The Blog Of TL Wall Accounting

Archive for May, 2012

Legal Fees Could Kill Your Business

In the summer of 2009, the Valley Swim Club of Philadelphia created a major controversy when it suddenly kicked out a group of black children from its facility, returning monies that had been paid to them, and sent them packing. The dispute was blamed on a miscommunication on who was coming and when they’d be coming.

Of course, no one bought that, and the swim club faced all sorts of bad publicity and protests. Finally it has faced a major lawsuit brought by the Pennsylvania Human Rights Commission, stating that “it had found probable cause to conclude that the campers were asked not to return because of the “racial animus” expressed by one member and “racially coded comments” by other members.”

The Valley Swim Club ended up deciding to file for bankruptcy, with the intention of closing the club and selling off all its properties to pay its bills, including any settlements or court decisions as a result of these lawsuits. An email sent out by the club president, John Duesler, stated that though the lawsuits hurt, the club had been barely staying out of the red for the past decade and already owed more than $100,000 in other expenses.

Lawsuits can cost a lot of money. Filing a lawsuit costs money; how much depends on the type of lawsuit being filed and where it’s being filed, as every state has different filing rates. If you have to hire a lawyer, that’s expensive, as most lawyers start at least at $200 an hour. If you’re a small business, you not only have to now deal with finding a way to pay a lawyer, but you’re going to miss time from work, which means you’re not making any new money to replace the money you’re spending.

There’s also the bad publicity part if you’re hoping to stay in business once things have been settled. Even if you win, your reputation could take a major hit. Something that major companies are starting to realize more often is just how bad it looks when they have 10 lawyers sitting at the table when someone who’s suing them only has one lawyer, who has yet to be paid because his pay is dependent upon the outcome of their lawsuit. Juries are like everyone else; they hate the impression of someone being bullied.

In our previous post we talked about financial planning for the future, and thinking about legal representation for things you might have to deal with is definitely a large financial consideration. You may not always be able to talk your way out of a situation, and for some businesses, liability insurance isn’t easy to find. Legal fees takes away from everything and everybody; at the very least one would hope your company is incorporated, which removes personal liability from any decision. This is something someone like us can talk to you about when we work with you through our accounting services.

If you’re looking to keep your business out of expensive lawsuits, cleaning up your business practices and training your personnel on good customer service practices might be a good place to start. If you can’t take care of that, you might be the next business that’s closing its doors and filing bankruptcy.