LEGAL INSIDER
Seven Simple Ways to Law-Proof Your Business
During Tough Economic Times
By Kurt Andrew Schlichter, Esq.
W
hile the economic downturn will increase most
businesses’ exposure to legal problems, it can also
be a good time to get your legal house in order.
Companies and individuals in trouble often look to the law
as a quick way to avoid debts or to collect on real or imag-
ined claims that in good times would be put aside. But
when things are slow, businesspeople have the chance to
focus on legal matters
they would otherwise
exile to the backburn-
er, and many lawyers
will be eager to help at
discounted rates.
A small investment
of time, effort and per-
haps a little money
answering seven legal
questions now can
help your business
avoid enormous costs
down the road – and
maybe set you up for
even greater success
when the tough times
end.
1) Are Your Contracts And Agreements All They Can Be?
As a business lawyer, it pains me to say that many of my
clients’ lawsuits could have been avoided if they had come
to me sooner rather than later to talk about their home-
made agreements. Whether it is a partnership agreement
or a customer contract, a big part of every business lawyer’s
workload is devoted to undoing the damage caused by
poorly drafted, vague contracts.
Start with any agreement among your business’s owners.
Does it still reflect how you are actually running your busi-
ness today? Many arrangements evolve over the years, but
no one takes the time to update the actual written con-
tracts. Simple moves like changes in profit distribution or
responsibilities can be drafted by the parties themselves.
More substantial changes should go through your business
attorney.
10 S o u t h B a y B u s i n e ss I n s i d e r M a g a z i n e
Next, review your leases. Ensure your landlord is meeting
obligations – and that you are meeting yours. And where
your business is the lessor, the same applies.
Finally, take a look at your “standard” customer agree-
ments. Chances are that it has been a while since you up-
dated them. Make sure they accurately reflect how you
actually do business – clients are often just as surprised as I
am to see what their homemade agreements contain.
There are some things that you should seriously consider
including in any agreement, like an attorney’s fees provi-
sion. Unless contained in the agreement, parties bear their
own legal fees even if they win a lawsuit over the agree-
ment. Without a fees provision, litigation for sums under
$50,000 is often economically impractical because legal
bills will eat up most of the recovery.
2) Do You Have The Right Business Entity?
Many people do business as a sole proprietorship, often
called a “DBA.” That is not necessarily a bad thing – it is
cheap and simple – but from a legal perspective, it does
place the risk for the business’s obligations onto the own-
er. Incorporating or becoming a limited liability company
(LLC) can change that. Just as important are the tax issues
– your business lawyer and accountant should both have
input in deciding what is the right business form for you.
3) Do You Have Disputed Receivables?
When things are good, there is often little time to focus on
unpaid bills. But when things are slow, you have the time.
Keep in mind that your customers are having a tough time
too – in many cases there may be nothing there to collect.
Most of your customers do want to get you paid. If the only
way to get paid is a payment plan, agree to one. You can
also choose to settle a debt for less than the amount due.
Memorialize whatever you agree to in writing. Remember
the golden rule of collections: Better all of a little than none
of a lot.
The first step is to choose your fights. Identify the debts
you will probably never collect - you know who they are
– and pack them off to a debt collector. If you get a few
dollars down the road without risking any further effort, so
much the better. For the others, first try a personal phone
call. Be polite and constructive. If that fails, take the next
1 s t I ss u e 2 0 0 9
step and have a debt collector or your business lawyer do
the negotiating.
Some debts will require an actual lawsuit. Many lawyers
will charge $300 per hour or more. Consider a contin-
gency arrangement where the lawyer takes a percentage
of monies collected – the percentage can be 33 1/3 and
up. Go ahead and negotiate with your attorney – maybe
he will take 30 percent. Legal fees are not set by law, and
your lawyer might be willing to take a loss leader case now
to get future work when things are up and running again.
Understand that collections work can be time-consuming
for the lawyer, and be leery of any attorney who seems to
offer too good a deal. If he will not protect his own inter-
ests, then he certainly will not protect yours.
4) Do You Have Disputed Payables?
The converse applies to debts you owe. If you know that
your creditors are having a tough time, it might pay to call
them up and propose a deal – cash now for a discount.
Remember, suing you is just as unattractive for them as su-
ing a debtor is for you. It might also pay to ask your lawyer
to consult about some of your bigger debts – settling them
at a discount is easier if your lawyer has armed you with a
few good arguments about why a collections lawsuit might
not succeed. You can also ask your lawyer to handle the
negotiations, perhaps at an agreed flat fee.
5) Are You Properly Insured?
The best time to find out is before you get sued. Remem-
ber that insurance does two things for you – it pays the
claims against you and, equally important, provides you
with a free legal defense for covered claims. Review your
policies with your broker. You are looking at three things
– the type of insurance, coverage and exclusions, and pol-
icy limits. Start with your Comprehensive General Liabil-
ity (CGL) policy. This is the one that covers accidents and
injuries. Does it cover the type of problems you are likely
to have? For example, make sure it covers all of your em-
ployees’ accidents while on duty, including while driving
their own vehicles (yes – the law places you firmly on the
hook for negligence and even some intentional acts com-
mitted by your workers within the course and scope of their
employment… and “the course and scope of employment”
is construed very broadly). Also, make sure all your loca-
tions are identified in your policies, and review your “errors
and omissions” policy, which can protect officers of your
business. Make sure the limits are high enough to protect
you. Finally, make sure you have workers’ compensation
insurance.
6) Are You Complying With the Labor Laws?
The labor law field is booming and courthouses are
swamped with lawyers suing businesses on behalf of em-
ployees complaining of missed meal breaks and unpaid
overtime. There are plenty of resources out there on the
1 s t I ss u e 2 0 0 9
Web that discuss California’s numerous and convoluted la-
bor laws. Learn the rules and enforce them. It is stunning
how many savvy businesspeople fail to obey the law and
are shocked to find themselves facing huge defense fees
on top of damage awards and penalties. For more detailed
projects like creating an employees’ handbook, you should
contact your business lawyer.
7) Is Your Lawyer Right For You?
This is a good time to think about it, and a good time to
fix the relationship if it is not meeting your needs. Start
with the basics. Can you actually get your lawyer on the
phone? If you feel like you are always at the back of the
line, you probably are. Do you understand her bills? Your
invoices should clearly explain exactly what she is doing
during your billed time (but do not be surprised to be billed
for phone calls – after all, your lawyer is selling you her
time). Are things like faxes, copy and long distance charges
a profit center? Fortune 500 companies do not put up with
that nonsense and neither should you. Most importantly,
are you getting results commensurate with her rates? If not,
this might be the time to talk candidly with your lawyer
– she might just need you more than you need her right
now. And there is a fringe benefit to these tough times. If
you are not happy with your business lawyer, this is a great
time to shop your business around.n
 Kurt Andrew Schlichter is a business litigator and a partner
at Schlichter & Shonack, LLP, in Manhattan Beach, a six-at-
torney law firm primarily focusing on the representation of
businesses and businesspeople ranging from Fortune 500
companies to individual entrepreneurs. He writes frequently
on legal issues. Kurt can be reached at 310-643-0111.
This article does not constitute legal advice and does not
establish an attorney-client relationship. Consult an attorney
regarding your individual situation.
A small investment of time, effort and
perhaps a little money answering seven
legal questions now can help your business
avoid enormous costs down the road – and
maybe set you up for even greater success
when the tough times end.
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