Operations

The Bonds Of Trust

Posted on February 1, 2004 by LCT Staff - Also by this author

Great legal advice can make or break a small business. But how do you find an attorney who understands the unique dynamics of your industry – including the numerous regulations imposed by government – and who is also effective, available, and affordable?

Even before you begin your search for counsel, you should rethink the structure of your business so that you do not need to rely heavily upon attorneys to remedy recurring business problems. Loss prevention and risk reduction are the two most effective strategies in lowering your legal bills.

Therefore, it is imperative to generate and maintain detailed business records. Many of the legal problems confronted by small business owners are the direct result of sloppy or nonexistent documentation.

Due to time and resource constraints, companies often fail to perform the essential tasks that reduce risk and limit loss. One such task is performing a background credit check on new clients. Even when a new prospect is asked to fill out a credit application form with a personal guarantee, the form is often filed away and the information is never thoroughly researched. This is a grave mistake, especially when the references are merely friends of the applicant.

Another element of maintaining detailed business records is to issue written contracts and invoices to customers. Some owners are reluctant to do this out of fear that the client will be scared away. However, documentation avoids misunderstandings and provides the necessary backup in court to prove your case.

Seek out attorneys who use prevention and risk reduction as a part of their legal practice. In medicine, it is easier to prevent disease than to cure it; the same is true of business ills. Every time your business extends credit, it is essentially lending money. Can this new client pay your firm on time? If not, your business will be financing someone else’s failing enterprise.

I often advise businesses to limit the outstanding receivables from any particular client in the limousine business to $1,200. This way, if the customer is not paying its bills, your losses are capped and you can use the small claims court – generally without an attorney – to collect the debt. (The New York State Small Claims Courts, beginning Jan. 1, 2004, has jurisdiction over money disputes up to $5,000.)

Another important task is to upgrade your business knowledge. Many colleges and trade groups offer inexpensive courses on ways to improve your business. You should also visit your local public library. Review the books and magazines geared to your industry. Some libraries ask patrons what books they should acquire. This is an excellent opportunity to ask for the books and tapes that will help your business. I often take out audio tapes on business to learn more while I commute.

Aside from prevention, you must make sure that you effectively communicate your needs and questions to your counsel. The No. 1 reason business owners and lawyers end up in disputes is because there was a lack of communication over the nature and scope of the representation, how much it will cost, and what the legal system can actually do to resolve business problems. All too often, clients find the judicial system to be slow, expensive, and insensitive to the needs of the litigants.

Here are some additional tips on maintaining a successful attorney-client relationship:

* Use different attorneys for different types of lawsuits. You would not ask a cardiologist to check on a knee disorder. The same advice applies to the legal profession.

* Do the basic work yourself. You can draft simple but comprehensive forms that will protect your rights should they need to be enforced. Once an attorney is hired, the attorney can make sure that the forms are correct from a legal point of view.

* Demand monthly invoices and read them carefully. Check for billing errors.

* Pay your lawyer's bills on time. Lawyers, just like other business owners, treat clients who pay on time much better than those who do not.

Richard A. Solomon is the author of “Winning in the New York Small Claims Courts, a Simple, Step-by-Step Guide for Everyone.” He lectures on legal issues of interest to small business owners at the Georgetown University Law Center, Long Island University/C.W. Post College, the New York Public Library, and at the Learning Annex. Visit his web site at http://smallclaimsbook.com

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