I attended a presentation to a room full of business owners the other day. The presenters were professionals who operate in trusted adviser roles. The topic was improving the value of your business by making yourself less indispensable.
An interesting part of the event was a discussion during the Q&A following the presentation. Someone mentioned the frustration of receiving financial statements from a CPA without commentary. What benefit to the business owner is the information without context, without direction, without advice?
If a business hires a CPA to prepare financial statements, and the CPA delivers financial statements, she’s done her job, right? Maybe. Or maybe not. The consensus in the room was that CPAs who do so aren’t doing their whole job, or at a minimum are letting the opportunity for providing additional value–maybe for additional fees–slip away.
My initial thought was that this illustrates the difference in point of view that often separates professional advisors from our clients. As lawyers, for example, we’re trained to view everything through a prism of risk. If you buy a business without turning over every stone in due diligence, you’re opening yourself up to the risk that your new business will have unanticipated issues. If you take back a promissory note when you sell a business, you might not get paid everything you’re owed.
My natural inclination as a lawyer is to conduct thorough due diligence. And if you’re taking a seller note, you should get a security interest in the business assets, and the stock, and a personal guarantee from the buyer, and his wife, and his neighbor, plus a deed of trust in his home, and his vacation home, and in his investment properties.
Although my clients usually appreciate the risks that I point out to them, what they really want is to get the deal done without worrying that they’re getting screwed. That’s not to say that they don’t want to address the risks prudently, but that they desire a sense of proportionality and they look to me to help them decide what’s important. They don’t want a list of potential issues without analysis. They want to know which ones are a big deal, which ones can be mitigated, and which ones should be deal breakers.
As far as my role goes, I think the consensus in the room was correct: people hire lawyers for advice, not just information. It’s a rare client who wants a purchase agreement drawn up and nothing more. They want analysis, they want judgment, and they want advice. It’s easy to deliver information, and it’s easy to spot issues. It’s much more difficult–and much more valuable–to go beyond the raw information and provide advice.
What do you think? Do people hire lawyers for advice or just information?
Brian, you raise a great question. In my experience clients want you to identify all the potential risks, but then want reassurance that doing the deal a particular way will result in minimal risk. Then, if that minimal risk eventuates, they want your malpractice insurance to cover their losses. Oops.
Identifying risk is something we business lawyers do pretty well. Assessing risk usually involves our own experience and things we’ve heard about, as well as evaluating the cost of a particular liability in the context of the particular deal. There are ways, of course, to manage risk, such as limitations of liability, exclusive remedies, and sometimes insurance (and drafting contracts to cabin the liabilities and the conditions under which they arise to situations clearly under the client’s control). But the client should always understand–and be told as often as necessary to be certain it does–that legal risk is ultimately a business risk. A client with little bargaining power against a large counter-party should at least know what it’s walking into if it can’t make any negotiating headway.
Clients frequently fume that a deal is being over-lawyered, but lawyers aren’t cautious in their advice without reason, and sometimes I think the reason is as much to protect themselves *from* the client as to protect the client. One thing we business lawyers can do to help the people we work with is to understand the approval hierarchy within the client organization and make sure the person we’re working with boots things upstairs as circumstances warrant, to get a broader perspective on acceptable levels and types of risk.
The use of a CPA and financial statement presentation may be a particularly bad choice for this argument. (I’m presuming that you mean following an audit of the financial statements, since that is what is most closely associated with CPA’s.)
Financial statements have multiple users, sometimes with conflicting agendas. What one person considers good, another might consider bad.
For example, a banker, looking to make a loan, may judge that a lot of cash held by the prospective borrower is good, in that it helps assure repayment. A prospective minority investor, looking to invest alongside the principal owner, may find that operationally inefficient, and judge it to be bad. Which opinion would you have the CPA state, good or bad?
Brian,
You are so right !! Great article. There is a serious difference between information and knowledge. People confuse the two. Knowledge is not a commodity.
Thanks for the information. I’ve been thinking that I should probably hire a lawyer, but I haven’t been sure about whether or not it’s a good idea. After reading this, it seems like I probably should. Would you recommend it? I guess I could use a lawyer for both advice and information, like you suggested.
