How to cut legal fees when starting or selling a practice

Some of my colleagues in the legal profession might not like it, but I am going to tell you how to save a bundle in legal fees.

Our office has been handling an unusual number of practice purchase and sale transactions just recently. Up until now, I hadn't really been thinking all that much about where the buyers and sellers have been spending their legal fees. Then, in a sports bar in Albany, New York, I heard myself telling my son about all the unnecessary professional fees clients often incur during a practice sale. At that moment, I had a brainstorm: Maybe I should share these money-saving realities with the readers of DVM Newsmagazine.

Now, if you are not in the market to buy or to sell an animal hospital, don't be dissuaded from reading on; these general principles apply to virtually any transaction that you might be involved that entails the use of legal or other business-related advice. Furthermore, the potential savings in legal and other fees can be substantial and might be available for more useful things, such as start-up capital, wage increases for valuable yet underpaid employees and other frivolous things like that. So here it goes:

You, not counsel, drive the deal.

If there is a stain on your trousers when you drop them off at the laundry, do you just hope that somebody notices? Of course not. You bring the stain to the counter person's attention, and they attach a little sticker near the spot. Then, when you pick up the pants, you hold them accountable.

Sadly, many dry cleaners are more scrupulous about attention to detail than some law and accounting offices. So ... don't wait for a phone call from the law office telling you that your new limited liability company has been formed. Don't just hope that the firm has timely filed your application for a Subchapter S election with the IRS. When your lawyer or accountant makes a recommendation or explains a step, write it down on a checklist. Get a time commitment for completion. Then call to find out if the work has been completed.

There are two benefits to having a checklist: First, business professionals such as attorneys know that they have to pay closer attention to clients who are on top of, or drive the deal. These clients call; they fax; they e-mail, and some would say they are high-maintenance, to be polite. Donald Trump's lawyers probably have some choice pet names for him, but it works, and it could work for you, too.

Second, if you have a checklist, lawyers, bankers and accountants know that you know when a deadline looms. Therefore, it's hard to pass the buck when a closing has to be delayed or a rush filing fee has to be paid. Accounting and law firms pay for screw-ups that are obviously theirs. Questionable screw-ups are paid for by the client.

Much of the footwork can be done by you.

It's the information age, buddy. Most of the information which used to be available easily only to business professionals is now available to all. Therefore, you can save a lot of money with a small-time investment by doing your own background research related to your practice purchase, sale or start-up. Some things that the government requires are now routinely done online with fill-in forms. Often, these actually are more easily done by the veterinarian/business owner than by his or her lawyer or accountant.

Caveat: You can only know if you are saving money through doing your own footwork if you receive detailed invoices from your business professionals. Exactly what does this mean?

How lawyers and accountants bill clients

I have a dog groomer friend who is getting ready to sue his divorce lawyer for charging him for work that was never done. "How do you know that the work was never done?" I asked him. "Well," he says, "I just keep giving him $1,500 or $2,000 when he asks for it and yet, he keeps postponing hearing dates for no good reason."

Can this groomer explain to me exactly what was paid for that wasn't provided? Nope. He can't even tell me what has been done because he never asked for an itemized accounting of charges. Therefore, there is no way to prove that the lawyer has under- or over-charged. There is no way to know if the lawyer is billing for consultations and appearances, or for photocopying and water-cooler time.

Lawyers and accountants sometimes charge this way (not a good idea). The better way, though, is to require a retainer agreement at the outset of the matter, possibly with at least a verbal estimate of the time involved in handling the matter in an uncomplicated similar case.

The best way to retain a lawyer or accountant is to have a properly drafted retainer agreement that includes a statement of hourly billing rates. There is nothing wrong with paying for photocopying or faxing, but you need to know the amount up front. Certainly, you should not pay a partner's hourly rate to have ministerial work performed.

Law and accounting firms are not some kind of magical, mystical place where things cost whatever the firm says they cost. Rather, internally, they work more like a body shop. Time is billed by partners and associates by the hour, or more accurately speaking, 10ths of an hour. Each 10th is six minutes.

Your business professional should itemize these hourly charges, and the bill should itemize partner, associate and secretarial/bookkeeping charges. If you get an invoice like this, you will know what has and has not been done. And if something seems expensive, you will know what to request more information about. I promise that the firm knows how much time was spent on your account; it shouldn't be a secret from you.

Next time, I will detail the specific legal steps that are involved in buying, selling or starting up a practice (a rough checklist) for you to bring with you to the bank, the accountant, the lawyer, and, if applicable, the Small Business Administration. Docs who are buying into a practice can use the piece to make sure that their potential partners have followed the steps previously and don't have record-keeping "skeletons" in their practice books.

Dr. Allen is a partner in Associates in Veterinary Law PC, a law practice specializing in business and legal counsel for veterinarians and their families. He can be reached at www.veterinary-law.com, or call (607) 648-6113.