The Gist Of This Episode: Protecting your business isn’t just a one-and-done or isolated action. There are layers you need to insulate yourself and your business from liability. Come learn my Legal Trifecta!
What you will learn:
What it means to protect your business in layers
How contracts, liability insurance, and business formation form those layers
Why you need to revisit your layers as your business grows
When you should put these layers of protection into effect
Welcome to today’s episode on the Business Bites Podcast. I am your host, Rachel Benke and I am actually really excited as if I’m not excited every day. I’m really excited for today’s topic because I want to be bringing a little bit of the legal side in to help you guys protect your business.
This episode is protecting your business in layers. I mean, you’re busy, your business is booming, it’s rocking and rolling and hopefully, you have money coming in or else there’s a plan for that money to come in. You’re acting like you’re in business, but you get this creeping feeling that something might happen and you all wake from this entrepreneurial dream and you don’t want to lose this. You’ve worked way too hard.
For this reason, you need to understand the protection tools work in layers. Think of like layers of an onion. If you ever watched the movie Shrek, that’s totally what I think about when he’s like, “I’m like an onion. I have layers.” You know that you need contracts, rather legal documents or maybe you thought about your business formation, such as sole proprietorship or an LLC, and maybe even a handful of you have thought about having insurance.
Protection is best served in layers for your business. Each of these tools that I mention offers some protection, but they work best in layers. Not necessarily by themselves. I’ve actually affectionately refer to this as the legal trinity. I don’t know if that’s really a good accurate way that I should call it because I really do feel like the layers kind of all pile on top of one another to protect you, in case a liability or there’s an issue that gets through one layer, you’ll have another layer there that potentially worked. Protect what you worked so hard for.
The second tool is liability insurance. A lot of you especially if you are a virtual based business, you don’t have a brick and mortar, and especially if you don’t ever meet any of your clients or customers in person you may think, “I don’t need liability insurance.” You just never know what’s going to happen. By having this layer, you can divert clients to this company to handle your issues for you. They can potentially resolve any potential liability issues that may arise. This will free you up to focus on your business and hopefully, reduce cause to extinguish any legal fires that may come up.
The third tool is that of business formation. I actually kind of worked backwards here from the outer layer, inward; from the contracts and legal documents then to liability insurance and then to your business formation, which is at the core of your business. It’s what builds and creates what your business is. Whether your sole proprietor, a limited liability company, which divides the business and personal assets for protection and a corporation structure can do that as well.
With the formation at the core, if customers get to the last two layers that I just mention, then they have to engage in a legal transaction, such as court or mediation or arbitration for a resolution. You kind of see how this will work a little bit for you. You’ve got all these little hurdles that your clients, these layers that they will have to get through.
Let me give you an example. Say that you end up with an extremely unhappy client or customer. You don’t have liability insurance, but you were smart enough to form as an LLC. When trying to settle the matter, you’ll have to go all the way into court or just settle into mediation or arbitration to sell it. Whereas if you had a liability insurance policy in place that cover the legal issue that was at hand, you may have been able to have it handled in a shorter amount of time with a lot of less amount of money and hopefully, a lot less stress.
Unfortunately, many of you guys listening will check the legal marks on your checklist off and you’ll never revisit these tools again or you’ll leave some of these tools off the checklist and never get to them. You need to set up a calendar reminder to revisit all your legal documents, disclaimers, insurance policies, and even your business formations as you grow and do all of this on a regular basis because as your business grows, your legals needs to grow.
I don’t just say this as a lawyer, not just a lawyer, but I say this as a business owner. As someone who’s worked so hard to build my brands, I don’t ever want all those long hours and the tears and frustration and the successes to all go down the drain, simply because I didn’t have this protection thing in place.
If you’re one of those people listening that’s like, “I’m not even to that point yet,” make sure that you get this tool on your belt before you even start taking any funds or acting like a business. Whether you have clients, you sell a product or service, or you’re simply blogging and you’re taking sponsors, or you’re selling online goods. You need to consider if you’re acting like a business, you can be found to be a business and you are opening yourself up to liability as a business.
If you think you have all of this on lockdown, maybe you’ve been in business for a bit and consider that it is cheaper and easier protected by layers, that’s good. I’m so glad you’re there because it will be easier than trying to scramble when an issue occurs.
This is why you guys are going to hear a lot more a little about like legal undertones throughout the business bites from me that a center our protection because my goal is to push preventive methods, rather than those clean up on aisle four methods because the more protected you are, the more confident you will be. This will also help you to stand firm when your clients or customers maybe trying to steam roll you and will also give you the ability to discern which policies to relax in the name of customer service and when to stand up against maybe if someone is trying to steam roll you, take advantage of you, or maybe do something unethical or illegal.
I really strongly recommend, not saying this as a lawyer, saying this as a business owner that any of these legal documents, you need to have done by a lawyer because there’s a lot of underlying legal theories that we spend years and years learning that you may not readily understand and you don’t want to inadvertently draft against yourself and hurt yourself even more in the long run.
On the second tool of liability insurance, really recommend that you don’t just try to add it on to maybe a homeowners insurance or some type of a personal insurance policies. This is especially true if maybe you’re going to do also like an equipment insurance in your laptop or other business equipment. Many times, insurance companies will not cover actions and/or equipment as used in the course of business.
Even if maybe you’re not turning a profit necessarily yet, if it’s been used as though you’re acting like in a business, then they’re going to find it as though you’re in a business and they’re not going to cover you.
The last tidbit on tool number three of the business formation, if you’re acting like a business, you’re taking money, you’re probably by default can be found as a sole proprietor. There’s no division of assets, there’s no legal protection between your business stuff and your personal stuff and you’re leaving yourself wide open. Really take at a good strong look at setting up as an LLC or a corporation for your state to give you that nice little division and you can also add a tax benefits and that are available for you as well.
I hope these three tools, these layers protection have shown you guys and given you a nice little checklist that you guys can go through to protect all the effort, and the time, and the resources, and the energy that you’ve put into your business because I don’t want it to be gone in the blink of an eye, simply because you get an upset client or something occurs and you end up having to spend all of your time and money even if you are not in the wrong or if you didn’t do anything.
The time and money spent into a legal action can actually make businesses go under. I’d hate to see that happen to any of you guys.
Thanks for listening today to this episode of the Business Bites Podcast. I really hope that you enjoyed this. Please take the checklist with you. Reevaluate them, I suggest on a quarterly basis at a minimum, if not monthly, for some of your contractor policies that you’re putting out to your clients or customers.
Rachel Brenke is a lawyer, author and business consultant. She is currently helping professionals all over the world initiate, strategize and implement strategic business and marketing plans through various mediums of consulting resources and legal direction.
Hi, I’m Rachel Brenke
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