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What Every Business Owner and Entrepreneur Should Know About Getting Paid

From an ex-banker, serial start up guy and practicing business attorney in Denver Colorado

I was a banker for about 20 years and lent money (and had to get it back) in Connecticut, New York City, New Jersey and Colorado to high net worth individuals, middle market companies and small corporate borrowers. These loans have been against high end residential real estate in Manhattan and Greenwich, commercial property, business assets, a professional sports franchise, 100′ jet powered yacht and marketable securities, including one deal where cattle was the collateral. Over the years I have been involved in 6 start ups and early stage companies. These were in cable television, international long distance, high speed internet, broker-dealer and banking.

My law practice was founded in 2010 and I hit the ground running; I have filed over 300 civil lawsuits in Colorado state courts and occasionally appear in Federal court. My office is in Cherry Creek Village in Denver Colorado. Primarily I am a plaintiff’s attorney and I do some defense work from time to time. Most of my cases involve business matters and some form of breach of contract, a very broad category if you think about it. Many of my clients are business owners and entrepreneurs; I stay busy with civil litigation, contract negotiations, contract improvements, corporate formation, dispute resolution and employee issues. The parts I enjoy most are filing lawsuits and being an effective advocate for my clients, as well as providing business advisory and strategy.

In a nutshell here is some of what I have learned that may be of value:

1. Have a Good Contract

From a litigator’s standpoint, if you need to file a lawsuit it is more than helpful to have a signed contract and an unpaid invoice that was timely issued. Many times the client does not have both, but highly likely they will the next time they have a payment problem. A good contract will state that you get attorney fees if you have to enforce the agreement, the venue or where the matter will be adjudicated (place of trial or forum), and clearly states the work and price. Not having these important contract terms can cost you money and may cause you not to pursue some claims. And not having these contract terms may actually encourage some people not to pay you because there is not a favorable provision for attorney fees in the contract, or you need to file a lawsuit out of state or in an inconvenient forum because the contract didn’t address that issue.

2. Have a Signed Contract, Signed Purchase Order, Signed Change Order, Signed Everything

Not having signed documents and not documenting changes to work will cost you money and undercut your claim. I see it all the time and the response is usually something like ‘we usually do get everything signed… just not this time.’ And that of course is the time that counts. Not having all the paperwork signed and reflecting any changes in writing will encourage some people not to pay you because now you are not picture perfect. If you have sales people doing your paperwork and they are responsible for documenting properly your projects and modifications, and you don’t have prompt and effective oversight, you run real risks that when something goes wrong you will not have the legal file you paid for or expected.

3. Do some Research and Conduct Due Diligence on Everyone before doing Business

Often someone brings me a breach of contract (or something worse) and 15 minutes of Internet research tells me that this was someone the client shouldn’t have done business with or should have done business with differently. Yes I am able to use data bases that are not generally available but there is so much information out there with public access that apparently isn’t being used when vetting a new relationship. The “I wish I had known” is really many times “I should have known.”

If you don’t want to do the research, call me.

4. Get everything in writing; emails and confirming emails work wonders

Almost all civil litigation these days has a heavy email content that can tell the story of what happened and many times can make the difference in a lawsuit as to liability.

Be careful what you write and use email to protect yourself by confirming conversations or getting agreement to changes by email. Create files on your email desktop software for each project or customer so that you can find them when you need them.

5. Send Timely Invoices

Sending invoices late in the game with a problem account hurts your credibility and provides an opening to the debtor to say the invoices aren’t valid and were retaliatory in nature because of a payment dispute. If you aren’t willing to send invoices out on a regular basis, even when there is conflict or friction with a client, it may cost you money when you ultimately have to pursue your legal rights. Generating invoices when you are getting ready to file a lawsuit is not a best practice.

6. Protect your Trade Secrets, Protect your Business

When you hire employees who have access to your methods and techniques, your customer lists and other proprietary information you need to get documentation signed that protects your Trade Secrets. If you don’t do this then when they leave and steal your customers or set up a competing business, you will have rights under Colorado law but you will not be in the position you will want to be to prosecute your claims. Non-Disclosure Agreements, Covenants not To Compete, Employment Agreements and similar agreements are not too hard to get when you are hiring someone or entering a business relationship, but can be near impossible to get when they are headed out the door or things go south. Protect your business by getting the right agreements in place when you hire certain, if not all, employees, and consider what you need to have when entering new business relationships.

7. Paper your Agreements Properly Upfront, a lot less expensive than on the Way Out

Half my litigation seems to come from breach of contract where the parties drew up their own paperwork with no legal representation. The documents range from legally adequate to so ambiguous that the complaining party would be better off with no agreement. Very expensive to fix things when there is now a dispute and the paperwork is far from ideal. I’ve seen this even in cases of loans between family members (remember “a loan is a gift until it’s repaid”). Any substantive business transaction requires at least a legal review before you sign if you don’t want a lawyer to draft it; it is just a matter of time before something blows up and hindsight kicks in. Much cheaper to do it right upfront.

8. Your First Loss Is Your Best Loss

This a lender’s cliché but applies across the board, cut the cord early, take the action you need to take in order to protect your business and pursue your claim. Things rarely get better once they go off track and throwing money at something doesn’t often change the trajectory. Bad employee, bad customer or bad business relationship, don’t allow it to fester.

9. Litigation is a Business Decision, Planning is Everything and Plans are Nothing

Business and commercial litigation is a financial decision, you are probably going to be in “recovery mode” so often you shouldn’t expect to get all you think you deserve or the full amount of your claim. The analysis is “how much am I going to spend and what can I reasonably expect to recover.” And that analysis can change as you move forward in the litigation due to information you develop and receive through the litigation process. Be realistic and don’t kid yourself.

10. If you go to Trial, Someone has made a Mistake, Maybe Both Sides

Trials happen all the time and sometimes you will have a debtor or defendant who just won’t be reasonable and then you have little choice other than to proceed to trial; but you don’t want it to be you who isn’t making the smart choice. When I was a law clerk and judicial assistant, the Judge and I would discuss an on-going trial and always come to a conclusion that one party had made a mistake by not settling and taking the matter to trial, sometimes it was both sides. Typically one side had lost sight of the objective and wanted to ignore the law or evidence, knowing they are going to prevail because they are right despite the best advice of counsel. Listen to your lawyer’s analysis, handicap accordingly and be smart about it.

11. Sometimes Getting the Judgment is the Easy Part

With commercial litigation and collections, it is not unusual to get an early judgment because the defendant doesn’t respond or doesn’t respond effectively and opens the door to a dispositive motion like a judgment on the pleadings or a motion for summary judgment (think slam dunk). That might sound good, but what it means is the debtor doesn’t have the money for a lawyer or already has a number of unhappy creditors (which you can many times ascertain by doing some research and due diligence before you do business) or has nothing to protect that you can reach. None of that is good for getting paid. Depending on the individual or the company, post judgment collection activity can yield some recovery by having a thorough and relentless attorney, but perhaps not what you would hope. Voluntary is better than involuntary; if someone makes a reasonable offer (based on the circumstances) during the course of the litigation give it serious consideration before too much money is spent on the lawyers.