10 Tips on How to Make Your Professional Business Partners Your Risk Manager
For many business owners, the day to day focus of operating and growing your business takes precedence over everything else. Minor issues are quickly forgotten and not addressed. Sometimes this is harmless and other times, minor problems if they are ignored, fester and become major problems that can result in lawsuits or government intervention. Using a team of professionals - such as your insurance broker, accountant and attorney - can help insulate your business and let you stay focused on your business. Minimizing the risk of being sued or the consequences of having an adverse judgment lodged against you can be accomplished in several ways.
Limit Liability with Insurance
The most common method to limit liability is by obtaining insurance coverage for certain risks. For the price of a premium, you transfer a certain amount of risk to an insurance company under defined terms and conditions. Common types of policies are general liability, automobile liability, property/casualty, workers compensation, employment practices and in some instances errors and omissions coverage. Many policies include defense coverage.
Have an employment manual to establish procedures and policies. These are a great way to manage business risk. The caveat is that they must be kept current, followed and should be reviewed by an attorney for compliance with both federal and state laws. Following your well written policies should reduce employee actions for wage & hour violations, overtime pay, wrongful termination or discrimination. In addition to having the manual, all supervisors and managers must be properly trained.
The Taxman Get's His Due
Pay your bills and taxes timely. If you are experiencing a cash flow crunch, talk to your creditors. The longer that you avoid having an honest conversation with your creditors, the larger the problem will become. The longer amount of time you wait to address the problem, the fewer options that you may have. Not funding payroll taxes or employee benefits such as 401k is a recipe for disaster.
Establish Internal Controls
Establish and follow good internal controls. Send key employees on at least a week vacation annually and have someone else do their job. Breaks in internal controls, if any, will be evident. With electronic banking, make sure that adequate controls are in place. Use your banker's expertise in electronic security.
Make a Contract
Don't rely on handshake agreements and verbal contracts. Spend the time to write a contract or agreement and preferably have it reviewed by an attorney. If you are handed a contract by a vendor, you can - and should - review and change important terms. With few exceptions, contracts can be negotiated and typically are written to benefit the company that prepared the contract. Verbal contracts are enforceable in some states.
Having well drafted employee covenants is an effective tool to protect your customer base and trade secrets from being pilfered by a departing employee. The signed agreement needs to be stored in a secure location. Too often a key employee leaves and the signed agreement is gone as well! Best practice is to send (or provide) a letter to the departing employee enclosing their employee covenant as well as explaining their duties and your expectations from them. Your attorney can assist with both the employee covenants and the best practices letter.
Pre-Employment Background Checks
Hiring is serious business. Do you run pre-employment background checks on potential employees? They may have access to customers' homes, business locations, confidential information or money. Possibly they are driving a company vehicle or driving their own vehicle to perform work, thereby creating vicarious liability. Many companies can run background checks ranging from criminal to MVD records, from social security numbers to credit reports. Some services provide a photo identification card for each employee that certifies they are crime free. It is vital to obtain a release from the potential employee prior to performing background and credit checks. Finally, do not forget the need to use E-verify as it may provide a safe harbor for your business should you hire someone who is not legally in the country who was validated through E-verify.
Who is going to care about you and your business when you are gone? Do you have a plan for succession for the day you retire or can no longer work? Do you have a plan to have your operation supervised during you absence for vacation, illness or similar situation? A well crafted succession plan will keep your business from experiencing serious problems.
Meet with your Team Regularly
How often do you meet with your team of business professionals? If you meet your insurance agent the day before renewal, you are likely to make insurance decisions based upon price and not necessarily on the types of coverage and the differences among them. Do you meet with your accountant on April 15th and just find out the amount of your business' tax liability? Tax planning during the year is likely to reduce your tax burden and a good review of your financial statements will keep your company fiscally sound.
Loop in Your Attorney
You should expect your lawyer to be your partner in assessing and addressing legal risks and thoroughly discussing them with you for the purpose of mitigation. You have heard the phrase "you can pay me now or pay me later" and the "pay now" is almost always much less expensive than the "pay later." Litigation is a way to vindicate rights. It can be expensive, usually is time consuming and takes an emotional toll as well as time away from business operations. Meeting with your legal team periodically will help eliminate potential problems and ultimately lower your business costs.
If you find yourself in the unfortunate situation of being involved in a lawsuit, it affords your company the opportunity to learn from past errors and manage risk more effectively in the future. Was the risk that brought on the litigation something that could have been prevented or mitigated? Having your attorney assist you in identifying business risks will require that they thoroughly understand your operation and business practices.
Past litigation, problems and insurance claims are good places to start your review:
What was the cause of the situation?
- Was it a risk I could have insured against?
- Was it something that could have been prevented had we simply known of the risk?
- What would it have taken to eliminate or mitigate the risk?
- Are we are at risk of the situation happening again?
- What steps have I taken to prevent this situation from occurring again?
- Are our efforts legal and ethical?
Keep notes of your answers and spend the time to talk over possible solutions with your attorney and insurance brokers. While lawyers can solve many risk issues there may be a need for involvement of your accountants or other professionals. Finally, if your lawyer, banker, insurance broker or accountant is not interested in helping you manage your business risk, it is likely you will be exposed to issues that you may not fully understand and that is not a risk you should take. It may be time to find new professionals that will partner with you.
Remember you are the client of your professionals. You should insist upon risk management as a focus of your joint efforts and meet regularly to keep that focus at the forefront. Otherwise, your meetings with your professionals may be to deal with preventable problems.
Founded in 1984, Phoenix law firm Jaburg Wilk offers extensive experience, diversity in practice areas and the ability to think like a business owner. We are an Arizona mid-sized AV rated law firm, the highest rating that a law firm can receive. Our attorneys, paralegals, and other support staff's goal is to meet our clients' diverse legal needs and provide exceptional service. In addition to giving exceptional service, Jaburg Wilk was named one of the Best Places to Work 2010 by Phoenix Business Journal.
This article is not intended to provide legal advice. Always consult an attorney for legal advice for your particular situation.