Is Your Business Legally Healthy?
By Nina Kaufman, Esq.My grandmother often said, “an ounce of prevention is worth a pound of cure.” And while that sounds like something out of the Farmer’s Almanac, it really bears out when it comes to legal issues in your business. It’s similar to why I go in for my annual physical every year. If there’s a problem to be uncovered, I want to nip it in the bud and minimize my medical bills. I don’t want to find out years down the road that I’m at a huge risk for heart disease when a simple (and relatively inexpensive) cholesterol test could have alerted me to the potential problem. Likewise, reviewing your major decisions and agreements with your business attorney (the juris doctor) at least annually will help ensure that legal “leaks” don’t morph into a broken dam.
Here are just a few examples of where not consulting a “legal doctor” caused huge problems down the road:
- “Henry” ran a small import/export company. One of his employees filed a (baseless) sex discrimination claim. But because he didn’t have an employment manual outlining the grievance procedure in these situations, the court scrutinized every single decision he made. Defending the claim (which was ultimately dismissed), he had to spend over $100,000, when a $5,000 employment manual would have protected his company.
- “Nicole” spent ten years trying to build her consulting business, which she owned with a partner. The years passed – as they do quickly – and Nicole suddenly found herself caretaking for her mother, with no meaningful exit plan. Because she and her partner hadn’t worked out a partnership agreement, she lost thousands of dollars in value when she had to sell her interest in the business.
- Given the shaky economy, Ziva, a graphic designer, found that her clients stiffed her for payments. Or insisted that she had agreed to provide them with a wider range of design services for the same money. Ziva had been using a client contract that she downloaded from her professional association, but had never had it properly reviewed to make sure that it covered all of the issues she needed.
- Lauren was facing a legal “cow pie” in the form of a major lawsuit. Even though she formed a corporation for her business, she ran her business and personal finances out of the same account, never filled out annual minutes for the company, and routinely forgot to put “Inc.” on her agreements and invoices. A disgruntled supplier sued her corporation and Lauren individually. It took close to $50,000 to disentangle the situation in the courts and nearly drove Lauren to bankruptcy.
Do you have a business attorney to review your legal health? If, like these entrepreneurs, your business practices aren’t “fortified,” you could find yourself (and your company) on the receiving end of a big mess – big enough to make your bottom line flat line.
Whether it’s called a “legal audit,” “checkup,” “risk assessment,” or a “legal maintenance evaluation,” it all means the same thing: letting trained professionals examine your situation and shore up any weak points. You can’t correct what you don’t measure. Once you have a clear picture of your company’s legal health, you’ll know what needs fixing and what can put you on the path to business growth.
When you have a company that’s legally healthy, you help boost its value. Investors delve into all of the legal nooks and crannies to look for potential problem areas when doing their “due diligence.” If you’ve taken the steps to keep them at bay, you’ll give purchasers a great sense of ease and confidence . . . which will ease open their pocketbooks as well. Best of all, you’ll sleep better at night knowing that your company stands on a solid foundation.
As long as the year is still fresh, make sure you schedule a visit to the juris doctor and get your company fit for prosperity!
Still overwhelmed by the thought of a legal audit? Get your copy of our business assessment tool, “Is Your Business Legally Healthy?” It will identify your major legal “illnesses” so that you can save money when working with your attorney!
If you liked what you read, watch our video to see if Kaufman Business Law is a good fit for you.
