Entrepreneurs and small business owners often wear many hats – they act as bookkeepers, tax planners, employers, and sometimes, even lawyers. The key to having an efficient system to manage your business is to entrust experts with what they do best. Some business owners do not hire a lawyer and some hire one but do not form a strong relationship with them.
A family friend, Neil (name changed for confidentiality purposes), who had a young lingerie subscription box business almost went bankrupt because he did not seek timely help of a lawyer. With some initial funding from family and friends, Neil’s business was off to a great start. But in order to expand his business, he needed additional funding and was looking for investors. After pitching his business to a few potential investors, he found one who seemed promising. The investor spoke very highly of Neil’s business and was excited about taking his business to the next level.
After initial negotiations, Neil was asked to sign a contract with the investor. Neil read through the contract but did not engage an attorney to review the contract and advise him. Neil signed off on the contract. But there was a clause in there which prohibited him from talking to or soliciting other investors for a period of 6 months from the date of signing the contract. Neil did not think much about it because he believed that nothing would go wrong.
But things went terribly wrong for Neil! The investor reneged at the last minute and backed away from the investment leaving Neil in a dire financial crisis. He could not pursue any other investor because of the exclusivity clause in the contract he signed. And this happened just a few days before Christmas. Neil had holiday orders to fulfill, vendors to pay, but he was all of a sudden broke!
He could not pay his employees and was almost ready to dissolve his business and file for bankruptcy. All of this because he did not consult an attorney before signing the contract.
I don’t want to keep you in suspense about Neil. So I’ll tell you that Neil’s family and friends supported him and lent him money to get out of debt and save his business.
But we don’t all have family and friends who can bail us out of such crises.
That’s why business owners need to make an investment in their business to protect it. You have a doctor that you trust your life with, and an accountant you trust your finances with. Then why shy away from forming a relationship with a lawyer who can protect your business?
The no. 1 reason I have heard from business owners is that lawyers are too expensive. Or that they are intimidating, or that they don’t need them because their business is not big enough. Most business owners wait to get sued or land in a big legal mess to hire an attorney. I’m here to tell you that these are all the wrong reasons to not work with an attorney for your business. It is important to have a good lawyer on your team who will support your business efforts, protect your intellectual property, minimize risks and ultimately save you money in the long run. Or you could end up in a situation like Neil’s and risk losing your business that you’ve worked so hard to build.
So start building a relationship with an attorney, if you haven’t done so already. Set up systems in place earlier on in your business to avoid legal trouble later on.