YOU'VE BEEN SUED. NOW WHAT?

Legal problems can crop up from out of nowhere. Find out how to minimize the costs to your time and wallet—and how to avoid common hazards in the first place.

Less than a year into launching HireAHelper in 2007, co-founders Mike Glanz and Pete Johnson were close to turning a profit. But the owners would soon find themselves fighting to keep their moving-services marketplace alive, when industry behemoth U-Haul sued the startup over a trademark dispute. “We were just about to break even—and all of a sudden we were looking at five- and six-figure legal bills coming in,” says Glanz, CEO of the Oceanside, California–based company.

Soon the founders were embroiled in a three-year court battle that drastically upended their company’s plans. Until the litigation was settled out of court, the process forced them to try to be as strategic as possible—in the courtroom as well as the boardroom. “Paying for those types of legal bills when you’re a year old is incredibly difficult, so we had to pick and choose our battles,” Glanz says. “There were some motions we couldn’t fight because we just didn’t have enough money. From a business standpoint, we had to be equally strategic in picking what opportunities we pursued.”

Preparing for the possibility of legal troubles—and quickly responding to any hints of their brewing, such as receiving a claim letter about copyright issues—can be critical to surviving a challenge. Small businesses spend more than $100 billion a year on litigation, according to the U.S. Chamber Institute for Legal Reform.

Unfortunately, experts say, many entrepreneurs put off the legwork that can help them avoid problems down the line: “It’s the penny-smart, pound-foolish approach to legal preparation,” says Neal Salisian, a Los Angeles–based attorney focused on small and medium-size businesses. So take a few minutes to plan how to get out of legal hot water—or to avoid it in the first place.