When Julie Northcutt started her business, Chicagoland Caregivers, back in 2001, she, like most entrepreneurs, wanted to save money wherever she could. But when she brought in a partner to help her manage her growing number of employees, she reluctantly turned to an attorney to draw up a partnership agreement. Imagine her surprise, then, when the attorney waived her fee, saying that since it was a simple contract, she would do Northcutt a favor. 'I was thrilled to not have a legal bill to pay,' says Northcutt.

That decision came back to bite Northcutt in a big way in 2007, when she decided to sell the company, which had earned a spot on the Inc. 500 list on the strength of some $2.1 million in sales. Not only were there some holes in the partnership agreement documents, they were also signed without a witness. Northcutt's partner's attorney leveraged that oversight into a larger percentage of the proceeds from the sale of the company for his client.

Learning from that expensive mistake, Northcutt spent about $10,000 in upfront legal fees in starting up her latest business, Chicago-based Caregiverlist, a service that helps seniors find appropriate retirement care. 'Every entrepreneur should consider how much a bad attorney can cost you in the long run,' she says.

There's no doubt that attorneys and entrepreneurs don't always see eye to eye – especially when it comes to paying big dollars for legal advice. But a good lawyer can be worth his or her weight in gold. Given Northcutt's advice, here are some tips on how to find the right legal counsel for your business, at the right price, the first time out:

Start with the big picture

Before beginning your hunt for legal counsel, first ask yourself what kind of expertise you need, says Lyne Noella, CEO of WavePlay, a Silicon Valley-based networking agency. Noella says you should ask yourself: Does your company need part-time general counsel to guide the management team through the myriad of issues that arise in a fast-growing company? Are you currently facing a legal issue that requires a response, such as a disgruntled employee matter? Is your company setting the stage for an IPO or merger? 'Each of these situations requires a different type of attorney,' says Noella.

Consider size

You should also think about the size and kind of firm you want to work with. 'Larger businesses who have more varied and more specialized needs might benefit from working with larger firms,' says Ken Halkin, a veteran business consultant based in Amesbury, Mass. 'Smaller businesses that are growing and that have very specialized needs such a IP protection or raising equity capital may also benefit from working with at least a mid-sized firm.'

When talking to larger firms, you will want to discuss who would be working on your account. While you might be speaking to a partner upfront, a newer associate might be the attorney actually working with you.

If your business is just getting off the ground, a small law firm might be your best choice, says Babak Zafarnia, a lawyer who also heads up Praecere Public Relations in Washington, D.C. 'At this stage of business growth and development, small firms deliver better professional services, counsel, and representation because you get the principals involved and to stay on top of things,' he says, adding that such firms might also provide good networking references to other entrepreneurs in your area.

Sometimes circumstances will dictate your firm choice. 'Big firms are more advantageous when you have an adversarial issue and the other side has a big firm,' says Neil Shroff, managing partner at Orion Capital Group in Menlo Park, Calif. 'If you come in with a small firm, the other side is likely to use more muscle.'

Go general, then specialize

Perhaps more important than size is the question of what issues the firm covers best. Most businesses should target firms that function as generalists, says Halkin, since a general counsel can handle about 80 percent of a business's needs. Topics that a general attorney should be familiar with include:

  • General business law
  • Business formation
  • Contract law
  • Commercial real estate
  • Employment law
  • Intellectual property
  • Business taxes

If and when a situation arises that calls for expertise beyond what a generalist offers, it's important that a firm has a network of specialists it can tap into. For example, many generalists can weigh in on matters related to copyrights, trademarks, non-compete agreements and confidentiality. But if an intellectual property issue involves filing or enforcing patents, they should refer you to a patent attorney for the appropriate expertise. Another example would be where a generalist may know enough about employment law to assist in developing an employee handbook and general employment practices. But, in issues involving litigation, the generalist should defer to an employment law specialist.

Set a budget

Attorney fees vary drastically from region to region, so check in with business owners in your area to gain an understanding of the types of attorneys they are using, how they feel about the service they receive, and what they are paying before you begin your search, Noella of WavePlay advises. You can expect to pay anywhere from $100 an hour up to $1,000 an hour or more based on where you're located and the kind of expertise you require. Smaller firms generally charge less than larger firms. Either way, more and more firms are amenable to setting budgets and fixed-price contracts up front as a way for the entrepreneur to control their costs, so decide on what you think you can afford as a starting point.

You should also push to limit what your attorney spends on any given task, says Matt Douglas, founder and CEO of Punchbowl Software, an online party-planning service in Boston. 'Lawyers can be very expensive, as they can charge for every six-minute increment you're talking to them,' he says. 'The hardest lesson is when to call them and when to not call them.' That's why every time Douglas asks his lawyer to perform a service, he specifies in an e-mail exactly what he wants done and how long he expects it to take.

And don't pass assignments along haphazardly either. 'The best way to keep costs down, of course, is to do as much legwork and organization as possible before sending legal counsel on a task to complete,' says Zafarnia of Praecere Public Relations.

Start networking

Once you've defined the parameters of the legal advice you need, you can begin tapping into your professional network to find candidates. 'The best place to find counsel is to ask respected entrepreneurs and investors who have had interaction with a half dozen or more lawyers,' says Brian O'Malley, a partner with venture capital firm Battery Ventures. 'There is nothing like a working relationship to understand how someone acts in reality.' Others sources of referrals are your accountant and banker.

You can also go online to your state bar association and various attorney referral sites to identify candidates, some of which include searchable client ratings. Examples of attorney search-engines include:

Make your choice

After identifying candidates, narrow your list down to your top three. Then, set up interviews with each to gauge your comfort level with them on both a personal and professional basis.

Leland Montgomery, principal at Lemont Group, an investment-marketing firm in Montclair, N.J., says he sets up a 'beauty pageant,' where he puts his final list of candidates through two rounds of interviews. 'I throw key legal and business aspects of my project at them and invite them to respond with their thoughts and what they think the options are,' he says. 'This can happen in one-on-ones, or via the phone, or even letting them respond after a couple of days consideration. In each case, I've been enormously surprised at the high degree of differentiation in quality - or suitability - of the candidates. I have never regretted an engagement decision out of this process.'

Montgomery also points out that his technique offers another distinct benefit: 'To the extent that you're able to have them address a specific legal problem, you're also getting some excellent legal advice before the meter starts running."

In addition to getting second opinions on the candidates, Northcutt of Caregiverlist recommends hiring an attorney who doesn't need your business. 'You want an attorney who will bill you fairly and who can wait to get paid,' she says. 'Don't overlook how important it is trust your attorney because of how important he or she will be to the success of your business.'