Business Accounting Tip 14 - How to Budget Future Legal Expenses in Your Business
Every business has a legal costs and every businessman should understand those costs. Many industry associations have figures for budgeting the legal costs of such businesses that operate within the industry. Sometimes these figures and estimates are in Trade Journals in the form of surveys. It is essential to read these surveys and understand what the hidden costs are when it comes to legal expenditures.
One thing that we use to do in the franchising industry was to budget an additional $5000 for every single franchise sold because we knew that if there was a lawsuit it could run into the $50,000 range, even if we settled out of court. This figure was to be on the safe side and we budgeted in advance $5000 for every new franchise that entered our system. Each time a franchise was sold this $5000 was put into a separate account to pay for our legal costs.
We also knew because the franchising industry is quite litigious and quite complicated that we needed monies for both changes in the franchise agreement and documents, as well as a potential lawsuit from a disgruntled franchisee or the probability of the franchisor, us, being named in the same lawsuit that perhaps a franchisee got into.
Although each business model is different and franchising certainly isn't the same as every other type of business, I hope this gives you a good idea of ways that you can consider doing legal accounting budgeting for your company. Please think on all this because it is a very serious issue and it could very well prevent you from being sued out of business or causing you to file bankruptcy, which is a horrible public relations hit for your company.