Protecting Your Business from Lawsuits

If you run a small business, you’re probably more focused on immediate concerns like cash flow and inventory than nebulous ones like lawsuits. But small companies get sued all the time, and if you’re not prepared, the legal fees alone can bankrupt you. And we haven’t talked about the judgment or settlement yet.

Your finances aren’t the only thing you have to worry about when you get sued. It will take a toll on your physical and emotional health. It’s probably too late to do anything once a process server contacts you, but there are ways to protect yourself from future legal disputes.

Here are a few things you can do to protect your small business:

1. Put everything in writing

Small businesses often do a lot of informal deals and agreements. But without a written contract, you leave yourself exposed to possible litigation. If the other party fails to meet the conditions of your handshake deal, your legal options are limited at best.

You need to put in writing all of your business transactions, from purchase orders to lease agreements. The document should specify all the pertinent details of the deal, such as the products or services to be rendered, date of fulfillment, price, and ancillary terms like returns and refunds. You don’t need a full contract for each transaction, but you should at least have a brief digital or printed document that includes all the information you need.

2. Follow employment laws

Businesses of all sizes are subject to a laundry list of laws, such as occupational safety regulations, anti-discrimination policies, standard labor rates, among others. I don’t have to tell you that if you break these laws, even if you didn’t mean to, you open yourself up to possible litigation.

To avoid labor lawsuits, you need to know what laws apply to your business and to create in-house policies to ensure regulatory compliance. You don’t have to set up a dedicated HR department to deal with labor standards. Hiring a consultant or business lawyer can help you prepare for labor and employment issues.

Employees3. Maintain open communication

This is somewhat related to the first tip I mentioned. Let’s say you have a written agreement to deliver products or services on a specific date. There might be times, through no fault of your own, that you are unable to fulfill the terms of the agreement. Maybe there’s a transport strike, or you got sick, or the goods got held up at customs.

If you’re in a possible violation of the terms, you need to immediately explain in detail the issue to the other party, and negotiate an acceptable solution. It helps if you explain the problem and person but follow up with a summary letter so that you’ll have a written record of the incident.

These pointers can help you protect your business from litigation. But even if you do everything right, there will always be a lawsuit-happy client or vendor who’s willing to make your life more difficult. If that happens, you need to consult a lawyer to explore your options.

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