How can you protect your SME business from legal proceedings?

As an SME business owner, you have the everyday stress and worry about keeping your business afloat with cash flow, staff management, supplier relationships, paying the lease, organising and maintain amenities, paying tax and staff superannuation on time – the list is endless. So what happens when an unexpected claim hits your door, with the threat of damaging your livelihood and business?

As much as we try to avoid possible legal disputes, they seem to be inevitable for majority of business owners. So, what can you do as a business owner to try and minimise the risk of a claim and possible detriment to your business cash flow?

1. Engage and build a relationship with a legal professional or law firm that takes the time to know your business.

Having a lawyer that knows your business inside out is critical to ensuring you receive individualised documentation and contracts specific to your business. Having tailored advice ensures that you are receiving the most complete and appropriate protection, from a legal standpoint, and that all aspects of your business are taken into account. Generic contracts may not cover you entirely, and may not be appropriate for your business, your structure or even your industry, as they have not been prepared to fit your business. In addition to having your documents prepared by a lawyer, having a lawyer you can call early on in a dispute or when you have a problem can save time and money down the line. If you proceed without advice, you might need to unwind actions you have taken, or might accidentally compromise your position irreparably. If you already have a lawyer who knows your business intimately, this process can often be cheaper and quicker than engaging a new lawyer who has to become acquainted with your business and processes.

2. Choose the right business structure

The best business structure for you will depend on what balance of protection and control you want to maintain. The goal is ultimately to limit your personal liability and to protect your assets and those of the business, while maintaining control over the running of the business. Selecting and setting up the most appropriate structure for you should be done in consultation with your lawyer and accountant, as the legal and tax consequences may be different for each option, and you need to ensure you are receiving proper advice on each area. Not all structures will be appropriate for your goals. For example, while a trust structure can provide good asset protection (if correctly structured), it may be excessive and uncommercial as it carries far higher costs than some other alternatives.

3. Management and employee guidelines

Create guidelines that ensure all staff and management know how they are to behave when they are representing the business, including on professional and personal social media channels. Individuals should avoid any form of conflict of interest, defamatory or inflammatory comments/language, argumentative behaviour and public announcements that could affect the reputation or relationships of the business. Your business’s goodwill is your most important asset and needs the strongest protection.

4. data protection

Ensure all of your data, files, communications and online footprint are secure and protected. In a digital word, the majority of information is stored, and business s is conducted, online and client security is of the upmost importance. If you are looking to conduct sales online or, more than likely, need to store sensitive business information (including client details, client lists, business practices, or trade secrets) ensuring you have sufficient cyber security and digital backups would be critical to your business. Many small businesses have been crippled by a single cyber attack or hit from ransomware.

5. clear and appropriate terms and conditions

Your business’s terms and conditions regulate every engagement with your customers, clients or consumers. Having clearly worded contracts, that are tailored to your business, is critical to limiting possible disputes, and making them quicker and easier to resolve if they do arise. Poorly prepared contracts, including generic terms and conditions (or those you may have copied from a competitor), can expose you to claims, and can make recovering outstanding debts or goods much harder, or even impossible. It is equally important to make sure the terms and conditions of your suppliers are acceptable to you and that you can comply with them. Both of these tasks should be undertaken by a lawyer that understands your business.

Even if you follow best practice and take all of the above precautions, there is no way to completely prevent any claims against your business or to ensure all of your customers, clients or consumers comply with all of your terms. However, taking the above steps is the best way to limit or avoid claims, and to simplify the process in the event a dispute does arise, leaving you to focus on getting back to working in and growing your business, without distraction.

Nick Steinsvaag