A good starting point is to be conscious of where the main pitfalls are which trap the unwary. The Federation of Small Businesses (FSB) offers members a Legal Advice line (of which, more follows). The FSB regularly reviews the subjects on which its 200,000 members contact the advice line and the results are highly instructive and relevant (the typical member employs four staff).

Of the 76,000 enquiries in 2006 the major ‘growth areas’ were for questions related to the following categories: age discrimination, up 664%; information and consultation, up 439%; part time workers, up 68%; pensions, up 23%; retirement, up 88%; and other forms of discrimination, such as on religious or sexual orientation grounds, which were up by 92% and 56% respectively.

The rise in queries on discrimination topics is due to new or proposed legislation on age, religion and sexual orientation, says the FSB, while the increase in questions on pensions and retirement is down to proposed Government moves to act on pension provision for all workers.

Similarly, more calls have come in regarding information and consultation because of changes in flexible working and age discrimination rules, requiring firms to inform and consult their workers on these issues. And questions from part time workers are due to the proposed changes in annual leave arrangements for them and the uncertainty over the working time directive towards the end of 2006.

Alan Tyrrell, FSB employment chairman, said: "Employment law is vital to ensure that both employers and employees know where they stand and to protect both parties as they carry out their work. However, the complexity of these laws is placing an intolerable burden on smaller firms who are not big enough to have their own HR Department."

Just as the profit comes from people, so do the legal problems. What's more, those problems have their greatest impact on small businesses. If a company employs 200 people, two bad apples are a nuisance; if you employ 10 people those two bad apples can destroy you.

Murray Fairclough, a barrister and legal services director at Abbey Legal services, says that the most common problems with the small, five to 10 staff business unit is lack of adherence to procedure.

Whether you like it or not, disciplinary and grievance proceedings are mandatory, irrespective of size of business. It doesn’t matter whether you are M&S or have only one employee who is your wife’s second cousin – you must comply with these procedures. This means the law has a manifestly disproportionate adverse impact on small business units. Get it wrong and the awards against the small business are exactly the same as a PLC. The average unfair dismissal claim award is £12,000 and for discrimination you can double it. The legal costs will be around £7,000 for an ordinary two-day hearing on top of any award, while costs and awards at current levels can put many small companies out of business.

Fairclough's recommendations are simple:

• Keep your distance from employees in the first place – you might have to discipline them at some point in the future
• Don’t be over-familiar – keep it strictly professional
• Set an example; be consistent with staff; balance their needs/requests with the needs of the business and explain what you are seeking to achieve – you will come across as more reasonable even if they don’t like your decision.

Many business owners will recognise immediately that following those guidelines feels entirely contrary to their normal management practice and could well represent a change in the way the business operates. How do you motivate someone to feel that they "own" their part of the business (as classically recommended by management gurus) when you have to be stand-offish for legal reasons? Nobody said it was easy.

In addition to following Murray Fairclough's best practise guidelines, there are a couple of other bits of self-help you can activate. Start by becoming a member of the FSB. It costs from £100 plus a £30 joining fee for a sole trader, going up to £240 for a business with 20 employees and £450 for 100 employees.

The free legal advice line gives members 24/7 access to legal experts with a website that gives you a host of practical guidelines. It's backed up by representation costs up to £50,000 in those areas where the small businessman feels most friendless: in-depth Inland Revenue investigation; appeals to VAT tribunal decisions; motoring prosecutions; and prosecutions and appeals under Health and Safety legislation. There is also advice and cover of costs for employment and PAYE disputes. There is anecdotal evidence that the VAT man and the Revenue avoid taking on businesses displaying FSB membership, because they know they'll get a fight.

Another option is to have a legal protection insurance policy. The leaders in this form of insurance are DAS (www.das.co.uk). They offer round the clock legal advice as well as cover for disputes relating to employment law, tax issues, commercial property and bodily injury to staff. They provide an on-line Employment Manual to enable employers to protect themselves against claims before they happen and point out that it's an issue you should discuss with your broker because cases at employment tribunals went up 25% in the last year.

Let's take a high-profile example of a law affecting businesses – the No Smoking law, which came into force on 1st July in England. Given the coverage of its prior implementation in Scotland and Wales and the fact that you couldn't open a newspaper without reading about it in the past few months, it might be supposed that everyone knows the impact. But the evidence is that they don't.

It appears that plenty of small businesses think it's a law for pubs, clubs and restaurants. In fact it applies to anywhere where people work, with a few narrow exceptions, which don't include the printwear industry. Having a staff smoking room is now useless – smokers must go outdoors. Having a covered outdoor area may be no good either. The law includes any "substantially enclosed" area, by which it means a roofed area where the walls are less than 50% open to the elements. Work vehicles used by more than one person are also included.

It is the business's responsibility to alert all visitors to the law by displaying bona fide 'no smoking' signs in a prominent position at each public entrance to the premises in such a way as to make staff, customers and visitors aware that they must comply with the ban.

The minimum signage requirement for premises is a sign of any shape, which is at least equal to the size A5. It should display the international 'no smoking' symbol (which consists of a graphic representation of a burning cigarette enclosed in a red circle with a red bar across it), be at least 70mm in diameter and contain the following words in English: 'No smoking. It is against the law to smoke in these premises'. A similar 70mm sign is required in vehicles.

As an employer, if you commit the offence of failing to prevent smoking, you face prosecution and a fine of up to £2,500. Penalty notices will not be issued for this offence. You also face a fixed penalty notice of £200, or prosecution and a fine of up to £1,000 for failing to display nosmoking signs. The non-compliant smoker will be fined £50. Fines can only be imposed by environmental health officers.

The point of banging this drum so hard is that, at the point of writing, (after July 1st) I have not seen such signs in place in many cases. It is my guess that if a cash-strapped local authority wanted to have a field-day with this, they could do.

An incidental fact is that this law, like almost all new statutes, will create business opportunities for the sharp minded just as it will take others away. Consider all those people standing outside commercial premises in the rain. Philip Morris might not order them, but a garment decorator with a sardonic sense of humour might create cagoules reading "Welcome to Marlboro Country".

The bottom line on legal issues is a simple one: treat them seriously.

Getting it right may cost you some hard earned profits in the short term, but in the longer term you'll be properly prepared for the vagaries that business can throw at you – and you'll sleep better at night.

Paul Clapham is a marketing consultant with over 25 years’ experience covering a broad range of business sectors and a full spread of marketing disciplines. He has run his own business since 1996, working with small, medium and large companies alike to increase their profitability through marketing.

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