Small or medium sized businesses spend literally billions of dollars each and every year on their legal costs.

While I am sure that some of them are getting excellent value for money, I am equally sure that many more are paying way more than they need to.

This article sets out to explain how your lawyer or attorney put their charges together and arrive at that final figure. Understanding this process will allow you to review your own arrangements and from experience, probably discover areas where you can make savings.

There are many different factors that affect your lawyer or attorney’s final bill to you.

• Are they self employed or an associate with a law firm?
• How complex is the work that you require them to do?
• What is your fee arrangement with them?
• How much work do you give them?
• What expenses do they incur in representing you?
  • Travel costs
  • Deposition costs
  • Expert witness fees
  • Court transcript fees
  • Photocopy, fax and telephone costs

One Man Band Or Law Firm

It is not hard to understand that a large law firm with a big team of paralegals, researchers and carrying an impressive or intimidating reputation is going to cost you more than the local one man band.

It all depends on your particular needs and the depth of your pocket.

Complexity Of The Work

It comes as no surprise to find out that the more specialized the legal expertise that you require the higher the cost.

One of the advantages of using a larger firm of lawyers or attorneys  is that they normally have a selection of experts to call on when required.

This not only means that you get the skills that your needs require but also that you should only be charged for the time they spent on your case.

Fee Arrangements

Lawyers or attorneys generally use one of four fee arrangements:

• Hourly rate

• Flat rate

• Contingency fees

• Retainers

The fee arrangement that you agree with your lawyer or attorney will have an enormous impact on how much your legal costs are. So it is vital that you understand how the different arrangements work, and perhaps more importantly, why your lawyer or attorney may prefer one over the other to your loss.

Hourly Rate

No surprises here, you pay an agreed rate based on how many hours your lawyer or attorney spends working on your business.

Partial hours are charged normally at the rate of one tenth or one quarter of an hour.

So if your lawyer or attorney works ten hours on your business in any given billing period and you have agreed an hourly rate of $100, then you will be billed 10 times the hourly rate; $1000.

Flat Rate

A flat rate is where you have agreed to pay a fixed amount in return for your lawyer or attorney completing an agreed task or case, no matter how long that case may take to complete.

This is often agreed to cover routine and uncomplicated legal matters that involve filling out forms such as:

• Uncontested divorces
• Will preparation
• Business incorporation
• Lease preparation
• Some probate work

Contingency Fees

Contingency fees are usually agreed in cases where you could not afford to pay if you lost, such as personal injury or large damages claims.

Here the lawyer or attorney only receives a payment if they win the case, although payment of expenses in the completion of representation in the case is often included.

Contingency fees are usually set at 33 percent but in practice can range from 15 to 30 percent.

Retainers

Retainers are up front payments made to your lawyer or attorney. There are commonly 3 different types of retainer fees:

• Pure Retainer
  A fixed fee is paid to cover the services of your lawyer or attorney for a fixed term (usually one year) to cover all required work
• Case Retainer
  These fees are paid to retain the services of an attorney at the beginning of a case. It may be in addition to other fees agreed depending on what you have arranged with your lawyer or attorney.
• General Representation Retainers
  These are used to cover an agreed and predictable level of general services but usually they do not cover such matters as any extraordinary complex litigation. Often used to cover telephone consultation, document reviews and other routine legal matters.

That is a pretty thorough break down of your lawyer or attorney’s billing options.

Understanding them allows you now to review your own arrangements and make any changes that you feel would be of benefit to your own small or medium sized business.

This article was written by Brian K Fitzgibbon CPA.

Brian is an experienced accountant and small business consultant. He runs his own business, lectures extensively on small business topics and has checked out and valued many hundreds of small businesses for buyers.

Brian is also the author of the highly acclaimed and invaluable
"How To Value A Business And Buy It Without Fear"
A do-it-yourself guide for first-time and experienced buyers alike.

To download a FREE Chapter from Brian's book please follow this link: "HowToValueBusiness.com"

September 15th, 2009 | Tags: attorney, buy a business, buying a business tips, contingency fees, flat rate, hourly rate, lawyer, lawyer or attorney, retainer, understanding how your lawyer charges | Category: articles | Subscribe to comments | Leave a comment | Trackback URL  |