One of the biggest dilemmas faced by infant companies is a lack of operational cash flow. Setting up a new business offering and effectively launching it onto the market is a tremendous undertaking. It involves time, effort and money to grow a business. Furthermore, unexpected expenses are the norm, and traders often must decide between competing priorities. Unfortunately, many novice traders have insufficient funds to complete all work. Consequently, they neglect to invest in back-end legal processes because they simply cannot see the short-term value in doing so. This article will explore why your startup should budget for legal support.
Why is Legal Support Necessary For Start-ups?
There is an unfounded misconception that small businesses are immune to legal disputes. Thus, while many start-ups understand back-end legal support is necessary, many incorrectly believe it is a necessity they can put off until the business operates on a larger scale. At the very least, it is an insignificant risk from a cost-benefit analysis point of view.
The truth is that no business is immune from legal action, least of all small businesses whose operational practices often arise from ad-hoc and situational decision-making. Building business processes “on the fly” is a surefire recipe for disaster. Therefore, businesses must invest in well-drafted legal documents.
Likewise, you may also deal with other businesses that hand you lengthy, confusing documents. Signing these documents based on trust, without legal advice, can get you into difficult situations that cost you even more money to get out of.
Fixed Fees
Lawyers are notoriously expensive. Generally, lawyers charge by the hour. It is challenging to estimate a budget for your business’s legal costs due to your unique needs.
As a start-up, you want to know that you are spending your money efficiently. One way of doing this is seeking out lawyers who operate on a fixed-fee basis. That way, you are fully aware of how much the services will cost and what you will be receiving.
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Seeking cost-efficient legal advice shouldn’t mean you have to sacrifice quality. Your lawyer should have the experience and knowledge to identify your legal needs and provide you with advice in a way that is easy to understand.
Bespoke Terms
Bespoke terms are clauses specifically drafted to meet your:
- unique circumstances;
- business needs; and
- operational requirements.
No two business offerings are alike. Accordingly, no two contracts should be identical. Ensure you direct part of your budget to drafting contracts tailored to your requirements. Furthermore, a bespoke contract that protects your business interests will likely prevent future expensive disputes.
Amendments
Like their trader counterparts, businesses are constantly growing and evolving. Business practices that were feasible and effective a year ago may become outdated or inefficient due to the following:
- the advent of new technologies;
- changes in consumer preferences; or
- new competitors into the marketplace.
Accordingly, traders must keep up with ever-changing industry conditions. This means you must reflect changes in your business’ operational processes in your backend legal support processes.
The LegalVision Startup Manual provides guidance on a number of common challenges faced by startup founders including structuring, raising capital, building a team, dealing with customers and suppliers, and protecting intellectual property.
The guide includes 10 case studies featuring Australia’s top VC fund partners and leading Australian startups.
Preventing Misunderstanding
A properly drafted legal agreement can often be the difference between developing a positive commercial relationship and ending up in court over a dispute.
It is essential that a contract sets out the parties’ obligations and what happens if they breach them. A failure to meet one’s contractual obligations does not have to be intentional. For example, it can also arise due to:
- a misunderstanding;
- miscommunication; and
- poorly drafted terms giving rise to uncertainty and ambiguity.
Having properly drafted legal contracts promotes certainty of meaning, ensures that all parties are aware of their obligations under the agreement and ultimately reduces the likelihood of the parties having to proceed to litigation. Should a dispute arise, contracts can also provide for pre-litigious dispute resolution processes such as mediation or arbitration.
Cost Savings
Preventing misunderstandings and potential disputes at the outset provides long-term cost benefits for companies and sole traders alike. Litigation is time-consuming and very costly, causing a greater dent in your budget. Being able to resolve complaints by adhering to pre-litigation dispute resolution procedures that both parties have agreed to adhere to via their contractual undertakings reduces the likelihood of having to resort to costly court processes.
Litigation can be very risky. Furthermore, even if you are the successful party, there is no guarantee that you will be able to recover the entire sum owed to you or even enough to cover your legal expenses.
Key Takeaways
Legal costs for your business can be very expensive. Accordingly, as a startup, you may prefer to spend your budget elsewhere. However, you must build solid foundations for your startup business to grow. A part of that is setting your business up with solid legal documents that protect you and your interests. Legal support can become invaluable when entering commercial arrangements with other businesses. Furthermore, seeking legal advice can often save you substantial litigation costs if a dispute arises.
If you need help with prioritising legal contracts for your startup, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
Engaging a lawyer can save you substantial litigation costs by reducing the likelihood of disputes arising from poorly drafted or reviewed legal documents.
Deferring on robust commercial contracts can expose your business to disputes and non-compliance.
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