(For Owners And Operators Of Businesses)
By Stuart Evan Glass, J.D.
I used to tell my clients that it costs about ten times more in legal fees to get someone out of trouble than to keep someone out of trouble. Now, it could cost over 20 times more. The costs of suing and being sued are skyrocketing like ballplayer salaries. Whether you win or lose the lawsuit, the costs can stagger any business. This means that the best way to keep legal costs down is to stay out of lawsuits. Remember, this includes the ones you have to file, as well as those filed against you. These "Commandments" can help.
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Write it Down.
Put it in Writing -- Clearly. Samuel G. Goldwyn said "An oral contract ain't worth the paper it's printed on." He was right. Have a clear contract for your regular transactions, and stick with it. Take notes and write letters to confirm your conversations. What is expected of your business and what you expect from others in any transaction should be expressed in clear, unambiguous, grammatical English. If your business uses a lot of technical jargon, make sure you can translate it into plain English when doing business with the public.
Read Before You Sign. A written contract always means what it says, not what someone tells you it says. If you don't understand a written contract, or if it seems to say something different from what someone is telling you, don't sign, or get the advice of an attorney before signing. Finally, read your own documents. The legal consequence of confusion in a document you write is to interpret it against you.
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Use Quality Professionals.
In your personal life, you would not go without a physician that you trust with your life. In your business, a good attorney and accountant, knowledgeable in your business, are absolute necessities.
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Keep Good Records.
A house in good order discourages attack from the outside. In the event of a dispute, the party who has kept good written records always has the advantage. Being able to document your performance or payment, or the other's breach, helps deflect an attorney's demand letter. Records should be kept at least four years, or longer for tax purposes.
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Don't Get Greedy.
It's sometimes easy to take advantage of the unwary. Resist the temptation. They will have four years (the statute of limitations) to find out you cheated, and sue you. The Golden Rule applies in business. There is no better publicity than a satisfied customer; conversely, people with a complaint about your business don't just walk away quietly. Now, they expose you on TV and they sue.
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Get Paid.
Restaurants, stores, and other retail businesses make customers pay before leaving. Theaters and ballparks require payment before entry. Businesses, whether service or inventory, should demand or secure payment upon delivery, or as soon as industry practice will permit. You can always afford to reject a customer or client who refuses to pay according to your regular business policy. Paying an attorney to collect your bills wastes your valuable business resources. This is not to discourage community or charitable service; but you should decide for whom to work free.
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Know Your Business.
Know Your Customers. The grocer and the hardware clerk can't know every customer. But if your business caters to a small number of customers in large transactions, investigate new clients before making large commitments. Develop a standard questionnaire of vital information to check credit or industry references. Before a significant transaction, check the other person's references, financials, or other appropriate information. Attorneys call this "due diligence," and you owe it to yourself to "know what you should know" about your trade partner.
Know Yourself. Know your own capacity; know what you and your business can do. This helps you make only those promises you can keep. If you are expanding into new areas, or stretching your capacity, hire consultants and professionals to help you avoid pitfalls. They're available.
Know the Law that applies to Your Business. Every business is governed by state and federal laws. Many businesses are directly regulated. If nothing else, you and your business will have to comply with laws concerning discrimination, sexual harassment, wrongful discharge, etc. The larger your business, the greater the burden of compliance and the consequences of non-compliance. Make sure you and your associates know and follow the law, and document compliance properly.
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Mediate.
Insist upon contract clauses requiring mediation before a lawsuit is filed. If sued, mediate before trial. A case settled through skillful mediation costs a small fraction of the expense of a full trial.
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Watch Your Business.
Put out Fires When You Smell Smoke. Any complaint from a customer, employee, bank, or other person about any part of your business should be investigated, corrected and documented promptly. If you or the other person is late keeping a promise, or has otherwise fallen short of legal expectations, take care of it immediately. If you put off today's small fire, you will have a larger fire tomorrow, plus tomorrow's small fire.
Watch Your Business like an Eagle Guards its Nest. Count the money, count the silver, check the locks and look under the rugs, every day. Do it yourself.
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Use Common Sense.
Trust Your Instincts. There is no free lunch, and you can't expect something for nothing. If a deal seems too good to be true, it nearly always is.
Trust Your Fellow Man--but Cut the Cards. In any commission business, or where anyone else handles your money, you must demand and get the right to examine the books. Then use it.
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Be Honest.
Keep Your Promises. Make your contractual obligations clear, and keep them. Broken promises in business don't just cause disappointment, they encourage lawsuits, with words like Fraud and Deceptive Trade Practices. Pay your bills. If you get paid, deliver. If you can't deliver, refund the money. Pronto. If you received a materials or cost deposit, set it aside for that purpose only. Paying the Mercedes lease or buying that Rolex, instead, begs for trouble.
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