Do SMEs really need to pay big money for law firms?

To date the UK's £29bn legal services market has widely avoided the disruptive impact of the digital revolution: but as Lexoo's David Bushby explains, the landscape is changing, with technology now making it possible for entrepreneurs to access top quality legal advice at an affordable price.

For the uninitiated, London’s legal scene is dominated by the ‘Magic Circle’, the capital’s five biggest law firms – Allen & Overy, Clifford Chance, Freshfields Bruckhaus Deringer, Linklaters and Slaughter and May.

They have the top lawyers and the best reputations. But what they also have are huge salaries and grand offices – all of which end up on your bill.

For most entrepreneurs, using a big law firm is like taking a space shuttle to the supermarket. Expensive and likely to burn lots of fuel right as you’re trying to lift-off.

When you’re bootstrapping you don’t need a lawyer with wow factor. You need an expert in a specific field who can get the job done for a reasonable price.

With this in mind, here’s some advice about how to squeeze the most out of your legal bill.

Learning on your dime

In large firms, juniors will often ‘learn on your dime’. Many lawyers will remember their early years being charged out at eye watering rates, despite having next to no knowledge or experience.

>See also: A cultural guide to governance, risk and compliance

Delegating work to juniors makes sense in some circumstances, such as basic research, due diligence or litigation ‘discovery’ tasks. So ask your lawyer: exactly who will do your work? If juniors will be involved, get them to show you how the economics stack up in your favour.

Bottom of the pile

If you’re a start-up that’s getting traction, you may find yourself being courted by a brand name firm. They might offer discounts or defer their fees, betting that one day they might (for example) get to work on your capital raise. The fees for that future work will more than compensate for backing a few ‘loss-leading’ start-ups with cheap or free services in the beginning.

But it’s worth remembering that the lawyer working for you still faces internal pressure to meet their own ‘billable targets’. Be upfront and ask them “I know you’re losing money by doing our work. When the big clients call, will I go to the bottom of the pile?”

Hourly rate vs fixed fees

The trouble with lawyers charging by the hour is that it rewards time spent – the more the better. If a mediocre lawyer spends a day on a task, one that takes a great lawyer only two hours to complete, the mediocre lawyer gets rewarded and the client loses out.

The systems and culture of recording time by the hour and rewarding lawyers by the amount of time billed works in their favour – not yours.

Here’s the thing:

Many lawyers hate billing by the hour. To escape, they leave big firms to go to smaller, boutique or solo practices. These firms are often structured to offer fixed fees, where you get the price up front for a defined scope of work.

The Holy Grail

Big firms excel in complex or large scale transactions and litigation. Their lawyers eventually become a highly trained, specialised elite – whose expertise comes at a high price. But outside of those firms – and without their overheads – those same lawyers can deliver their services for a fraction of the cost, at fixed fees.

They might live in Bristol, rather than Mayfair. And their office might be their kitchen table. But you get the same ‘big firm’ training, for less money. And no junior will ever learn on your dime.

Now that’s a-no brainer.

Further reading: Company law – transparency and accountability

Praseeda Nair

Praseeda Nair

Praseeda was Editor for from 2016 to 2018.

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