How to manage legal risks in your small business

There is no reward without great risk. So, how do small business owners find a workable balance between the two? It's a challenge, especially with legal risks being one of the most complicated to measure and manage per Berkman Solutions.

Nonetheless, there is a solution to every problem; in this case, it's risk management — the art and science of navigating uncertainties. It involves identifying and assessing the risks through strategic planning, resource allocation and proactive decision-making. Legal risk management is essential for the proper functioning and longevity of small businesses.

Let's dive into how you can manage legal risks in your small business:

Know the law

You're often told to know your rights as humans; it's the same for businesses — you should also know the laws that pertain to your business. This will be one of the easiest gateways to prevent legal trouble. Important business laws to know include taxation, employment, business formation, contracts, intellectual property and data protection. Although learning local and federal laws seem challenging and time-consuming, it's an integral part of being a small business owner. Besides, Poise State University noted that legal concepts relating to business are easy to understand. It's also cost-effective and doesn't require many resources.

Have clear policies and contracts

According to Axdraft, contracts govern 70–80% of business operations because it's one of the cheapest and best ways to protect small businesses. Contracts highlight expectations and set boundaries for every party interacting with your business. And once the contents of your contract are precise and you hold up your end of the bargain, it's less likely that you'll have to encounter legal problems. But if you do, a written contract, signed by all parties, may save your business money and its reputation. Some of the most common contracts to guide your business operations are indemnity agreement, employment contract, non-disclosure agreement and partnership agreement.

Get insurance

Getting insurance for your small business is essentially buying your way out of paying a lump sum of cash to repair any business related damage. It can assist in protecting your business and its assets, including your employees. There are different types of insurance, but the ones you get depend on how you operate your business, what your company offers, its size and its physical setup. Nonetheless, if you're unsure which insurance to get, it's best to do in-depth research and consult a lawyer or an accountant to ensure you're purchasing insurance that best suits your business.

Get a regulatory review

Regulatory bodies conduct reviews by assessing and evaluating business regulations to ensure they are relevant, effective and efficient. Small businesses need to not only stay competitive, but also always remain compliant because they operate in a highly regulated environment and must adhere to various rules and regulations. As such, spending some dollars on a regulatory review may save you tons and keep your business on the right side of the law. Also, regulatory review allows small business owners to develop strategies to manage risks and ensure they're prepared for any changes that may impact their operations.

Keep organized records

Being organized is key to operating a successful business, but in the case of risk management, this skill will protect you from financial, legal, and reputational harm. It's a simple but smart move as it doesn't require much knowledge or money — all it takes is a little focus and time. The invested time used to maintain accurate and organized records of contracts, transactions, agreements and other legal documents can help you to easily track your obligations and monitor regulations. Most importantly, with organized records, you're better able to defend your business in the case of a legal dispute.

If you want to properly manage your legal risks in your small business, contact the Law Offices of Donald W. Hudspeth, P.C.

Categorised in: Starting a Business in Arizona

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