor. To get your lawyer’s attention — and an easy discount — tell him you intend to shop around for a better deal. In today’s tight business environment, many law firms are giving discounts of 5% to 10%, just for the asking.

Pay actual costs on disbursements

The running joke is that law firms make more money from photocopies and faxes than from their lawyers. That would be funny if it weren’t partly true: most law firms set disbursement rates at several times their actual cost. It’s not uncommon, for example, to be charged 25ÀšÃ‚¢ for a photocopy that cost a nickel. Another high-margin area is long-distance phone charges — you pay the highest published rate, while your law office takes advantage of substantial bulk discounts. It all adds up: a $40,000 legal bill is likely to include $2,000 in disbursement charges that cost just a few hundred bucks. Don’t stand for it: tell your lawyers you’ll pay their costs, or you’ll walk.

Request a billing sheet

Billing sheets are of great value to entrepreneurs. They’re detailed accounts of every minute of time being billed, by whom and for what; with that information in hand you can confirm, for instance, that only agreed-upon work is being billed and that junior (i.e., low-cost) people performed the low-value tasks. If anything looks inappropriate, challenge your lawyer. Though you need to ask for billing sheets, they should be readily available in paper and electronic form.

Start a prepaid plan

Many entrepreneurs have routine and simple legal needs, such as initial legal queries or counsel’s attendance at board meetings. Such services can be bundled together and billed at a fixed rate. This way a meeting or phone call, whether it runs 15 minutes or two hours, costs you the same amount. While most lawyers refer to this as a “prepaid plan”, you don’t actually pay until the end of the month.

Fixed-fee arrangements are also attractive because the meter isn’t running every time you pick up the phone. That way, you’re more likely to keep counsel in the loop, which could help you avoid legal messes. Believe it or not, your lawyers can actually benefit from more frequent communication with you: the more they know about your evolving business, the more opportunities they can spot for providing their services.

Negotiate budgeted fees

A budgeted fee is a slightly more complicated and more flexible cousin of the prepaid plan. In cases in which there is some predictability to legal work, such as in structuring a financial deal or drafting a shareholders’ rights plan, you can ask your lawyer to work to a mutually agreed-upon budget for a given job. At the end of the task, any budget overruns are analysed and you and your lawyer then haggle over how much of the overrun you should pay.

The strength of this approach is that it encourages law firms to be more frugal with their staffing. Because they know they may end up absorbing overruns, lawyers won’t pad the invoice with billable hours that could have been avoided or assigned to lower-priced staff. You also get an idea of the legal costs of a project in advance.

Save on retainers

Lawyers typically demand a retainer to cover future legal work and expenses incurred on your behalf — no matter how far off those costs may be. It’s great for their bank accounts, but hard on your cash flow. But you can reduce your retainer by promising to pay your legal bills within 30 days — and actually do it. Such good-faith dealing can prompt your lawyer to cut his or her retainer by as much as half.

Taken together, these approaches can save you thousands of dollars — all yours for the asking.

Before becoming a financial writer, Stephen Bradford spent a decade as the controller of a major law firm.

© 2003 Stephen Bradford

Originally appeared on PROFITguide.com