This is the last post in a five-part series about the early years of a business formation. To catch up, click here.
After you’ve selected your business entity, capitalized your business, purchased insurance for your business, and maybe even taken on some new employees, you will want to get into the mindset of identifying legal risks present in your business. Often, your business risks can be minimized at little to no cost to you.
To begin the process of assessing your business risks, you will want to conduct an internal audit to help you identify those risks. Many hear the word “audit” and believe it to be daunting and time-consuming; even so, an audit will be worth your time now in order to minimize risks and prioritize your business goals.
During an audit, here are the questions you are likely to come across in the process that will prompt the biggest red-flags:
- Is there a document for succession of ownership in the case of my death?
- Are my key employees prevented from using my business methodology against me in the future?
- Do I have an employee handbook that only contains provisions for the size of my business?
- Are the terms of my sales/services recorded in a written agreement with my customer that sufficiently limits my liability?
- Do I have written agreements for all installment purchases, financial leases, letters of credit, or other similar transactions?
- Do I have appropriate insurance coverage and limits for my business?
- Do I have legal counsel on all pending or threatened litigation, including claims brought by the business as well as against the business?
Business owners should put into place a system to help them identify their risks now and during future growth. Knowledge of these risks can provide a great sense of comfort to the business owner. The business owner can either adopt a plan for mitigation of these risks, increase their business model to protect cash flows in the event of a risk, or simply accept the risk and carry on with their business. Note: Any findings from your internal audits are protected by attorney-client privilege.