As a small business owner, you have to be equally mindful of upside and downside risk. And as important as it is to focus on growth, there's something to be said for protecting the downside with simple strategies and investments.
How to Protect Your Liability (and Keep Growing)
One of your primary responsibilities as a business owner is to put your organization in a strong and stable position to grow. Part of this requires you to keep a keen eye on certain risks and threats (many of which are outside of your control). And though there are no foolproof solutions, the following tips will prove to be beneficial:
1. Form the Appropriate Legal Entity
The very first step is to choose the proper legal entity or business structure for your company. Ideally, this is something that's done from the very start. However, you may need to go back and revisit your options if significant factors have changed in recent years.
"The business structure you choose influences everything from day-to-day operations, to taxes, to how much of your personal assets are at risk," the Small Business Administration explains. "You should choose a business structure that gives you the right balance of legal protections and benefits."
By default, your business is a sole proprietorship until you take definitive action and pursue another structure. The problem with this setup is that there's no separation between you and your business, legally speaking. You're held personally liable for all obligations and debts of the business. Better options include partnerships, limited liability companies (LLCs), and corporations (C corps and S corps are both popular among small businesses).
2. Get the Right Policies
When you're running a small business with tight margins and are trying to keep overhead low, insurance can seem like a waste of resources. But in reality, it's one of the best investments you can make in the long-term health and stability of your company.
In particular, you'll want to focus on a business owners policy (BOP), which is able to cover a variety of different forms of liability and property damages for businesses, including buildings and structures, personal property, income, etc. Other policies worth considering are general liability insurance, product liability insurance, professional liability insurance, and commercial property insurance.
3. Secure Your Intellectual Property
Don't underestimate the importance of protecting your intellectual property from ill-willed entrepreneurs and competitors. From your business name and logos to proprietary processes and products, getting copyrights, trademarks, and patents will help you keep outsiders at arm's length.
4. Write Thorough Contracts
As any business owner knows, it doesn't exist until it's in writing. The problem is that many small businesses fail to draft adequate legal agreements. (Which means they have a false sense of security.)
Small business owners often pull contracts or agreements from the internet - or source them from other businesses that are outside of their industry - and fail to consider the need for custom contracts that are specific to their company size, location, or application. Don't make this mistake! If you're going to take the time to sign a contract, it should be handled by an attorney.
5. Train Your Employees
You can avoid a whole host of problems if you simply invest in the proper training of your employees on the front end. From how to use equipment to how to speak with customers, adequate training empowers your team to make safe and legal decisions that protect you from legal issues like liabilities and broken regulations.
Training is something that should be seen as more than just a one-time event when you onboard a new employee. Make it a regular and recurring investment so that you can stay on top of the latest developments and keep important issues fresh on your employees' minds.
Don't Let Risk Come to Fruition
We face risks in every area of our lives. From the moment our feet hit the floor in the morning until we slip back in bed in the evening, risk is all around us. But risk, on its own, has no ill-effect. It's when risk is realized that it becomes hazardous to our lives.
You can't stop risk from becoming a reality, but you can insulate yourself and your business from many of the negatives that crop up in its wake. Look for ways to implement the tips and strategies outlined in this article and be as productive and profitable as possible.
