RUNNING A BUSINESS
 
 
Tips for Running A Business:
 
Once you’ve started a business, there are a number of things to keep in mind from a legal perspective to keep your business running smoothly.
 
Steve’s First Rule of Business: 
 
Don't do business with a crook.  No matter how good your lawyer is, he or she cannot draft a document that will protect you from a dishonest person.  A vendor, partner, employee, customer, or associate that has no integrity can always find a way to damage you. To the extent possible, associate with trustworthy people.  Does your prospective associate, partner, employee, or investor cheat on their spouse, hide assets to avoid paying child support, or cheat their creditors?  If so, what makes you think they won’t cheat you?
 
Steve’s Second Rule of Business:
 
Never get into a fight with a maniac.  After decades of experience with the justice system, I have found that the cure (litigation) is almost always worse than the disease.  The justice system is short on justice and long on system. The system only works when high quality legal counsel and rational parties, who have realistic expectations about the risks of the “justice” system, get together and settle disputes early in the litigation process.  Desperate or incompetent lawyers mixing with irrational clients almost always run the justice system out of control and drag you and your wallet with them.  If you find yourself in a situation facing litigation with a party who is not rational because of egomania, uncontrolled rage, or other reason, run away!  Bail!  Do whatever you have to do to find a way out. Certainly don’t pick the fight.  If a fight is unavoidable, check out the Dispute Resolution tab above for lower risk ways of resolving a fight.
 
Good Customer Agreements:
 
The smoothness of your day to day operations often depends upon clear, mutually understood expectations between you and your customers. Those expectations should be documented in a good customer agreement, tailored to the unique nature of your business. I have been drafting these kinds of agreements for 30 years, but find that the sharpest lawyer cannot replace ten years of experiences with customers.  By this I mean that every business has a unique set of customer relationship challenges that the smartest lawyer cannot fully anticipate. Ten years of experiences with customers with the inevitable negative experiences will smoke out 90% of those issues. When a startup small business client asks me to draft their customer agreement my advice is to join the best association in your business field.  That association probably has a set of model agreements honed by years of bad experiences. This is where you start. If there is no association serving your business, see if you can get ahold of the customer agreement of your best operated competitor and have your lawyer redraft your agreement from this base.  I can enhance most agreements with improvements in structure and in boiler plate clauses applicable to small businesses generally, but cannot anticipate many of the industry specific problems that will be effectively dealt with as a result of a long industry specific experience.
 
Wise Use of Your Lawyer:
 
Find a lawyer who can give you good advice over the phone and don’t be afraid to call him or her when you feel those muscles in your gut begin to tighten.  A $40 phone call made early in a potential conflict can save you tens of thousands after the fact.  Don’t expect your lawyer to give you free advice over the phone, nor should you expect that even the best lawyer can give you a black and white answer on 30 seconds notice, but a good lawyer can give you general guidance in an approach to almost any problem to help steer the ship of your business away from the rocks.  I have done many a research project for clients.  As often as not, the answer is “we can’t be sure.”  Sometimes there is a black and white answer and, on rare occasion, the black and white answer is contrary to what experience would lead me to expect, but the typical small business cannot afford a legal research project on every potential legal problem.  What small business owners need is good solid general guidance delivered quickly and inexpensively when a situation is fluid.  Develop a relationship with an experienced lawyer who will give you general guidance over the phone when you need it.  Don’t be frustrated when such a lawyer doesn’t return your call immediately, good lawyers are busy.  Don’t be afraid to make several calls and don’t be afraid to tell the receptionist that you have an emergency.
 
Avoid Litigation:
 
As eluded to above, a full blown litigation is a cure worse than the disease. Abraham Lincoln said:  
                  
Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often a real loser -- in fees, expenses, and waste of time. As a peacemaker the lawyer has a superior opportunity of being a good man. There will still be business enough.
 
Abraham Lincoln, Fragment: Notes for a Law Lecture, in 2 Collected Works of Abraham Lincoln 82 (Rutgers University Press, 1953). Available at http://quod.lib.umich.edu/l/lincoln/.
 
Even a litigation against a rational party may turn into your worst nightmare.  In the end, after spending enormous amounts of money finding out the facts of a case from the other side in a process called “discovery,” the final decision is going to be made by a jury or a judge who have little understanding of or sympathy for small business.
 
Judges are usually appointed from the pool of lawyers with substantial trial experience.  The majority of trial experience is reserved to lawyers who practice in the criminal, divorce, and personal injury arenas. There is a high probability that your judge will come from one of these legal backgrounds. Your judge was probably a very good trial lawyer, but may know next to nothing about real estate development, construction, corporate governance, or your specific industry and may seem to have a deaf ear to the way things are done and the accepted practices of your particular industry.  In general, I have found a high level of client frustration with the ability of judges to grasp or deal with the issues that are important to business clients.  This partly results from lack of business experience of many judges, but most often results from the rules of evidence, rules of procedure, and formal constraints under which judges must operate.  In short, clients grossly over estimate what a court or the justice system can do for them and grossly under estimate the cost and disruption that result from a litigation.  
 
There are several techniques for avoiding litigation.  These include: 1) seeking and heeding good advice, 2) understanding and documenting with good contracts the expectations of the parties to every deal, 3) operating your business with integrity, and 4) anticipating and facilitating non traditional dispute resolution options.  Each of these are discussed in greater detail on this website.  If you find yourself needing to resolve a dispute, see the Dispute Resolution tab above.
 
Know How to Make a Deal:
 
Knowing how to efficiently and fairly make deals is an important skill that all small business owners need.  Most develop these skills in the school of hard knocks.  Consult the Making Deals tab above for general tips on how to approach the problem of making good agreements.
 

 

Brought to you by Business Law Associates, L.C., Utah's Small Business Law Firm, 8170 S. Highland Dr, Suite E5, Sandy UT  84093, 801.944.5255.