I would have imagined that the lawyer, when hired on by a company and after completing its due diligence, was to present that information to the company. I am surprised by what you said when all they want is just advice. Yet it does make sense as they themselves want to ensure that what they are doing is the right direction of where to go or not.
It seems like a good idea to hire a lawyer for their expertise, not just their ability to draw up an agreement. The longer I’ve been alive, the more I can tell you about what I don’t understand, and if I ever get into a legal situation that I don’t understand, you can bet my first reaction will be to call a lawyer. Thanks for sharing!
I like what you said about viewing everything through a prism of risk where you have to look under every stone in due diligence to avoid unanticipated issues. I try to use the same philosophy in my business as well. Based on everything else I’ve read here I’ve found a lot of great information on due diligence and also learning the main reason why people hire lawyers: advice, not just information. That’s a very valuable service for those who don’t know the law to avoid being taken advantage of by those that do. Thanks for the helpful post.
Hi John,
I agree, advice is a huge part of the legal industry for small business owners. I’d say one of the most valuable aspects of lawyers is advice on contracts, disputes, partnerships, etc. Possibly not just the act of being a lawyer but to help in the overall decision process.
-Anaa
I think it is a good thing that business owners look for advice from their lawyers. It takes a lot of work to understand business deals. So, if a company is planning a merger, I would hope that they took every opportunity to make sure they are making the right choice. So, if you don’t ask your attorney for advice, considering how much he has to look at, you are missing out on a key asset to your decision making.
Great article. There is a serious difference between information and knowledge. People confuse the two. Knowledge is not a commodity.
I think my main reason in hiring an attorney would be for advice. I want to make sure I am doing everything right and everything I need to be doing. I think that the lawyer would be able to help out with that!
You raise a good question. I feel like it depends on each individual situation and that is what makes good lawyers valuable. They are able to adapt and evaluate what the client needs. I know if I hired a lawyer I would want all the advice I can get, but some people may not feel the same way.
In my case, around 60% of customers hire me for advice. But I think, and I am pretty sure that it depends a lot on what area the lawyer is practicing,
In my case, i’m focusing mostly on immigration; that’s why the “information clients” are so high.
I personally know lawyers that took the personal injury as main area profess and almost none of their clients are asking for information.
Nice article, I think lawyers gives the best legal advise and information as well as they can deal with all the legal issues
I really like these tips on what to look for in an attorney. I think that experience is very big, I’ve heard of one of my friends who had a lawyer that was not very experienced and things did not turn out the best.There is a serious difference between information and knowledge. People confuse the two. Knowledge is not a commodity.
I always thought that people only hired lawyers for advice. I didn’t know that you could use them to get information as well! It makes sense that you might want to speak with a lawyer if you have any questions about legality.
Practical article, The factors you have actually mentioned serve to work with an intelligent litigation attorney for company. Yet as a lawyer I suggest you to employ a lawyer who has sufficient experience in this area.
I’m usually not a risk taker, so it’s scary for me when I do take risks. It’s been risky for the past few days because I haven’t found myself an attorney yet, but I’m hoping that I’ll find one soon. I’ll have to start asking my family and friends for any referrals that they may have.
Thanks for this helpful post about how to hire a defense attorneys, and how they can help, first i will ask to search online as there are many attorney directory site that have complete detail of the all lawyers according to area.
I think that people do hire lawyers for advice and information! Lawyers are experts in the law, whereas most people are not, it isn’t a surprise that they would want advice when they go to a lawyer. I think people do want that expert to give them that advice on a subject that they know nothing about. It’s the same as a student going up to a teacher. They want the best help and advice they can get on a subject they know nothing about.
I think that you make an interesting point that people want advice from their lawyers to help them figure out which risk are big deals, which should be deal breakers, and which can be mitigated. I would think that this advice would be especially important in business law for new companies. That way you wouldn’t accidentally make a legal mistake that would cost you; your lawyer would help you figure it all out beforehand.
Thank you for sharing your thoughts on hiring a lawyer for advice or only for information. A lot of valuable information can be derived from the post. Certainly, this compelling post will encourage readers to choose the right lawyer for him. Keep it up!!