By Client Legal Director, Emma Sharman
SMEs in periods of growth often feel that they don’t need, can’t afford or can’t justify senior in-house legal support.
In this blog, I’m going to demonstrate why it’s essential for smaller businesses who are taking on funding and growing the business to get quality, practical, commercial legal support. And why bringing the legal work in-house can be accessible and affordable for businesses of all sizes, and the only solution that will give the foundations and tailored support needed to grow and meet their goals.
The problem with lawyers...
I know this may seem an odd topic for a lawyer to write about, but I have a lot of experience working with start-ups and scale ups and with investors in those businesses. I have seen first-hand the challenges these organisations have when trying to access legal help.
They’re a drain on time and resources
When a business is in its infancy, money, time and resources are often in short supply. Getting a lawyer involved can exacerbate these challenges, especially when the legal bill is an unknown quantity. Businesses often find they are having to spend a lot of time they don’t have trying to brief different lawyers to access legal help. This can be very frustrating, especially when it is hard to see the value of the support they have been given.
And if a business is growing rapidly, their legal needs inevitably increase, as do their legal bills. The effect of this for less established businesses trying to plan for their future can be very destabilising.
They don’t understand smaller businesses
Some businesses find engaging a lawyer hampers rather than supports their progress. This is often because the lawyer is more used to dealing with larger, more well-established businesses and doesn’t understand the unique challenges of organisations in the start-up/scale-up phase, nor what they are trying to achieve. Lawyers who don’t have this experience, might fail to offer practical, commercial advice, or facilitate deals that support the longer term aims of the business.
Similarly, on the investor side, whilst the investor team may be well established and experienced, the approach that their legal advisors take can sometimes unintentionally frustrate the deal.
The risks of not investing in good legal support
As tempting as it may be, the solution to these issues cannot be to forgo legal support. Skimping on legal support now to save costs is a false economy in the grand scheme of what you are trying to achieve. The process of taking on funding and gearing up for growth has a lot of legal implications and getting this wrong can lead to major problems further down the line. This will only damage all the value you have worked so hard to create in the growth of your business.
Bring it in-house
Businesses and investor teams at this critical time need the right kind of legal support. A good in-house lawyer is part of the team and will always tailor their support to meet the needs of the business. Here are just a few examples of how and where they can help.
The funding process
When a business gets a lawyer involved early in a funding process, it invariably saves time and cost later. It may even save the deal itself! Being well prepared before you engage with a funder will help things to run smoothly. Having the information you need, to answer the funder’s due diligence enquires and answer them well, gives investors confidence in your operation. This means they are more likely to invest and invest on favourable terms. The riskier an investor thinks your business is, the more expensive the funding is likely to be!
A good in-house lawyer will make sure the approach to the legal documentation and contracts is appropriate, so you don’t waste a lot of money on legal fees later trying to mould lengthy contracts into the right shape. Getting it right from the outset is more efficient and likely to lead to a more harmonious relationship between the funder and business. Protracted legal negotiations that are required because the original arrangement wasn’t fit for purpose is frustrating for all parties.
A business in change
A growing business goes through a lot of change. There is a lot to think about and this inevitably comes with a risk that you will miss things that could be detrimental later. Having an experienced business lawyer as part of your team protects you against this. They are not a drain on your resources but take away some of the pain of the interpretation and application of legal advice. They will be there to spot things you might not see when you are so busy getting things done and driving the business forward.
This could be a regulatory or compliance issue that needs to be addressed; consideration of the commitments you might have to a landlord, funder or other key counterparty, making sure that the new arrangements you put in place as you grow are complementary to this. Or perhaps it is some support establishing some simple but effective governance and processes to ensure that your team can comply with all their obligations as you move forward. An in-house lawyer is in a unique position in a business. They have an overview of the business and its obligations and familiarity with the requirements of every team – from the board, to HR, to the sales and IT teams. An external lawyer cannot have this understanding of your business, and therefore cannot advise you as effectively.
Educating and enabling
For me, success is working with a business during a period of growth and helping the business to become as self-sufficient as possible in relation to its legal affairs. This is not about conducting discrete, piecemeal bits of legal work. It’s about creating processes and procedures that enable a business to manage its legal work. This may be governance and board processes to support the executive team or a contracting ‘rule book’ to enable your commercial team to do as much as possible themselves and crucially, training and guidance on when you should call in specialist legal support.
How TLD can help
The legal needs of growing businesses change all the time. The TLD service model allows you to engage a senior in-house legal resource on a part-time, retained basis. You can have access to this resource for as little as two days a month, scaling this up when or if you need to.
TLD lawyers are all highly experienced in-house counsel. We are used to working in business and tailoring the approach to suit the current circumstances, objectives and risk appetite of that business. The work will be done by an experienced in-house lawyer – we don’t use junior team members in the same way that most traditional law firms do. At TLD, you get an experienced lawyer at a lower cost – you never get a bill from us that you’re not expecting.
If you’re a start-up, scale-up or SME and want to know more about how we could support your business, please drop me a line on emma.sharman@thelegaldirector.co.uk.
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