Getting sued is every business owner's nightmare. Unlike
most nightmares, however, where you're usually being chased by
fire breathing dragons or standing naked on the dance floor at your
high school class reunion, this one has a high probability of
coming true.
The bad news, according to attorney Wyndell Banks, founding
partner at The Banks Law Firm in Washington, DC, is that if
you're in business long enough, you're bound to get sued by
someone for something. The good news is, most start-up
entrepreneurs are faced with lawsuits over relatively small claims,
and the matters can often be resolved outside of court.
Banks, who once worked for the SBA and now specializes in
small-business issues, says the most common types of lawsuits
involve contractual issues in which one party doesn't deliver
the product or service as promised.
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Dennis Jacknewitz, a partner at Jennings, Jacknewitz, Schrader
PC in Belleville, Illinois, recalls a case where a beauty shop
owner turned a customer's hair into a Halloween fright wig and
the customer sued. In another case, the owner of a carpet-cleaning
business used a chemical that changed the color of a client's
carpet. Banks often sees cases where start-up entrepreneurs, in an
effort to save money, either don't hire an accountant and
attorney to correctly set up the business, or simply don't pay
their taxes.
"In two or three years, when the taxing authorities notice
this, those decisions are going to come back to bite [the business
owner]," Banks says. In other cases, entrepreneurs don't
bother to get the proper business licenses and wind up paying the
price down the road in the form of fines and penalties or even
criminal liability.
If you're sued, attorneys advise you first to place a call
to your insurance agent. You may have coverage that will help
settle any claims. Next, contact your attorney and get him or her
involved as soon as possible. If you don't have an attorney,
however, don't resort to picking one at random from the
telephone book. In the event of a lawsuit, it's important to
find an attorney who specializes in small-business issues. The best
approach is to get referrals from other business owners; if that
doesn't work, contact the local bar association.
When you've selected an attorney, communicate honestly, and
bring all relevant files, records, telephone logs and invoices to
your meetings. When speaking with your lawyer, tell the whole
truth. Attorneys live to save us from our own mistakes, but they
need complete and accurate information from the client in order to
do their best work.
At the first meeting, ask your lawyer for his or her most
realistic estimate of the possible outcomes and the time frames
required to achieve them. Agree on who's going to do what and
by when. Then, be available and responsive to your attorney.
Don't blow off meetings, hide or neglect to return phone
calls.
Clearly, the best advice attorneys can offer is to do everything
you can to prevent lawsuits from happening in the first place. Set
up your business properly, pay your taxes, deliver high-quality
products or services in a timely manner, and get all contracts in
writing. Keep thorough records of all business activities, and hang
on to them for at least 10 years.
"In the long run," Banks says, "it's cheaper
to pay an accountant and an attorney upfront to help you set up the
business than to pay them to get you out of trouble
later."
Pamela Rohland, a freelance writer from Bernville,
Pennsylvania, coaches her staff of four cats.