By: Doug Bend & Ambere St. Denis
This first appeared on Forbes.
Our firm has counseled hundreds of business owners. But the ones who sleep best at night are those who have made strategic legal and insurance investments to protect their business and personal assets. That’s why we recommend the following four layers of defense for small business owners:
1. Exceptional Customer Service
It is hard to overstate the amount of litigation that could be avoided by great customer service. The saying “penny wise and pound foolish” is never more true than when it comes to a customer potentially suing you for negligence. All it takes is for an unhappy customer to complain to an attorney at a cocktail mixer who responds, “You should sue!”
The least expensive legal defense you will ever pay is apologizing and comping a product if a client is unhappy. If a customer was harmed at your business, apologize and be quick to fix whatever might have caused the injury and err on the side of reimbursing the customer’s reasonable, documented expenses.
By doing so you will not only prevent potential lawsuits, but you might turn what could have been a 1-star Yelp review into a 5-star review.
2. A Solid Contract
Not every dispute can be solved with an apology or a free product or service. If that first line of defense fails, it is important to have a solid contract in place that plans ahead. Think of it as a chess game for worst-case scenarios. This way, you are able to tell customers, “We are sorry you are still unhappy, but Section 17 of our services agreement clearly provides that our liability is limited to X amount.”
3. Business Insurance
Even if there is a solid contract in place, there may be a lawsuit over whether the contract is enforceable or if the contract covers what occurred. A solid insurance policy can help cover the costs of the litigation, and if you lose the lawsuit, the damages.
Be sure to know what the insurance policy covers and what it does not. Many mistakes occur when a business believes they have coverage when they actually don’t. They are only left to find out after a potential claim has been brought to their attention.
4. A Legal Entity
A properly formed and maintained legal entity can serve as a crucial last line of defense to help protect your personal assets from your business activities. If a customer isn’t satisfied with your apology and your contract and insurance don’t cover the claim, a legal entity can serve as a final backstop to prevent the customer from going after your personal assets. Consult with a business attorney and your CPA about the best type of legal entity for your business, as there isn’t a one-size-fits-all legal entity choice.
This article was written by Doug Bend, the Founder of Bend Law Group, and guest author Ambere St. Denis, the Founder of Crimson Business Insurance Agency.
Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction. Bend Law Group, PC expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.