4 Reasons Small Business Owners Should Steer Clear Of Litigation (And How To Do It!)
It’s no surprise that running a business is hard work. Most entrepreneurs know that going in, even if they end up ultimately not being able to predict just how hard it really turns out to be! What most entrepreneurs don’t normally expect is the fact that a single lawsuit could destroy everything they’ve worked for. Starting a business is an exciting time, and running a small business generally isn’t full of lawsuits. However, as the business grows, running into legal issues is a common growing pain for companies, and some of those issues result in disputes that end up being fought over in court.
Litigation is never great for small businesses, no matter what it involves – shareholder disputes, breaches of contract, or anything else. Here are 4 reasons why, if you’re a small business owner, you should do everything in your power to avoid getting entangled in a lawsuit (and some ways to do that)!
Probably the biggest reason that you don’t want to encounter litigation is because it can be astronomically expensive to deal with a lawsuit and go to court. Legal fees for trial lawyers are significant, not to mention all the court fees that will be involved (discovery fees, expert witnesses, etc.). A business lawsuit could drag on for months or years, and the longer it takes, the more you’ll spend.
One survey conducted by Duke Law School (the Litigation Cost Survey of Major Companies) found that the average company paid discovery costs (not including all the other costs!) per case of upwards of $621,880. Among the 36 survey participants, the total spent on litigation was $4.1 billion dollars. While the businesses surveyed were not necessarily what we’d consider to fit the profile for small businesses, even half of the lower end of the average for discovery costs – say around $300,000 – is more than most small businesses have in savings. Litigation could bankrupt you; that’s the primary reason to avoid it!
When you are focusing on putting out a fire like a lawsuit, your other operations will probably be interrupted because someone, if not you, is going to have to take time out of their busy schedule to deal with the problem. This is true even with a lawyer on your side handling the bulk of the legal work; there are still documents you have to gather and submit, depositions or hearings you may have to attend, etc., not to mention the reality of the stress hanging over your head and how that can decrease your productivity (research has actually shown quantitative data on this).
Your time should be consumed by growing your business and increasing your profits, not worrying about whether or not your business will even have a future! Time is money, and in this sense, litigation is doubly expensive.
It Can Go Either Way.
If the case goes to trial, the outcome is ultimately in the hands of a judge or jury. As any true crime fan knows, juries especially can be unpredictable. You can have the best team of lawyers working for you (and you should), and you can have all the evidence on your side (which hopefully you do), and you can have the best game plan for trial, but the outcome still may not be what you wanted. A judge or jury could rule in the other party’s favor, in which case you may end up having to pay them an enormous sum or make other concessions that could end your small business’s trajectory. Basically, litigation is risky!
It Can Give You Negative Publicity.
Depending on what the dispute or lawsuit is about, and depending on where you are located, your dispute might be considered “news” – and that might not be good for business. If your customer/client base thinks that you are on the wrong side of the lawsuit, or even knows that you’re in some kind of legal trouble even if they don’t realize what exactly is going on, their level of trust in you (and your products/services) may drop. This could lead to a drop in revenue….it all ties back to litigation being more expensive than you can afford.
2 Main Ways To Avoid Litigation
So, it’s clear that litigation isn’t ideal, but how are small business owners to avoid finding themselves in a legal mess? The good news is that while you can’t predict the future, and you’re not in control of all of the external circumstances that can arise, there ARE a few ways to decrease the chances of a lawsuit occurring.
Lay A Strong Legal Foundation
The first (and best!) way to avoid business litigation is to make sure all your ducks are in a row from the start.
If every part of your business is legally compliant, and you ensure all of your contracts are sound before you enter into any agreement with a vendor or employee or contractor, and if you have wise policies and procedures in place – if your systems are good – then someone having grounds to sue you or you needing to sue someone else becomes a more remote possibility.
That’s why at Sierra Crest Business Law Group, we focus on prevention and take a proactive approach. We designed a Concierge Legal Protection Plan for Small Businesses that builds businesses’ legal systems from the ground up so that litigation risk is much lower and small business owners can have peace of mind!
Pursue Alternative Dispute Resolution Methods
Another way to avoid litigation is to stop it in its tracks, before it can go all the way to trial. Arbitration, mediation, and collaborative negotiation are all ways to try to resolve the dispute out of court, which is usually much faster and less expensive. You’ll still need a great team of lawyers on your side, though, who can represent your interests and make sure your company doesn’t get taken advantage of.
Whether your business is smooth sailing right now or you sense a legal storm brewing, call our firm to request a consultation and learn what our business and business litigation attorneys can do for you!