1. Never let a lawsuit take you by surprise. One of the most effective ways to prevent a lawsuit is to acknowledge the possibility of one — and, from there, to take every possible proactive step to prevent a lawsuit. Identify those elements and functions of your business that are most critical, and pinpoint volatile items within those areas. Then, work out planned responses so that problems are dealt with effectively and as a matter of course. "The most important thing to prevent lawsuits is to be proactive, not reactive," says Brad Forsythe, author of "Bulletproof Your Business." "The fact is most lawsuits are preventable if you proactively manage trouble and have plans already in place."

2. Get all agreements in writing. Sad to say, but the day when a businessperson's handshake was bond enough has gone the way of pet rocks and eight-track tapes. For one thing, so many details of any sort of agreement — be they completion time frames, costs and other salient details — are often glossed over or ignored if the contract isn't written out. Moreover, notes New York attorney Marshall Isaacs, many states have a statute of frauds which nullifies contracts that are not in writing. "In New York, for example, the promise by one person to answer for the debt of another must be in writing or it's unenforceable," he says. "I suspect many men do not want to be seen as petty or neurotic and prefer the machismo of a firm, old-fashioned handshake. But it's no good."

3. Make sure the agreement specifies how disputes will be resolved. Not only is it essential that contracts be written out; equally important is that they be comprehensive in scope. And, in addition to other details, that also means steps to resolve any disagreements that may crop up during the life of the agreement. For instance, many contracts specify that the parties agree to arbitration, mediation or some other form of dispute resolution short of heading off to the courtroom. Those and other options can often prove invaluable in avoiding a lengthy and expensive legal battle.

4. Make certain an attorney sees all agreements. Getting everything down on paper is only one protective element. But even well-intentioned written contracts can blow up in your face if they contain some loophole or other issue that the other party can exploit. So, make sure that your lawyer reviews anything you plan on signing. "Too many clients of mine have found themselves in legal trouble because they relied on oral representations that never found their way into the contract," Isaacs says.

5. Never stick your head in the sand regarding customer complaints. Complaints from and problems with clients and customers are a fact of small-business life. But ignoring them should never be. Far too many snafus start out as small issues and fester into a lawsuit simply because someone didn't pay sufficient attention to dealing with them as minor headaches. "Believe it or not, a large number of my clients don't sure because of money," Isaacs says. "Many sue because they feel they were slighted or treated unprofessionally."

6. Swallow your pride on occasion. Particularly maddening are problems with customers or clients that you know are simply not justified. It's always nice to pursue truth and honesty, but don't go tilting at windmills if the time and expense are simply not worth it. Consider compromise and settlement — even if you know you did nothing wrong, it's cheaper than going to court. "Even if you're in the right, offering a discount, compromising a bill or even offering an apology will almost always trump the eventual cost of a lawsuit," Isaacs says.

7. Spend a little now, save a lot later. Granted, most small businesses are on the tightest financial leash possible — including what they have to spend on legal matters. But don't be afraid to invest before the fact in legal protections and other measures that may prevent far more costly lawsuits further down the line. It need not be a bottomless pit. For instance, rather than having an attorney draw up all contracts from scratch, do some research and track down the best sort of prototypes that you can find. Then, have your attorney review them and, if need be, tailor them to your business.