1.2.18 Professional Services: Lawyers and Accountants


Accountants and lawyers and especially lawyers are often some of the first professional services that you work with a start up company. And people try and avoid them and they avoid them for good reason. No offense to lawyers, but it’s not usually considered the most fun sets of interactions you have are the legal ones. And more importantly on the legal side it’s often very expensive. Lawyers charge by the hour and often charge quite a bit, when your start up is most cash strapped or at it’s earlier stages. So, a lot of people will go ahead and form their companies using online sites to do so and handle all their founding agreements using form agreements. And that’s not necessarily a bad idea, but there is danger in doing this which is that the choices that you’re making early on in founding agreements will have a big impact later on how you have to recognize taxes and how you have to recognize revenue. And even more importantly, the way that you can receive funding and the way that venture capitalists and initial investors might consider your company. So, you want to avoid getting into trouble and it’s often advantageous to actually speak to a lawyer early on in your organization.
1:03
Now, that doesn’t mean that you have to use them to do all the company formation material, but for fast growth startups, you can often find lawyers who are interested in working with you on price early on, deferring part of the amount of money that you’ll be owed or doing some other deal that will help you defray some of the early on costs, and those early conversations can save you a lot of work later on. What’s really important is not just to use your friend or your cousin, or the lawyer that you use for your personal matters because you really want to make sure that whoever you’re working with has experience working with startups and ideally experiences within your industry.
1:40
When specifically considering lawyers, you need to think about a lawyer who’s done things many times before and knows the context. So, there are a lot of complex legal issues around startups, and some of those issues are easily apparent to any lawyer and some of them are very subtle. And experience to why one solution might work in one case or another. So specifically, you’re interested in worrying about things like company formation, what kind of company should we be? Should we be an LLC or C corp? And there’s a lot of issues around those, being able to make revenue. What states are making money in? Thinking about those issues is important. Founders agreement which we’ve discussed in other lectures here about how to set up a founding room in your company and how to deal with those sets of concerns. Intellectual property. Certainly if you need to file patents you would need to worry about lawyers but even things like non-disclosure agreements can be important to run through by a lawyer first. Issues about hiring and having hiring agreements and especially firing people. And also working with founders. So there will be a negotiation associated with raising capital and you’ll need a lawyer to look over the terms. So these are all things that require having a preexisting relationship with a lawyer. Even if you don’t use them for every one of these points, it could help you to have that relationship early on so you have someone to go to when the situation gets critical. And you also want to think about a critical issue with lawyers is do you want them to act as advisors? So some lawyers have startup experience that can help act as advisors, help make introductions for you that are useful. Others are just about business. You might want to think about the effectiveness of these various approaches and reach a personal decision about which kind of lawyer you want to do.
3:15
On the accountant side, accountants are not usually as critical in the very early days of your company, especially before you make revenue, and you could often get a good idea of an accountant by talking to lawyers or going through an entrepreneurial network. You want to start thinking about getting an account for real, when your book even gets complicated, when it starts to take up too much of your valuable time or you start to have substantial revenue that you need to deal with or complex employees. You may want to work with an accountant much earlier in the process if you think your tax issues are going to be complicated. You’re worried about the company structure and how that’s going to affect willingness to invest. Or if you don’t feel comfortable with financials at all, an accountant is a good way to outsource the material. At the same time, neither lawyers nor accountants will solve your problems for you. You need to ultimately be responsible for your own company. Need to understand how your legal issues affect your company’s actual operation, so you can’t outsource all your functions to these people. You still need to maintain control over your own organization. You’ll know it best. You’ll know these issues best, but they can act as critical advisors at important points. How do you actually go about the details of getting a lawyer or an accountant on board? First of all, ask your other advisors. Other people you’ve worked with. Are there entrepreneurs in the network you’re associated with who might recommend somebody to you. You might also want to talk to more than one firm. When I was running my startup, I picked the lawyer mostly based on the really great coffee machine they have rather than actually interviewing a number of different law firms. Turned out to be, not necessarily a mistake, but I probably should have talk to more individuals. So go and have conversations with multiple law firms that first counsels or conversations are usually free. You could also get some useful information from them about things that they think you’re starting to presume right or wrong. So that’s a useful thing to do anyway. And then make sure you’re comfortable with people. Don’t feel talk down to. There’s no reason that a good lawyer should make you feel like you don’t know what you’re talking about, so make sure that you’re having a conversation that you understand what somebody is saying. And finally make sure whether you work with a lawyer or an accountant, that they’re not learning on your dime. So that the work that they’re doing is based on work they’ve done before and they’re not trying to learn about startups for the first time or industry for the first time as a result of working with you. So they could be critical players in the team for your company. But they’re not necessarily somebody who is going to be the key factor, who’s going to take you to the future. So talk to them early on. Make sure you know a lawyer and an accountant can do for you. And be strategic about when you decide to start using them in your organization.

Jim Rohn