July 23 2015

In today’s world, anyone who runs a business or provides professional services can find themselves in a situation that can lead to a lawsuit. Start-ups, entrepreneurs, established professionals and shareholders are no exception to this rule. People are excited about getting their business going, spreading the word, and making money. Thinking about the legal stuff when making a deal is not fun at all – in fact, it can be pretty boring. But the legal stuff is exactly what you need to think about to make sure your deal can stand the test of time. At the end of the day, however, there is no secret way to completely avoiding litigation.

So what can you do to minimize the risk of a lawsuit when making a business deal?

    1. Create company policies or guidelines

Many businesses don’t have an easy to follow set of policies or guidelines for their company. Even if it’s a one-person company, creating a set of guidelines that you can follow every time will help you avoid common mistakes that can lead to potential problems down the road.

    1. Do your due diligence

If there is something that you need to check on before completing a task, make sure you do it! Whether it’s a reference check, credit check, getting a second opinion or even getting financial statements. It’s always better to have more information at your disposal before signing that contract or making that deal, so that you or the other side know exactly what you’re getting into.

    1. Don’t promise more than you can deliver

If you’re selling your services, you might be very enthusiastic in order to close the deal. It’s not uncommon to, once in a while, make a promise that you can’t keep. Obviously, these types of promises should be avoided. You must also make sure that your contract is very clear about what is and is not being promised.

    1. Write everything down

I am always surprised by the number of clients who see me because a deal went sour, and when I ask for documentation, they tell me they don’t have anything – that it was all word of mouth and a handshake. This is a huge mistake – when you’re making a deal, you are focusing on the big picture. But you can’t make the big picture a reality unless you work out the small stuff. All of this should be written down, discussed, and agreed upon so that both sides will know what their obligations are to each other.

    1. Limit your liability

Make sure your disclaimer is easy to understand, it makes sense for your business, and you’ve explained it to the other side. This can be anything from “use at your own risk” to limiting the amount that you are liable for if there is a problem down the road. A solid and properly-drafted limitation of liability can go a long way to saving legal headaches down the road.

    1. Don’t ignore small problems

If you think that tiny problem is going to go away – think again. In the business world, problems tend to have a snowball effect – they just get bigger and bigger until you simply can’t ignore it anymore. And by that time, the damage might be done and there might not be an easy fix. What might have cost you hundreds of dollars to fix might now cost you thousands, or potentially hundreds of thousands, depending on the nature and type of problem, and how far the litigation goes.

Benjamin Franklin knew what he was talking about when he said an ounce of prevention is worth a pound of cure. It’s very easy to just focus on the “business” part of your business, but if you haven’t done so already, take some time to look at your internal processes as they relate to how you make a business deal. Evaluate everything, find out what worked and what didn’t, and above all, make sure you implement those lessons into your business.


This article is for informational purposes only and does not constitute legal advice. If you wish to seek legal advice, contact us today.  613-747-2459