How can a Small Business survive?

 In Legal Advice, Small Business

There are several reasons why a small business might close its doors. In the first 4 years of business, less than 20% of small businesses survive!  (U.S. Bureau of Labor Statistics, BED).  The probability of survival increases with age, so the longer you can stay afloat the better your odds are at not having to “go out of business.”  It’s those first few years that are the hardest, but if you understand the issues then you can better prepare and hopefully make it.

Going out of business commercial sign

Small business owners deserve that “pat on the back” for sticking around year after year. Small businesses create many more jobs than large businesses. In 2004 the Small Business Administration (“SBA”) reported that 39% of new jobs came from small businesses with fewer than 50 employees. Small employers comprise 99.7 percent of the workforce in the U.S. One in two workers in the private workforce run or work for a small business. So pat yourself on the back if you are that small business owner or give your employer a deserved “high five” for having the guts to keep going, no matter the stress the small business owner deals with daily.

The impact on a small business from lawsuits goes well beyond the purely financial impact of legal fees and damages. Most small business owners are invested personally in their businesses; litigation causes not just financial loss, but also substantial emotional hardship, and often changes the tone of the business. Check out these insightful findings from the SBA’s 2005 report on how litigation impacts small businesses:

  • Half of business litigation involves Small Businesses with less than 50 employees;
  • Businesses with less than 50 employees are less likely to have dedicated legal resources. They don’t have an HR department or In-House counsel to help avoid common mistakes. In fact, it’s usually the business owner who wears all the hats and handles everything from HR to accounts payable, etc.
  • In lawsuits with small businesses, the Small Business is 50% likely to be the Plaintiff and 50% likely to be the Defendant. This means that the business owners are getting sued half the time and the other half, the small business owner had to file a lawsuit for most likely a claim for Breach of Contract.
  • 70% of all lawsuits involving small businesses are about issues with contracts and employees:
    • Breach of Contract equals 30% of the lawsuits filed. A standard contract with all appropriate signatures is what most of us think about. However, contracts include a variety of agreements like: policies and procedures, employee handbooks, letters, and even an oral agreement may be determined to be a contract.
    • Then 40% of the lawsuits deal with employment claims, so wrongful termination, discrimination, harassment, wage and hour, etc.

How can a Small Business survive?

  1. Make sure to address all complaints (customer and employee), no matter how small, in a timely manner.
  2. Realize that no one can avoid lawsuits so be as careful as possible.

If closing a small business is based on actual failure, which is often preventable, with good planning and management, mistakes can be avoided. The old adage, “People don’t plan to fail, they fail to plan” certainly holds true when it comes to small business success. A small business attorney can often provide the perspective you need to find issues, resolve problems or even avoid them altogether.

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