Owners of small to medium-sized businesses have many responsibilities, and they face a continuous balancing act of managing day to day operations while driving growth. They are in a position of authority and leadership with overall control of the business’ strategy. They are also tasked with the protection of both the business and its employees.
Unfortunately, businesses of every size across all sectors are at risk of a lawsuit, which could threaten the business’s reputation, financial situation, and in some cases, could even lead to closure. This guide highlights the most important steps that business owners should take to ensure their business is protected from legal action.
Select the right structure for your business
A lot of entrepreneurs set their businesses up as sole proprietorships at first, as they are often starting out on their own. While this may seem the simplest approach, it can be a risky strategy, especially as the business expands over time. The reason for this is that as a sole proprietor, if someone takes legal action against the business or a supplier needs paying, and the business cannot afford it, you as an individual are liable. This means that your personal savings, any property that you own, and other assets are at risk.
Consider setting the business up as a Limited Liability Corporation or LLC to protect your business and personal assets. This separates the business from your personal assets, so you will not be liable for the business’ debts or lawsuits. Alternatively, some people choose to set up their business as an S-Corporation, so it is important to understand the pros and cons of both. Click here to find out more about the differences between an LLC and an S-Corporation.
Hire an attorney
From the earliest point of running a business, it is important to access professional legal advice. An attorney can not only help you set up your business in the right way but will also ensure that you make the right choices in terms of taxation, business operations, managing your employees, and, of course, responding to legal action. Attorneys can provide advice as to how to navigate difficult scenarios or how to react if you are being sued. When choosing an attorney or law firm, it is important that they have experience in your industry and local laws. Some law firms specialize in particular areas of corporate and business law, such as Padua Law Firm.
However, even if you do not need to consult with an attorney very often when you need legal advice, you need it quickly. Waiting until you need advice may cause crucial delays. Ideally, you should find an attorney who is experienced and that you feel comfortable with, as well as an attorney who suits your budget. It is worth, therefore, asking for recommendations from other businesspeople and interviewing several attorneys before choosing one.
Get the right insurance
Without insurance, your business is exposed to risk from multiple directions. Businesses should have general liability insurance as a minimum as this will provide financial protection should a customer become injured or unwell as a result of your product or service. This will also protect you should a customer injure themselves while on your premises. Some businesses should also have professional liability insurance, which is sometimes called E&O (errors and omissions) coverage. This will protect your business if a customer accuses you of failing to comply with the terms of a contract or making a mistake.
In some states, businesses also need workers’ compensation insurance, key man insurance on your life (which provides some protection should you or your key employees) die, or business interruption insurance (should the business shut down due to a disaster). Cyber insurance can also be useful as cybercriminals can and do target businesses of any size. Be sure to include a liability clause in any contracts you have, as this will provide protection if circumstances beyond your control prevent you from fulfilling your end of a contract.
Find an accountant
Many small business owners believe that they can cut down on costs by doing their own bookkeeping, but they often do not understand how time-consuming and complex this can be. By hiring a professional accountant to keep your accounts up to date and to ensure you are compliant with tax laws that are changeable. Accountants can also help you to save money, take advantage of all benefits available to you, and find the money you need to expand. With an accountant by your side, you will have the expertise you need to remain stable while pursuing growth.
Protect your business’ data
Modern businesses rely on computers and the internet to operate, and while this has opened up limitless opportunities, it has also brought a new risk in the form of cybercriminals. Cybercriminals are continually adapting their tactics and scams to gain access to sensitive information and financial data from businesses of every size. They can also infect computer systems with viruses, which bring business operations to a standstill and/or steal files. If your business suffers a data breach, you could face legal action from customers, clients, partners, or suppliers.
It is essential that your computer systems are adequately protected, regularly updated, that your data is backed up to the cloud and that your employees are trained in cybersecurity. Find out more in How to Protect Your Business From Cybercriminals.
Protect your public image
The way your business is perceived by the public and in the media is vital to its success. Your business is under the microscope from your marketing campaigns’ content and how your employees conduct themselves to how much paper you recycle. Managing your public relations is a fine art that requires constant attention. Before taking a stand on any political or ethical issue, it is essential to consider the potential impact it could have on your brand. It is important to avoid making statements that could be construed as slanderous or libelous, and you should make sure that you have thoroughly vetted any business you might be considering working with. You do not want your business to be associated with unethical companies or individuals.
