Small Business Questions & Answers


Filed under Running Your Business

Ask About Avoiding Court

by Anxious in Alabama | May 24, 2012

Subject :Business Law

Dear Toolkit,

I'm a brand new entrepreneur and I'm worried about the many legal problems I could encounter. Can you give me some tips on how to avoid ending up in court?


Anxious in Alabama

Dear Anxious,

The first rule about the law is to avoid relying on it. It's prohibitively expensive, painfully slow, and produces uncertain outcomes if invoked. Our justice system is often neither just nor systematic. But there are some ways that you can take the law into your own hands.

For example, do what your mom always said — choose your associates wisely. Check out everyone you do business with; employees, vendors, suppliers, customers, advisers, and investors. Dealing with honest and non-litigious folk is a good beginning.

Honor the power of the pen; get everything in writing. This is an obvious precaution in cases of leases, contracts, and employment documents but you should apply it to less formal relationships as well. Anything that could come back to bite you needs to be documented.

But, at the same time, don't think a written contract is going to save the day. A truly enforceable contract has never been written. Either there's a way out or it'll prove too expensive to enforce. They're very necessary, usually valid, but not to be totally relied on.

Don't tempt fate. It's nice to feel warm and fuzzy about your employees, customers, or suppliers. It's tempting to trust them implicitly — but it's also not smart. Basically honest people sometimes go astray if temptation is put in their path. Avoid this indulgence.

Prevent escalation of minor gripes. Business lawsuits often are the product of a small misunderstanding blown out of proportion due to mishandling or neglect. A minor disappointment that could have been handled with common sense and good communication can escalate into a war. Handle small problems promptly.

Don't be penny-wise and pound foolish. You usually get what you pay for so when a legal situation seems to be arising, hire yourself the best talent you can find to head off a disaster. Don't be a do-it-yourselfer when it comes to legal matters. Get a good lawyer and pay her what she's worth.

Maintain good, solid insurance coverage. This does not mean you need to over-insure but it does mean you need to have a professional evaluate the risks of your business and provide for them. Transfer your obvious risks to an insurance carrier and let them go to court for you in case that ever becomes necessary. They're good at it.

Insert an arbitration clause into contracts you enter in to. The American Arbitration Association does wonders toward keeping the courts unclogged. If the other party to your agreement refuses to the inclusion of such language, run for the exit.

Operate your business in a sensible manner. This means just doing the obvious things to preserve life and limb and property. Shovel the snow promptly. Remove tripping hazards. Have machinery inspected often. Insist on safety rules being followed. Be sure your product is wholesome and your services competent. Treat everyone fairly.

These rules and a little luck should keep you out of the clutches of the courts.