Law suits. The word strikes fear in the heart of every small business owner. One big law suit can quite literally destroy a small business and its owner(s). In today’s business environment where frivolous lawsuits are rampant and record setting, it is vital for small businesses to stay out of court and off the radar. Below are six ways small business owners can proactively protect themselves and their businesses from the dreaded law suit.
- Document (in writing). This, surprisingly, is a tough one for many small businesses. The days of a “man’s word” and “a handshake” are over. Document everything. This means: contracts, transactions, agreements, and anything else you can think of. You can’t ever have too much documentation. Additionally, make sure you ask an attorney to review any legal documents.
- Have the right insurance. Many small businesses skimp on insurance, thinking they can save a few bucks. Unfortunately, it can end up costing you everything. Meet with a professional insurance agent who is very familiar with your industry. Don’t buy your business liability insurance from your residential agent. Ask around. Get referrals from others you know in your industry. Do your research. In fact, get a second opinion. You can’t be too careful when it comes to insurance.
- Choose your business structure wisely. Make sure you do you due diligence when it comes to business structure. Consult an attorney and an accountant. Sole proprietorships are still very common and do NOT protect you, the business owner, from liability and legal risks. Limited Liability Companies (LLCs), S-Corporations, and C-Corporations are all legal entities that offer measures of risk protection for business owner(s). However, each of these options are taxed differently and your accountant will be able to help determine the right fit for your business.
- Make sure your business is compliant with the law. Make sure you get all of the proper licenses, registrations, permits, and other legal filings as required by your City, State, and Federal governments. In addition, make sure they are updated or renewed on time every time. This includes filing your taxes correctly and on time.
- Know what you don’t know. You know your business. You do not know everything there is about all aspects of every business. If you want to make sure you are as protected as possible, leave the details to the professionals. This includes: Attorneys, insurance agents, accountants, real estate agents, etc. Some industries will have even more specialists. Don’t prepare to fail by failing to prepare. Don’t skip this.
- Face customer complaints head on. Don’t ignore customer complaints. If a customer has a concern, work with them. Happy customers = no law suits (or at least fewer).