If you were with us last week, we talked about how you can establish and build business credit. If you missed it, keep scrolling past this post to view the blog. Today, we’ll discuss 6 legal steps that every smart business owner should take to protect their business. If you’ve been enjoying these tips, please share with other business owners you think would appreciate this information. To watch the video, simply click the image below.
1. Establish a Business Identity
The first step toward protecting your business is to make sure you protect your personal assets, if you've been keeping up with us over the last few blogs, we've been very clear about the importance of creating a business identity. How do you do that?
Legitimize Your Business
You create a business identity by having a legal structure for your business. If you are a small business, you will likely file an LLC (Limited Liability Corporation) with your Secretary State. By filing an LLC, you are protecting your personal assets in case a customer files a claim against you, your business is sued, or your business owes money to creditors. This ensures your personal assets are protected to some extent in a situation where money is owed through the business.
Open a Business Bank Account
A business bank account prevents the co-mingling of personal funds and business funds. If you do encounter any type of liability, having this account in place limits what can be taken from your personal assets.
2. Get Insurance for Your Business
Having insurance is extremely valuable when striving to protect your business. There are two types of insurance that are most important for business owners. It would be a good idea to sit down with an insurance agent to speak about the full capacity of work you perform at your business. That agent can then talk you through different provisions they believe will be important to add to your insurance to make sure you are fully covered.
General Liability Insurance
General liability insurance protects you from over-arching & generic claims that could be brought against your company if someone believes what happened to them entitles them to damages. Examples include a slip and fall in your boutique, their claim that you delivered a defective product that in turn caused them harm, or that your services were not adequate or up to par to what they believed they would receive. Although we hate to think this is a possibility, having general liability insurance protects you in these instances. It is fairly inexpensive to obtain, ranging between $25-$40 a month, and is definitely worth the peace of mind.
Industry Specific Insurance
If you are in a particular field, you may want to ensure that you have industry-specific insurance as part of your best practices. For example, while practicing as an attorney, make sure that you have malpractice insurance. This means if someone brings a claim against you saying you did not operate in the proper capacity as their attorney or that you were negligent in the work that you provided to them, you have coverage for those claims. Regardless of your industry, its important to do your homework and see if there is specific industry insurance that will protect your business.
3. Trademark
So you’re in love with your brand, and you're excited about growing it. The worst thing that could happen is someone sending you a cease-and-desist claiming you have infringed upon trademark. Even if you think the name you came up with is unique or special, or that it was God sent to you, it is always a good idea to check with your Secretary of State to ensure no one at the state level has the same name as you, and to confirm with the US patent trademark office that the name is not actively used in commerce. If the name is already taken, it is possible that you would be held liable for infringing on that trademark. If the name is not being used, it would be wise to engage an attorney to assure the name remains yours.
4. Industry Licensing
Proper industry licensing is an important element of protecting your business. One thing that sets you apart as a professional is the ability to accurately say you specialize in a particular service. For example, you can not say you're an attorney without having specific licensing to practice. In the same manner, having proper certifications that back your claim as a professional in any given industry can set you up for success in the long run.
5. Customized Contracts
The 5th step to protecting your business is to always have customized contracts in place. I cannot say enough how important it is to start the offset of your business engagements with having a contract. If it's not in writing, it didn't happen. I know, I know. We like to have faith in the goodness of people. We think we are entering into amazing relationships and that nothing can go wrong, but I can tell you from personal experiences that in the heat of the moment and when people are not on the same page, you sometimes encounter disagreements or forgetfulness about the terms of that oral contract. To avoid that, the best thing you can do for your business to have customized contracts, regardless of the type of business you're in.
Over the last few weeks, I've gotten a ton of calls regarding this topic. There has been no partnership agreement in place, and two people are not seeing eye to eye on the terms of that oral agreement. In some instances, they have been able to amicably resolve those differences. In others, there is a battle going on because there was nothing in writing that solidified how they would handle a situation where there was a disagreement or a need to dissolve the business.
Types of Contracts
Different types of necessary contracts include: employment, independent contractor, terms of service, and partnership agreement contracts. There are several other instances where you might need a contract, such as if you're offering online services or taking customer information, all of which should be discussed with an attorney.
6. Hire Quality Professionals
The final step towards protecting your business is to hire quality professionals. I understand when you're starting a business, your goal is to make money; so we can sometimes be a little hesitant when expending money on things we may not consider important or a priority. But I guarantee you that it is better to bring in quality professionals at the onset of your business opposed to when something goes wrong. You do this to ensure they understand your business landscape, growth strategy, and the services and products you're providing. This leads to being offered the best value to protect your business. So what professionals do I recommend you hire early on?
Accountant
An accountant is very important for serious entrepreneurs who are looking to scale their business. They should be involved in your process for bookkeeping, your understanding of profit and loss statements and how it relates to your business strategy, as well as projections to dictate how you're doing now vs. what you need to do to project certain numbers over the next few years. They should also be sure that you are adequately prepared for taxes by informing you of certain credits and assisting with the best payment strategies for those taxes. Ultimately, hiring an accountant should help in saving money in the long run.
Assistant
You can't do it all. You need someone whom you can trust with your day-to-day functions and who will understand and be loyal to your business. An assistant can help take a load off of you so you can work more on your business instead of in your business. Hiring an assistant is a great way to protect your business because with checks and balances implemented, it limits the possibility of human error. You could even start with a part-time virtual assistant, then scale to someone who works full-time.
Attorney
The third professional I recommend to hire would of course be an attorney. Attorneys are awesome for being able to come to answer legal questions before you enter into an engagement, sort out your contracts and agreements on your behalf, provide advice when you have issues with your employees or independent contractors, and enforce collection or leasing agreement contracts. When hiring a business attorney, they are also able to look at business endeavors that you are considering and discuss the risks associated with those endeavors and how to mitigate those risks. They can assist with your HR policies and ensure they are compliant with the law.
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