Amid a VC Cash Crunch, Startups Attempt to Trim Legal Fees at Great Peril

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Summary

  • Right now, the pandemic is making it difficult to secure startup funding, even for entrepreneurs with established track records.
  • That lack of funding is causing many founders to try and cut costs as they try to keep moving forward toward launch with legal fees being a prime target for their cutbacks.
  • Failing to invest in a sound legal foundation for a startup can have long-term financial ramifications.

The first thing you think of when you think of a lawyer is likely how much they cost; however, the truth of the matter is that they cost so much because they offer a valuable service. You need a lawyer to stay out of legal trouble, and this is even more essential for startup businesses.

Right now, as the COVID-19 pandemic is making it all but impossible for entrepreneurs to secure adequate funding for their early-stage ventures, many are trying to conserve cash by cutting legal costs, which can be substantial for a startup. While this will save money now, it is still inadvisable, even for experienced entrepreneurs, because this can lead to negative financial impacts in the future. Therefore, for founders in this unenviable position, here’s how to navigate this thorny topic without jeopardizing your new company. The good news is that they can still save some money.

What Does a Startup’s Lawyer Do, Anyway?

When you’re starting up your business, there is lots of information that you need to know. Do you have all of the required permits? Do you need extra insurance? What legal requirements do you need to take in a post-COVID world to avoid lawsuits? A single misstep can invite ruinous lawsuits at any point in the business’s lifetime.

These are all questions that a startup lawyer helps to answer. It might seem a little overwhelming, but a lawyer will let you know what you need to do step-by-step so you can get your focus back on outstanding customer service and getting clients through the door.

Is there any Safe Way for Startups to Cut Legal Costs?

Sometimes, bringing on a lawyer full-time can be overkill. All you might need to do is consult with one to see what you should be doing and then move on. On the other hand, there are also times that you need a lawyer to keep your business running.

When you are bringing in investors for your business, you need a lawyer. Whether the investors are there from the start or are fueling an expansion, you need a legal team to sort out the terms. When do the investors get repaid? What happens if you can’t meet your financial obligations?

These are all things that you need to sort out before you bring any investors in. This is where a lawyer comes into play. Sure, you can try to craft up all these documents yourself, but investors tend to know exactly what they are looking for, and if you don’t have a legal team to help you out, you can easily sign a bad deal.

Lawyers get you better deals, saving you a ton of money in the long run. Look at a lawyer as an investment, not an expense. But there may still be some opportunities to cut costs here and there to offset the pandemic’s effects. It is helpful to look at a breakdown of the many situations when a startup should consult a lawyer. Founders and business leaders who are trying to cut costs should consult this information before trying to handle this on their own.

Budgeting Your Legal Expenses

Determining your business’s legal risk is one of the most significant factors you need to consider for your legal budget once you get your business off the ground. At the same time, how do you determine how much legal risk you are even taking? Even those with the best intentions can encounter some accidental legal missteps. 

For example, according to Cohen Schneider Law, “behind every disruptive start-up, trailblazing school, enterprising business and organization are determined leaders, talented staff, energetic teams and supporting professionals, including forward-thinking, confident and strategic lawyers” who can help business leaders make the right decision for their future.

Once you know how much legal risk your business has, you’ll have a much better understanding of how much cash you need to have set aside in case a legal emergency occurs.

The True Cost of Not Having a Lawyer

Depending on your business, you might only need to sit down with a lawyer one time. What could missing that appointment really matter? It turns out that it could end up costing you quite a bit.

Maybe you’re missing a license that you need for your business or lack some necessary insurance. Or perhaps you’re just not up to date with all the current tax codes you should follow.

A lawyer can let you know what you need to be doing before a problem arises because if you don’t get all the necessary permits or insurance, you could end up facing tens of thousands in fines and could even potentially lose your business.

For example, what if you have this great idea but don’t file all the paperwork correctly for a patent? Someone else could come in and steal your idea, and there would be nothing you could do about it. Lawyers might be expensive upfront, but they save you tons of money in the long run.

Final Thoughts

You might think that you can save a buck by skipping a lawyer and figuring everything out yourself. Right now, the economy is creating plenty of reasons to try and do so. On the other hand, the truth of the matter is that you cannot cut corners in the legal area because you will just lock yourself into bad deals or skip over key regulations.

When looking for a lawyer to keep your business on the right side of the law, you want a team that specializes in startups. Make sure you partner with a team of legal experts to help ensure your startup takes flight.

 

Jacob Maslow is a native New Yorker with  five children. He left his payroll manager position after finding that his true passion was in writing, and has never looked back.

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