10 Tips on How to Make Your Professional
Business Partners Your Risk Manager
By: Scott
J. Richardson, Esq.
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.
- 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.
- 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 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.
- 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.
- 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.
- 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.
- 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.
About the author: Scott
J. Richardson is a business attorney at the Phoenix law firm of
Jaburg Wilk. Scott
assists clients with business
issues, insurance
coverage, licensing issues and litigation. He has
represented hundreds of companies. Scott can be reached at
602.248.1012 or sjr@jaburgwilk.com.
This article is not intended to provide legal advice.
Always consult an attorney for legal advice for your particular
situation.
3200 North Central Avenue
. Phoenix . Arizona