You are the Superman of your business. You can leap over personnel problems and make deals in a single bound. You can handle anything…except a complicated tax transaction or a complex vendor contract or a possible lawsuit or lots of other legal issues. That’s why having a general counsel who is familiar with you and your company—big or small—is as essential to the success of your business as your website and your ideas, if not more so. Jason Smolen is co-founding principal of SmolenPlevy in Vienna, Virginia. For more than 30 years, Smolen has gained recognition for his expertise with complex business transactions, trusts and estates. Smolen chatted with business writer Heather Chaet about the benefits of having a legal advisor on board at the genesis of your business and how folks like him help entrepreneurs like you with their superhero legal mojo.
HC: Can you share a little bit of your background, how—and why—you began working with small businesses and entrepreneurs?
JS: Larger, established firms always have representation, whether it is inside counsel, outside counsel, or a combination of both. They know it is a cost of doing business and a cost that is well worth it. It is much easier and less expensive to do something right then to fix it later. Smaller companies and start-ups are usually so busy creating their market share that management might overlook or not even be aware of the value of professional advice.
From early on, I’ve focused my practice on estate planning and business law. The two go hand in hand. Just like their house and personal fortune, a small business owner has to think about the future of their business estate. Plans have to be in place in case something unexpected happens and for the long haul. I’ve had to learn almost every detail about each client’s business, because if it’s not in shape from a business and legal perspective, it won’t make it to the next generation—or to the next owner. Working on that road map together with the owner (or owners) helps get things in order and achieve that success.
HC: Why should small businesses—with maybe only one or five employees—consider having a legal advisor from Day One?
JS: Having a good attorney advising a business can help avoid those pitfalls that could crush one before it gets started. If the company is a start-up, selecting the type of company and making the proper tax elections is critical for economic and management efficiency. Any time you have more than two owners, the potential for disagreement exists, and there is no better time than in the beginning to sort out the issues. Depending on the business, there are compliance issues, employment issues, and business issues. Something as simple as negotiating and drafting a proper lease for the location of the business can be critical. A company needs employment and contractor agreements, and strong non-competes, if they’re applicable.
HC: For those that may be uncertain about the various options out there, can you briefly explain the different ways a small business owner can hire and work with a legal advisor.
JS: There are many ways to engage an attorney on behalf of a small business. Probably the most common arrangement is straight fees-for-services, in which case the client pays for the time and cost expended. Its downside for smaller businesses is that owners may have anxiety when calling their lawyer because they are getting charged each time—I can only suggest that if you are thinking of calling your lawyer, you probably should. A way around this [anxiety] is to meet with your attorney so that you can both discuss the needs of the business and agree to a retainer paid on a monthly basis for that year. It’s possible to work out a budget that might exclude certain items, for example, litigation, but generally cover everything else. That takes the anxiety out of making a phone call to your counsel any time you need advice. For certain work, flat fees can be negotiated as well.
HC: What are the top legal mistakes you find small business owners make— and how those missteps affect their business success or may affect it down the road?
JS: I would say the top non-operational mistake is not paying proper attention to tax matters. Without proper planning, the company or its owners could pay more taxes [than necessary], or force themselves into litigation or a dissolution event upon a departure of an owner.
From a human resources point of view, not having a good employee handbook and intake and outtake processes can consume a lot of resources for almost any business. For general business matters—whether it is a lease or vendor agreements you enter into—your decisions can save money and make you more profitable. Maintain compliance with regulatory issues that affect your business and the arrangements you have with your customers. If they are done right, you can spend your time on your business. If they are done wrong, you will pay for it for quite some time.
HC: Tell us a few examples of how you work with small businesses on a long-term and day-to-day basis—from the trouble patches you may have helped them through (or helped them avoid) to stories of successful growth that came from having a legal advisor?
JS: Most people approach problems through the prism of their own experiences. Someone may be a very sophisticated businessperson but he is only familiar with the deals he has seen. A good legal advisor not only brings his or her legal talent to the table, but also adds value with the experiences he or she has had with what works and what does not. It is an invaluable practical asset.
Sometimes the best way to start a business is to buy one. I had a client that negotiated the purchase of a modestly successful service business. The parties negotiated the deal without counsel, and the purchaser was referred to me to review the deal. Neither buyer nor seller understood the tax cost of the transaction because of the structure of the [deal]. We worked to save our client millions of dollars on the transaction, which added enormous profitability to the business going forward.
An area of concern for some clients is the protection of their intellectual property. There are times where a prior employee can cause a great deal of damage to the goodwill and trade secrets of a company. I had a client who had one key employee who left my client’s company and tried to start a competing business. As a result of our prior advice to put in place the appropriate documents to protect our client’s business we were successfully able to prevent that departing employee from improperly competing with our client and [avoided] great damage to the business.
HC: What are the trickiest issues facing your small business clients today?
JS: No business can ignore social media. It can be a tremendous boom for growth— provided the right messages get out. Significant damage to a long-developed reputation may arise when social media problems are not addressed. Navigating these issues is a complicated web of free speech, defamation laws, user agreements, and marketing. It is important for business owners to be properly guided through this from the very beginning, including internal use of social media and the web.
Another area that I’m constantly focused on for my clients is a legal due diligence check-up, examining the company as if it was being marketed for sale—you find many of the gaps that the company might have when scrutinized by potential purchaser. I always believe that it is better to live in a nice house now than simply fix it up for the next buyer to enjoy.
HC: Any advice for a small business owner looking to hire a legal advisor, on how to find the right one?
JS: Foremost is competence in the areas that the business needs. Most good business attorneys will have a solid foundation of the state requirements for organizing and operating a business entity within that state and a more-than-adequate knowledge of the tax issues involved in choice of entity and structure. It helps if the attorney has resources available for the other issues that could come up on running a business—this saves you having to shop different firms for everything you may need, such as leases, business contracts, and tax matters. (Editor’s note: exploring personal referrals from other business professionals is a good first step to finding an attorney, or check out the American Bar Association’s Lawyer Referral Directory or Best Lawyers, which is the oldest peer-review publication in the legal profession and quite respected.)
If you get past those threshold requirements, it is really a function of what the fit is like. You can be the best attorney on earth, but if you and your client don’t see eye-to-eye or the client is not comfortable with opening up on all issues involved in running a business, it is probably better to move on and seek someone else. The most valuable relationships are the long and trusted ones. You don’t want to educate a new attorney every other year on your business needs.
This interview has been edited for length and clarity.
Disclaimer: Since the details of your situation are unique, you should always seek the services of a qualified attorney or relevant professional for advice specific to your business.