Avoiding uncivil actions
Most common mistakes business owners make that lead to lawsuits
I recently talked with my friend and attorney Alan Gassman about the ignorant and outright stupid things that businesspeople do that ultimately get them sued. Gassman is a successful attorney with more than 20 years of experience and has seen similar mistakes over and over.
I want to share that list with you so that you can give yourself a quick checkup and make sure you’re being legally smart about how you’re operating your company:
Failure to recognize threats from breaking the law, contracts
Gassman and I have witnessed clients lose everything because they felt they did the right thing, but they actually did not follow the clear requirements of government rules or contractual obligations for lack of having a compliance component of their business.
Many successful entrepreneurs got where they are by ignoring business conventions, but then they confused “bucking the system” with “following the law or contract.” Bankruptcy and jail are not uncommon results.
Failure to sever ties with dishonest people
Lie down with dogs and you will get fleas. Work with the wrong people and you can lose everything, including your personal freedom. Bad people will eventually go to any length to take full advantage of any leverage they may have when it is time to cope with situations that come about when corners are cut or laws are broken.
An example of this is the many otherwise innocent businesspeople who have been misled to cheat on their taxes by dishonest accountants, who then turn in all of their clients and testify against them to get shorter jail sentences.
Failure to fix or flee bad relationships
When employees, relatives in the business, trusted employees or difficult suppliers or customers are out of line, there can be a tendency to try to ignore them or put off the inevitable. Cutting to the chase with the person or organization to decide whether to fix the relationship or sever it is essential to avoiding the calamities that we often see as a result of not taking action.
Failure to adhere to high quality standards
People and businesses get sued when they make mistakes, don’t follow agreements or cause harm to people or businesses. While it is faster, cheaper and often easier to be a little sloppy, this almost always backfires and can cause great harm to any business or organization, not to mention diminished reputation and consequent loss of business and business opportunities.
Failure to monitor and assure honesty in others
Don’t provide temptation by not making everyone in your organization accountable. Accounting firms, lawyers and qualitycontrol specialists have ways of verifying and enhancing the honesty of people and organizations. Have those safeguards in place and verify responsibly. (We call these business controls.)
Failure to have planned for Murphy’s Law
If you’re in business long enough, chances are you’ll have to deal with some crazy stuff. Customers will go bust, owing you hundreds of thousands of dollars. Key team members will leave when you are in your busiest season. And that email you thought was funny will make its way into the hands of a plaintiff ’s attorney.
So make sure that you quarterly ask yourself: “What’s the worst realistic things that could happen in our business? Where are we vulnerable? And how can we take steps today to protect our company from the downside of these risks?”
Terrible things do happen, and they often occur to those who had rose-colored glasses on and ignored rational warnings.
Failure to find and follow sound legal advice
A great many times, the story behind the business or financial disaster is that sound legal advice was given and ignored for whatever reason. And the old adage that “Anyone who does their own legal work has a fool for a client” is true. Using lawyers who are familiar with the specific area of law involved can be essential.
The same is true for those business people who ignore their CPA.
Failure to have proper liability and casualty insurance
We live in the most sophisticated society in history with respect to the ability to insure a great many risks and to avoid those risks that cannot be insured for.
Quite often, business disasters become litigation that is not insured. An annual insurance review and a periodic second opinion from an independent consultant who is familiar with the industry are essential. Why not ask a lawyer who regularly defends claims in the industry to look at policies and the business to help make sure that the right insurance and procedures are in place?
Whenever possible, outsource functions that cannot be insured, checking that the vendor you outsource to has full coverage.
Failure to have employees and contractors in sync
Many successful businesses have been brought down by short-sighted or irresponsible employee practices, which can include not listening to concerns about the business, not protecting employees from harassment and being hurt, not following wage, hour and safety laws, and harboring dissatisfied workers who look forward to ratting on the business.
This takes time, money and energy that should be part of the business plan, budget and culture.
Failure to maintain proper legal structures
Many business owners come to us after clear threats to their survival have occurred, making it too late to put legal entities and structures into place that would safeguard assets and business operating rights from creditors, taxes, divorce and other doomsday scenarios.
Others have not thought through what assets to own, what to lease, how to invest or how to own the selected investments. The difference between a well-planned business and estate structure and a poorly or unplanned arrangement can be dramatic.