I see small business owners who will spend $5,000 making sure their pick-up truck has the best sound system and wheels. Expenses that are, in all probability, money down the drain.
Then I see the same business owner sign an important contract without having their attorney even look at it. Now I’m not an attorney and I don’t like spending money on an attorney any more than the next person but here’s what I do know, for certain:
1. I like to sleep well
2. I buy insurance for a car wreck, hail storm, hurricane, boat sinking, etc
Why should you have your attorney review all your material contracts?
1. You’ll sleep better. At least if you have any sense you will. If you sleep fine now and don’t have a good attorney reviewing your contracts then you don’t know what you don’t know.
2. Having an attorney review your contracts (oh yea, did I mention the attorney should review them BEFORE you sign it… attorneys right now are nodding their heads. They see more contracts from clients with the request ..”get me out of this contract”, than they see contracts where client a says “should I enter into this contract”?) is like buying insurance. I buy insurance because I want to spend some money now to protect me if there is something that really, really goes wrong.
I had a client once who was having some significant business problems. Problems like …she was losing her shirt. It was a mall based business. When I started asking her about the situation I got to the lease. Here’s how the conversation went:
Me, “what’s your lease like?”
Her, “I can’t remember, the leasing agent said they didn’t make changes to their leases so I needed to take it or leave it. I took it.”
Me: Do you have the lease?
Her: Yep here it is.
Me: Whoa this is pretty tough.
Her: I don’t know why you say that, it’s only $6,500 per month
Me: “Well, it’s $6,500 per month now and it goes up every 2 years and it’s for 10 years and you have personally guaranteed the lease. By my quick back of the envelop calculation the value of this lease is about $1,000,000”
Me : You didn’t know this?
Her: No, they said that what they gave me was the standard lease and they didn’t make changes, so I signed it.
Me: They didn’t make changes or they didn’t like to make changes?
Me: I have another client in this mall and their lease is much more favorable.
Her: Oh no.
When she signed the lease she saw $6,500/month, and said toe herself “sure I can swing that.” When I saw the lease I saw $1,000,000 contingent liability and she’s on the hook for $1,000,000 personally if things in the biz go badly.
How do you know which contracts you should have your attorney look at? Figure out what the costs or damages are if something (or everything) goes wrong. For some people the threshold is a few hundred dollars, for others a few thousand. However, if your practice has been not to have your attorney review all contracts then I suggest you start now with basically every contract. Especially those that are recurring contracts like contracts with customers or vendors.
Stop looking at attorney review of contracts as an expense and start looking at it as insurance.