Small Business Risk Management – Three Insider Tips That Can Save You a Lot of Money
I don’t know who first said it. But I am often reminded of the illustrious observation: “It isn’t what he doesn’t know that scares me. It’s what he knows for sure that just ain’t so.” Most of the time, business decision makers are highly skilled at identifying the root of the issue. They know how to recognize the important aspects and throw out the red herrings. Without that skill, they would not last very long in the world of business. But they too can be victims of their own prejudices and misconceptions. With all of the hype about our litigious society and how easy some think it is to sue companies and get huge awards or settlements, it’s easy to forget that the business person on the other side almost never wants a law suit any more than you do.
Many wasted opportunities could be leveraged by small business owners if they had a better awareness of the other company’s aversion to litigation and willingness to take reasonable measures to avoid it. Entrepreneurs use a lot of time finding ways to make it easy for their customers to buy. It is amazing how little time some of them use thinking about ways to make it easy to resolve disputes without resorting to the ugly distractions of mediation, arbitration, or litigation.
With that in mind, here are some facts and shared sense ideas that could make a big difference in your business;
1. You don’t have to sign everything that is put in front of you
Most sets contracts are not written in stone. And many companies will accept minor changes. People are sometimes afraid to make already the slightest change to a contractual document for several (usually imaginary) reasons. They are afraid this will automatically get the lawyers involved making everything more expensive and slowing down the time of action. But in my experience, that fear is usually unfounded.
Let’s say you have read over the contract and found that you will be billed for late payments if your payment is not received within thirty days. Your typical schedule for processing accounts payable does not exactly match the other company’s billing cycle. And it is quite possible that your payment could arrive more than thirty calendar days after a given invoice. You take their contract, draw a line by that sentence and write above the strike-though changing thirty days to forty-five days. You then fax or email the alternation document along with a phone call explaining why you need this change.
If this was a serious concern for you, it has probably come up before with some of their other customers. If so, they already know whether or not they can live with this change and will either approve or deny it right away. Notice that I did not suggest simply calling them without sending a redlined version by fax or email. That is because this makes it too easy for them to say no. It also places the responsibility of making the change on them. In their organization, that may average passing the document on to another gate keeper who manages contract documents. For them, it has just become much easier to tell you their company never does that than to work with you. however, if you have already submitted a signed contract with the change already made, it is often easier for them to record the “sale” and course of action it than to go back and forth over it. If your change has not been requested and clearly resolved before, there is nevertheless a good chance that what happens next will not create the additional cost or delay that you fear.
In that case, the next step will probably depend upon the size of the other company. If the other company has less than 500 employees, there is a good chance it does not have an in-house attorney. Those companies usually address these issues by having some manager who thinks he knows the law and makes decisions about contract language all the time, or by outside counsel to whom they send important contracts to review. If they have the internal manager that thinks he or she knows as much as a lawyer, the decision will be made quickly anyway. Otherwise, they may be reluctant to incur the expense of outside counsel to make such a purely business decision and will make the decision closest. If the company has 500 or more employees, it probably does have an internal legal department. In that case, they usually have the resources in place to deal with minor change requests very quickly.
If your concern is not a purely business issue, such as legal boundaries affecting liability or choice of law and where law suits must be filed, you really should consult with an attorney before you sign the silly thing.
2. You can almost always settle your disputed debts for less than the complete amount.
What if you have received invoices with which you disagree and have not been able to resolve your differences? The demands have gotten uglier. And now the other company is threatening or more usually (implying) litigation if not paid in complete by a specific date. For them, it is now necessary to weigh the cost of retaining a lawyer and the risk of losing against playing this out against the bird in the hand they could get by settling now. Unless you signed a contract that says the loser pays attorney fees, odds are they will not collect attorney fees already if they do win. So the possible cost of going that route could be meaningful for them.
The fact of the matter is that with the exception of companies such as the insurance industry whose business structure anticipates a steady stream of law suits, most businesses hate law suits. They view them as an enormous distraction and a waste of their time and resources. Very large corporations with their own legal departments have the luxury of making a pure cost/assistance examination before deciding whether to include in an avoidable law suit. But for small businesses, the cost is too unpredictable and just too far removed from the processes and infrastructure upon which their business form is based. consequently, unless the disputed amount is very large, they will almost always seriously consider any reasonable offer just to get it off their plate. However, they probably will not agree to settle for what you asked. So make your first offer at the minimum two iterations lower than what you expect them to take.
3. You don’t always “get what you pay for” when you retain a Big-Gun law firm for legal sets.
As in-house counsel for an information technology company, I have worked with several of the largest law firms in St. Louis over the years. I have also worked with some of the best lawyers. But some of the best lawyers do not work for the biggest law firms. In fact, some of the best Missouri lawyers I know are only practitioners or from small firms. When you consider what you get versus what you pay for, going with the Big-Guns doesn’t always make the most sense. Big firms have the advantage of a large pool of experiences and resources to draw from. But they will not always give you the best results for the least dollars.
Most lawyers will tell you that until an attorney has been in practice for at the minimum five years, the level of experience could be a big factor in the results you are likely to see. I am sure there are exceptions, but in general it takes about five years of real world experience for an attorney to develop the skills to do his or her best job for you. When you first bring your case to a big law firm, you will probably speak with a partner (translate that to average you will pay from $250 per hour to $500 per hour or more for the privilege). There is a good chance that most of your direct consultation will also be with a partner. But much of the work including drafting of legal documents, research, and sometimes already negotiations with legal counsel for the other side, will be performed by associates or paralegals. Associates typically have less than five years of experience and bill at about the same rate (if not more) that you would expect to pay the attorney handling your case at a small firm.
Compare that to the sets you get from a small firm. Most small firm lawyers came from the large firms and/or the corporate world. There is a good chance the small firm lawyer that is billing your sets at $175 per hour was having his sets billed at $275 per hour before he left the big firm. They typically have many years of experience and bill at or below the rates you would pay for the work of an associate at a large firm. If you retain a competent lawyer from a small firm, she knows her own limitations. If a lawyer from a large firm is needed. The small firm lawyer will let you know and with your approval, will not hesitate to bring them in to work on your case. The difference is that you decide when and if this will be worth the cost. And there is no motive for the small firm lawyer to encourage you to incur the additional expense if it is not necessary. To save money and get more value, it makes sense to consider retaining a small firm attorney.