A short while ago I was talking with my friend and attorney, Alan Gassman, about the crazy, uninformed, and just plain stupid things that business people do that get them sued. Alan is one of the leading attorneys in the country with over 20 years of practice experience.
I want to share that list with you here so that you can give yourself a quick checkup and make sure you’re being legally smart with how you’re operating your company.
1. Failure to recognize legal threats caused by lack of compliance with the law.
Over and over again we’ve both seen clients lose everything from a business or financial standpoint because they “did the right thing” but did not follow the clear requirements of government rules or contractual obligations for lack of having a “compliance component” of their business.
Many successful entrepreneurship got where they are by ignoring business conventions, but then confuse “bucking the system” with “following the law or contract”. Bankruptcy and jail are not uncommon results.
2. Failure to sever ties with the dishonest people.
Lie down with dogs and you will have fleas. Lie down 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 business people who have been lead to “cheat on their taxes” by dishonest accountants who then turn in all of their clients testify against them to have shorter jail sentences.
3. Failure to fix or flee from bad relationships.
When employees, relatives in the business, trusted employees, or difficult suppliers or customers are out of alignment there can be a tendency to try to ignore or procrastinate 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.
Don’t pull the band aid one hair at a time…
4. Failure to adhere to high quality standards of conduct, products, and follow through.
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.
5. Failure to monitor and assure honesty in others.
Don’t expect honesty, and don’t provide temptation by not making everyone in your organization accountable. Accounting firms, lawyers, and quality control 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”.)
6. Failure to have planned for Murphy’s law.
If you’re in business long enough the chances are that you’ll have some crazy stuff to deal with. Customers will go bust, owing you hundreds of thousands. Key team members will leave, right when you are in your busiest season while you’re short staffed. 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 more often they occur to those who had rose colored glasses on and have ignored rational warnings. Sometimes risks are much more prominent than they seem.
7. Failure to find and follow sound legal or accounting 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 adage is true that “anyone who does their own legal work has a fool for a client”. The legal system is said to be rigged against those who do not follow the rules. Better safe than sorry, or devastated. And using lawyers who are familiar with the specific area of law involved can be essential.
The same is true for those business people who forgo or ignore their CPA.
8. Failure to have proper liability and casualty insurance to cover prominent risks.
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, or is actually over whether insurance properly in place. An annual insurance review and a periodic second opinion from an independent consultant who is familiar with the industry are both 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 insurances and procedures are in place. Whenever possible, outsource functions that cannot be insured, checking that the vendor you outsource to has full coverage.
9. Failure to have employees and contractors in sync with objectives and operations.
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 and trying to make money from being whistle blowers instead of being loyal team players who have the business’s back. This takes time, money and energy that should be part of the business plan, budget, and culture.
Mistake 10: Failure to Implement and Maintain Proper Legal Structures
A good 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 in result between a well-planned business and estate structure and a poorly or unplanned arrangement can be dramatic. The right structures give you a “bomb proof” containment system to keep exposure in one area from bleeding over to all the rest.
So there you have the list of dumb things we do that raise our risk of lawsuit and often come back to haunt us in a deposition or other legal proceedings.
Thank you Alan for sharing the list. As a client of your law firm I appreciate what you do to keep me legally safe.
If you enjoyed the ideas I shared, then I encourage you to download a free copy of my newest book, Build a Business, Not a Job. Click here for full details and to get your complimentary copy.