Starting a Business is Hard
There are several moving parts. In addition to figuring out your business plan, securing financing, insurance, and a place to operate, you have to worry about actually producing the product or performing the service that will pay the bills. And that doesn't even include concerns like employees, vendors, or licenses - all part of the 800 lb. gorilla called "overhead."
When you're responsible for juggling all this, it's easy to overlook things, especially if you're a first-time business owner. Even if the costs listed above are ones you may have considered, there are often hidden costs that end up draining a business's resources. And some of those hidden costs are legal fees.
Have you included legal fees in the cost of starting your own company?
Most entrepreneurs have at least a vague notion that they will need to deal with a lawyer at some point during the startup phase. If not for reviewing lease agreements, drafting contracts, or filing their organizational documents, then perhaps for crafting employment policies, reviewing vendor contracts, or providing regulatory counsel. These are just some of the upfront legal costs that entrepreneurs can anticipate.
But not all entrepreneurs take to heart the reality of hidden costs.
The people who don't get it are the same ones driving leased luxury cars while barely netting enough to pay the rent.
The savvy entrepreneur, however, knows that not all expenses are the same. For many tasks, taking the do-it-yourself approach will save money, which is crucial in the startup phase.
Unfortunately, many business owners take the same approach when deciding whether or not to retain an attorney for their business.
I can hear it now, "of course you'd say that. You're a lawyer."
But before you get too cynical, let me explain what I mean.
Depending on your jurisdiction and specific business situation, hiring an attorney to prepare your business organization documents could cost anywhere from $500 to $5,000.
These tasks could include:
- counseling you on what type of business structure is best for your business, e.g. LLC, corporation, LLP, etc:
- filing your business with the appropriate state agency;
- securing your tax identification number;
- drafting your operating agreement or bylaws;
- establishing your corporate minute book; and
- keeping you in compliance with the various annual state reporting requirements.
Again, it depends on your jurisdiction, the specific needs of your business, the going rate for legal services in your location, experience of the attorney, etc.
Still, let's assume $2,500 for what you would pay for such service. If you're starting a business on your own, that is a lot of money. It is easy to see why, if you could do the above on your own, you would. But would you really save money in the long run? More importantly, do you want the risk of doing it yourself instead of hiring a lawyer?
Remember, there's a reason you hire a lawyer. It's the same reason you hire a house painter. You believe someone else is better equipped to do the job that needs to be done.
In the above example, you pay a fee up front that, in the life of your business, is small when compared to the amount of profit you will net after building on a firm legal foundation. The legal costs of amending a poorly-drafted incorporation document or in litigating a breach of contract claim based on a vague agreement will dwarf the $2,500 you could have paid and then never had to deal with it for the life of your business.
Be smart. Do what you do best.
You started your business because you offer something unique to the marketplace that only your talent, vision, skill and determination can bring about. Make sure you lay the foundation that will allow you to do what you do best.