Regardless of the outcome of any legal encounter, the cost of the battle can have devastating effects on your homebased or other small business.

While there is seldom much you can do to stop legal action that has been started against you, the following five precautions can help you maximize your chances of winning legal battles and minimize your chances of being sued, your need to sue others, and the potential legal fees associated with law suits.

Maintain adequate personal injury liability insurance. Although a standard homeowners' insurance policy includes offers protection against personal injury liability suits, that protection may not cover personal injury to customers, employees or suppliers of your home business. Ask your insurance agency to make sure you have coverage against such personal injury claims. Many insurance companies now offer riders (additional options) that add this important protection to your home insurance policy for only a very small additional annual fee.

Make sure you get a written contract for work assignments. To be enforceable an agreement must have all the elements of a contract. While the law does allows many contracts to be oral, it is recommended that you always have a written contract.

Without a written contract detailing all aspects of an agreement, you leave yourself open to misunderstandings and outright lies. Consider a computer consultant who has agreed to develop a particular application program for a company on an oral agreement. The company and programmer agree verbally that the program should be finished in four months. Without a written contract spelling out specific details, the consultant may plan to deliver the prototype for the program in four months and work out the bugs in ensuing weeks or months. The company may be expecting the debugged version of the program to be ready in 4 months. The result? Hard feelings and possibly legal action either by the consultant to collect his fee, or the company claiming damages due to the unacceptable delay in delivery of their program.

Know your capabilities and perform all jobs with care. You may also be sued because you have not performed up to a reasonable standard of care (lawyers call this "negligence"). In order to minimize your chance of losing negligence suit, perform your tasks using an amount of care equal to or above the care normally exercised in your business for performing that task, and whenever possible document your actions.

Consider including an "attorney's fee" provision in contracts. Such a provision will usually allow you to collect your attorney's fees from the other side, if you win. Unfortunately, it also allows the other side to collect their fees if you lose.

Consider purchasing Errors and Omissions Insurance. To further protect yourself against negligence claims you may want to buy errors and omissions (E & O) insurance. Such insurance will normally pay the attorney's fees for your defense as well as any damages assessed against you up to the limit of your policy.