Raising capital, assembling a competent workforce, andoutmanoeuvring the competition are the most apparent challenges that small businesses face on a daily basis. However, many of the key decision-makers within these organisations tend to overlook the importance of appropriately handling legal matters such as licensing, trademarking, fraud, and tax compliance.
Unfortunately, the consequences of neglecting these responsibilities can cause significant financial and reputational damage that many small businesses would not be able to recover from. In fact, a 2021 study from CB Insights found that regulatory and legal issues are the fifth most common cause of start-up failure, accounting for 18% of all business flops.
Attorneys understand that it’s better to avoid legal trouble than to overcome it, which is why it’s critical that you put measures in place to assist your small business clients in mitigating risk across their operations. Not only will this reduce the likelihood of lawsuits and litigation proceedings from plaintiff firms, but it will also help you provide greater value to clients and demonstrate the competency of your practice.
Use proper agreements when signing new service contracts
Keeping paper trails is of paramount importance in the business world, regardless of industry or sector.
Always having documentation of significant events, such as financial transactions, disputes, complaints, new hires, and so on, is vital (and often legally mandated), since it helps businesses track and review their processes. Maintaining a robust paper trail will also help when an auditor comes knocking, as they enable business owners to show a record of their activities with ease.
Furthermore, paper trails are especially important when it comes to sending out estimates and onboarding new service clients. They are key for keeping clients happy since they remove ambiguity and offer assurances to both parties. As such, project estimates should contain descriptions and explanations of matters such as billing and scope of work before being signed off by both the business owners and new clients.
Fortunately, it’s easier than ever to sign off estimates using e-signatures, which are considered legally binding and valid in all US states. Using vcita’s business management platform, your small business clients can attach contracts to estimates and integrate signoffs into their sales workflows, so that they only serve new clients that have agreed to the terms of service, which are then automatically saved in the customer relationship portal.
This enables your business clients to protect themselves and their operations at all times, even when they are working with you – and their customers – remotely.
Run background checks on all new employees
Internal fraud is one of the most common legal risks that small businesses encounter, and it is also one of the most damaging. According to the Association of Certified Fraud Examiners, one-third of cases occur because companies lack internal controls, which is frequently observed in small to medium-sized enterprises.
On top of this, a typical fraud case lasts around 14 months before it’s detected, with the average case costing $1.5 million. The best line of defence against this type of fraud is to make sure your small business clients vet and run background checks on all new hires to ensure the integrity of the workforce. Extensive checks should encompass elements such as:
- Verifying credit history
- Confirming addresses
- Asking for and calling references
- Submitting an educational background check
- Conducting integrity training/testing before hiring
Many of these elements are covered by HR tech services like ShareAble, and you can build your own assessments using a survey platform like Typeform. Of course, this does not make any company fool-proof against internal fraud, but it will go a long way to reducing the risk of it happening.
Put systems in place to better protect intellectual property
When an organisation fails to safeguard and/or enforce its intellectual property rights, it runs the risk of suffering intellectual property (IP) loss.
As it turns out, many small business owners are unclear about what IP encompasses and why it is critical to their long-term success. This is most likely due to its complicated and frequently abstract/subjective nature, making IP difficult to comprehend.
Nevertheless, IP is often one of the most valuable assets that small businesses possess since they typically do not have the same level of physical assets compared to their more established counterparts. Moreover, suppose an up-and-coming business has developed a disruptive technological solution or never before seen feature/product. In that case, they simply must protect and enforce their IP rights if they plan to build and maintain a true competitive advantage in the market.
Therefore, lawyers should be ready to advise small business owners on protecting their intellectual property through methods such as patents, trademarks, and copyrights.
Conversely, it is equally as important to offer advice on avoiding infringing on somebody else’s intellectual property rights since the consequences for doing so can be severe.
Prone to legal risks
In most cases, the main reason small businesses are exposed to significant legal risk is a lack of understanding. You could also make an argument for a failure to prioritise correctly. For example, business owners may feel more inclined to invest in marketing operations rather than pay for lawyer fees simply because advertising will likely offer a positive ROI right away, whereas hiring an attorney is typically a preventive measure.
However, there are plenty of ways lawyers can help small businesses and increase the value they deliver to their clients. Aside from the three methods mentioned in this article, lawyers can offer protection against defamation, advise on collections, and draft NDAs to protect trade secrets, minimising exposure to legal risk and creating an environment where small businesses can thrive without needing to worry about potential legal repercussions.