Small businesses face a lack of accurate information regarding the direct and indirect costs of litigation on the decisions they make. As such, Stuart Simonsen Lawsuit reports that businesses often make huge sacrifices, like providing additional services at no extra cost, to avoid client conflict.
With that in mind, the Small Business Administration Office of Advocacy conducted a study on the impacts of litigation on small businesses across the US.
Lawsuit Impacts Go Beyond the Financial Implications
It isn’t just the financial impact of damages and legal fees that impact small businesses and their owners during litigations. Since most owners are invested in their company, litigations cause overwhelming emotional hardships, shifting the entire business tone.
From telephone interviews with those who recently suffered a lawsuit, it’s clear that many try to settle their cases out of court. Although, the results are mixed.
Purportedly, the main reason why settlements failed was the opposing party refused to negotiate, preferring to head to the courtroom. Small business owners said they went to great lengths to prevent this.
Most participants in the study mentioned financial impacts, with legal costs amounting to between $3,000 and $150,000. Interviews show that owners felt they had to recoup such losses by cutting operating expenses, obtaining new customers, and/or expanding their offerings.
Due to the limited reserves held by small businesses, litigation costs are a near-impossible burden for their owners.
The Three Main Litigation Issues
The SBA Office of Advocacy classified the primary litigation issues faced by small business owners into three categories — employee complaints, business-specific claims, and customer satisfaction.
These issues affect small businesses in four major ways:
- Financially — This includes costs of attorneys, damage/settlement costs, and cost of employee/owner time devoted to the case.
- Emotionally — Strained mental states cause strains on the entire business.
- Loss of business — The publicity of the specific litigation causes customers to take their business to competitors.
- Structure changes — Small business owners often become more wary of customers and employees if they believe allegations were inappropriate. Plus, they realize documentation processes or organizational structures must change, costing time, effort, and money.
Minimizing Litigation Risk and Liability
While the impacts of lawsuits on small businesses in the US can be devastating in more ways than one, owners can use the following tips and tricks to minimize their likelihood of suffering litigation in the first place. They can:
- Ensure they address complaints promptly, regardless of how small they seem.
- Tighten control of the firm’s and owner’s assets and how operations are conducted day-to-day.
- Understand that no one can completely avoid lawsuits, so conducting themselves carefully is crucial.
- Ensure all EEOC posters are posted.
- Increase care when dealing with paperwork to ensure they’re covered from all sides.
- Be less trusting of other companies, employees, and customers.
- Obtain all relevant insurance policies.
- Document all complaints, even the smallest of problems.
Ultimately, keeping an expert eye over all operations and documentation processes is the key to limiting risk and the likelihood of suffering litigation.
