Lawyers Profit From Our Due Dilligence

I spoke yesterday about my friend starting a new business and seeking out my business experience advice and decided today that I want to add to that post with a typical entrepreneurial story regarding legal advice and their age old question; To use a lawyer or to not use a lawyer?

When we start a new small business we generally have most of our financial resources already in the business. Therefore, when trivial details like business contracts need to be signed a lawyers opinion and advice is generally sacrificed. I have signed many multi-million dollar contracts over the years and live by the opinion that every contract can be broken, it's just a matter of weighing the risks against the benefits as well as the level of probability (high or low) if and what damages would be incurred under various scenarios. So seeking out a legal opinion isn't something I would do in all cases. However, if you see high risk and many pitfalls in a contract then you must seek a third opinion and generally a lawyer is your best and safest bet. But remember that not all lawyers are experts in every aspect of business.

A lawyer (not all lawyers) will tell you yes I can help you with your contract evaluation and even negotiation but is really only interested in the hourly fee they can collect from you during the soon to be lengthy and protracted process. Your proper due diligence may become your lawyers next Goose that lays the Golden Eggs.

As is the case in most professions, the legal profession has specialists. Using a specialist in the evaluation of your business contract may save you money in the long run. Also, remember that theirs is a legal opinion and not necessarily a business opinion and should be only one of many opinions you receive. For example; you may have an opinion from your financial advisor, your accountant, your operations head, your sales department, etc. At some point the buck stops with you and you have to make a go or no go decision. And on occasion, it may be against the advice of your lawyer. That's just business. Anyway, back to how a specialist can save you money, a specialist who has seen similar contracts and clauses before can speak from experience and get right to the potential problem areas right away. They can also advise that the contract is a standard contract for this industry and advise of it's expressed and implied intent and then leave you to decide to go or no go on the execution of the agreement. An example of this is franchise agreements.

A typical franchisor - franchisee agreement is written to protect the franchisor. That is to say, to protect the existing franchisees and of course their investment. If you are considering a franchise then you want an agreement to be written this way. To protect you as a new franchisee. In fact, any franchisor who is prepared to re-write their agreement for you is really saying, no protection for you, we are only interested in your money. If you experience that kind of accommodating franchisor you should turn and run away as fast as you can. They are after your wallet and you are about to be mugged. In this franchise example, if you are speaking to a contract lawyer but not someone who specializes in franchise law then you will get a lawyer who will charge you by the hour to get the franchisor to re-write the agreement to be more fair to you and if the good franchisor is not prepared to re-write their agreement then you are just throwing your money to the lawyer in the form of a golden egg. A specialist in franchise law will recognize a standard franchise agreement, highlight the meaning of particular clauses to you and then generally say, it's a standard franchise agreement, do you want to do the business or not? If you do then sign the agreement. In this scenario, the legal specialist just saved you a great deal of money.

Don't let the lawyers profit from your due diligence.