How Much Should Your Small Business Spend on Legal Services?

If you own a small business, you might ask yourself questions like: "How much should I budget annually for legal fees?" "How much will an attorney cost?" "How do I know if I'm paying the right amount?"

"How much should I budget annually for legal fees?"
"How much will an attorney cost?"
"How do I know if I'm paying the right amount?"

Of course, the answers depend on a lot of variables. But, there are some guidelines to keep in mind. According to an annual survey that monitors legal spending among companies of all sizes, in 2015 companies spent on average 0.38% of their total revenue on legal services. 

Average spending on legal services is 0.38% of total revenue

 

$250,000      Revenue
$950               Legal Services

$1,000,000  Revenue
$3,800           Legal Services

$5,000,000  Revenue
$19,000         Legal Services

If your company tends to spend less than the average, you might want to consider if you are taking on excessive risk by handling matters internally instead of seeking the advice of an attorney. If your company tends to spend more than the average, do not be alarmed. That does not mean your law firm is too expensive, or you are referring too much work to your law firm. Consider the types of legal matters your law firm handled for you during the year. For example, your total spending for the year will be much higher than average if your year involved a significant project or your company was involved in litigation. 

Another method of measuring your budget for legal services is to compare your law firm's hourly rates to others. According to another survey, the average hourly rate among attorneys is $536 per hour. However, the average rate may vary greatly depending on location and size of the law firm. Smaller law firms in smaller cities will always charge lower rates.

Average hourly rate is $536 per hour

 

Companies should make an effort to find a law firm that is a good fit. Small businesses should hire small law firms. The large corporate law firms located in tall buildings in the middle of downtown are there to serve large businesses. The government defines "small businesses" based on revenue and number of employees for each particular industry, but a general rule of thumb is companies generating under $10 million annually are considered small. Law firms are also categorized as small, mid-sized, and large based on the number of lawyers. A "small law firm" has under 50 lawyers. 

Small Businesses should hire small law firms

So how do you go about finding the right law firm for your company? You should talk to other business owners, but you owe it to yourself and your business to do your own research. Use the internet to search for small law firms in your area that focus on business law. You want to avoid "general practice" attorneys that tend to take on every case that walks in the door. Criminal and family lawyers are great at what they do, but they might not have experience in business matters. However, you also want to avoid the top corporate law firms. They are also great at what they do, but they are very expensive and they always have a bigger client that distracts them from their smaller clients. You want to find a nice sweet spot, which will take a little bit of time, but it is worth it to help grow and protect your business. 


By Dustin R. Hurley, a top rated, award winning small business lawyer in Ohio.