Managing a business comes with its own set of challenges, and one of the most formidable is the potential for litigation. Legal disputes can drain your financial resources, consume precious time, and tarnish your company's reputation. However, strategic planning and support from a trusted advisor can significantly mitigate these risks, safeguarding both your personal and business assets. Read on to find out how.
Understanding Business Liability
Every business owner must understand liability — your legal responsibility for any losses or damages that arise from your business operations. Here are some common types of business liabilities that every owner should be aware of:
- Product Liability: Covers injuries or damages caused by defective products your business manufactures, distributes, or sells. An example is the Boeing airplane door defects that are all over the news as this article is being published.
- Premises Liability: Includes injuries that occur on your business premises, i.e., someone trips and falls in your building and is injured.
- Employee Liability: Occurs when the actions of your employees during work result in harm to others. For example, if your employee is driving the company car for work purposes and is in an accident where someone else is hurt. If the employee is found to be at fault, the injured party can sue your business.
- Contract Liability: Occurs if your business fails to fulfill its part of a contractual agreement. This could be anything from failing to deliver a product on time, to not paying invoices, to failing to meet any other obligation you’ve agreed to.
- Intellectual Property Liability: Involves legal issues that arise from the unauthorized use of someone else’s protected intellectual property (patents, trademarks, copyrights). See our previous article on how to protect yourself from accidentally infringing on someone else’s trademark.
In addition, you could be personally liable for business operations if certain formalities are not in place. In this instance, your personal assets will be at risk (yep, your personal cash, house, and investments count). You do NOT want this to happen!
Foundational Systems Ensure Protection
To shield you and your business from legal threats, you must start by making sure you have the necessary foundational systems in place. Hands down this is the best thing you can do. Those foundational systems involve legal, insurance, financial and tax . Let’s dive in a little deeper, since understanding of these systems is crucial.
Legal Systems: Not only should your business be incorporated properly with your State and have all required operating licenses, but your business entity needs to be maintained on a consistent basis. This means you must follow corporate compliance formalities required by the law.
You also need partnership agreements, employee contracts, customer agreements, and an operating agreement or bylaws so you’re fully protected.
Insurance Systems: No matter how robust your legal systems are, life happens, and that’s what insurance is for. Every business owner needs insurance coverage that suits the specific needs of the business, from general liability insurance to more specialized policies like professional liability or cyber insurance and, of course, life and long-term disability insurance.
As the business owner, you may also want to consider key person insurance, or a policy your business takes out on you, or anyone who’s critical to the running of the business.
Financial Systems: Apart from understanding your profit and loss statement, or how much cash you have each month, it’s important to have robust financial systems in place for making strategic decisions as you grow. These include revenue projections, financial planning & analysis, investment strategies, and a regular review of your financials with an advisor to ensure you’re meeting your goals and managing cash flow and growth plans effectively.
Tax Systems: Taxes are your biggest expense. Therefore, it’s important to make sure your business is structured to optimize tax benefits and compliance, because who wants to pay more taxes than they need to, right? And of course, it’s important to know what your estimated tax payments will be, that you’re paying the right amount, and that your payments are timely.
That’s a LOT. And if all this feels overwhelming, especially when you’re running your business as a full time job, you’re right. You should not try to put all these systems in place alone. You need the help of a trusted advisor who understands your business inside and out, and can ensure you’re doing everything you can to protect yourself.
I’m here to serve as the trusted advisor you need so you can free yourself of worry from lawsuits and focus on growing your business. Together, we’ll ensure your systems are in place and updated and potential threats are taken care of.
Schedule a complimentary call with us today to get started.
https://tidycal.com/hchun/15-minute-meeting