Mindful Risk Management For Your Business – Advice From An AV-Rated Business & Real Estate Attorney
As a business lawyer with a broad variety of business owners and real estate investors, the core question I’m frequently asked is, “How can I protect my business and personal assets from potential legal liability arising from my business?” While there may be common elements applicable to virtually all business owners and real estate investors, creating an effective risk management strategy is a complicated process best facilitated by an experienced attorney.
Every business has its distinct and specific risks. The risks associated with selling consumer products to the public are very different from those arising from renting real estate to commercial tenants. A general contractor will face much larger financial exposure from an unsatisfied customer than the owner of a bookstore or a residential cleaning service. Over my 40+ years in business law, I’ve had the opportunity to help assess the risks of a countless variety of businesses.
Once the risk assessment process is completed, the next step is determining the business owner’s risk tolerance. Some business owners have significant personal and family assets that could be exposed to loss if their business is successfully sued. Other owners have very nominal assets, meaning they may be willing to accept a higher level of risk related to their business. As a business attorney, understanding my client’s risk tolerance is critical to creating a risk management plan that will let that client sleep well at night.
The components of a successful risk management plan may be multiple.
1. Creating a business entity, such as a corporation or limited liability company (LLC), can provide significant liability protection providing the entity is properly form and managed. A common problem business owners face is determining which type of entity is appropriate for their businesses. Hiring an attorney and getting this correct from the start can save a business owner a great deal of money, because the costs are far greater when the correct entity is not selected..
2. Using lawyer-created legal agreements for your business containing language limiting your financial exposure can be a powerful tool. On the flipside, understanding the risks and consequences related to third-party contracts you sign is critical. It is usually more costly to fix an error in a contract than it is to hire an expert to ensure that your financial exposure is limited in the first place. As with legal entities, the use of on-line contracts and agreements only increases the risks that the document simply will not protect you from the risks and liability arising from the transaction or activity.
3. The third major element of a risk management strategy is the right time and amount of business insurance. For example, an insurance company can deny coverage for a legal loss if its client (the business owner) is determined to have failed to explain thoroughly the risks associated with that particular business. Working with a reputable insurance professional during the “underwriting” process is key to avoid such a potentially catastrophic scenario.
“Peace of mind” related to your business depends on completing each of the elements I’ve outlined above. Please contact my firm for a complementary initial consultation about how to best protect your particular business and personal assets through creation and implementation of a mindful risk management strategy.
