I grew up in the New York metropolitan area hearing radio commercials by Sy Sims, the retail clothier, who always used to say “an educated consumer is our best customer.” Sy recently passed away, but his message offers a smart way of controlling your company’s legal costs too.
Legal fees have always been under attack and a source of countless lawyer jokes. But with the current economic climate putting even more pressure on businesses, finding alternate means for valuing legal services instead of the commonly used hourly time and material model has become more important than ever. This is especially true for small companies, where high priced legal fees can quickly consume the value of a deal.
One simple way to manage costs is to have an honest discussion with your lawyer about the nature of your transaction. That’s what one firm I know of did in connection with the sale of a small business where the deal was on a tight budget and tight timeline.
Instead of letting the deal get bogged down in a contentious due diligence process, the firm helped the client sort the wheat from the chafe. In other words, they discussed the pros and cons of a detailed due diligence process and the potential post-closing financial exposure from breaches of representations and warranties in the asset purchase agreement. With a better understanding of where the risks were, the business owner who was seeking to cash out his sweat equity was in a much better position to decide how to invest his legal spend.
Another helpful tactic used was an “all hands” conference call between the parties to review the deal documents for the purpose of targeting those areas that truly impacted the viability of the transaction. This no nonsense approach limited the legal jockeying and negotiations to the issues that really mattered. It saved both time and money.
The key to making this kind of successful arrangement is to become an educated customer so that you can take appropriate risks with confidence and to work with counsel who doesn’t make a mountain out of every proverbial mole hill.
Once you achieve that combination you’ll have an unbeatable team that can help steer your business forward with confidence.