Businesses are always looking for ways to save finances by cutting costs. They view legal services as a less important expense and use the internet to do their things instead of hiring a lawyer. This strategy could be costly and put their business at risk.
1. Not Documenting Agreements
Do you recall the last business strategy you discussed with your partner? You didn’t document it. Now you need to make a big business decision, and you can’t recall what you agreed on. That will become a big issue. Business owners need documented agreements. Oral agreements or handshakes can be binding, but it’s difficult to determine what you agree upon after months or years. You may be okay today, but resolving a disagreement can be costly. Less than 1% of civil lawsuits are estimated to go to trial.
2. Not Choosing The Right Business Entity
It is crucial to choose and set up the right business entity. You can choose a general partnership, a sole proprietorship, an LLC, or a corporation. All these entities have pros and cons and tax consequences. Choosing the right business structure and setting it up legally is important. If you don’t choose an entity or choose the wrong one, you could be held personally responsible for your business’s actions and face tax problems.
3. Handling Workers Incorrectly
The first step is to be sure you’ve classified team members correctly as employees or independent contractors. Misclassifying your employees can lead to worker’s compensation fraud and additional taxes for employees you treat as independent contractors. If you don’t know how to classify workers, contact your lawyer and ensure you have an employment manual with detailed policies and procedures. You may also be liable if you mishandle employees when drunk. California’s legal blood concentration limit is 0.08%.
4. Not Having an Advisory Team
Many small businesses avoid hiring attorneys to save finances. Some get legal documents online to represent themselves. This is risky because they don’t know if the sources are credible or if the documents are complete. If you enter into a legal agreement that doesn’t safeguard your interests, it could cost you more than hiring a lawyer and endanger your business.
5. Inadequate Intellectual Property Protection
Many businesses, especially non-tech ones, believe they have no intellectual property. They forget that maybe they have a website, trademark, or copies that need protection. A business may require legal assistance in copyright, product, and trademark disputes. If you ignore intellectual property, you’re not protecting your rights and property ownership. For instance, if your workers invent new technology, make sure the employment agreements state that the inventions will be assigned to you.
6. Starting a Competing Business While Still Employed
You shouldn’t start a competing business while you’re still employed. If you plan to compete with your current employer, do so in a way that protects you if you’re sued. Check your employment contract for non-complete provisions. If so, consult a business attorney to ensure you aren’t violating them. If you start a competing business, get insurance to mitigate your financial losses if you are sued.
7. Not Having the Correct Type of Insurance
You need to protect your business finances by knowing what insurance you need. You need personal and business insurance and life and disability insurance. Agents get their pay through commissions, so they can convince you to buy more insurance than you need. Insurance coverage protects your business if you are caught on the wrong side of the law. A DUI in California can result in six months of license suspension, but if you’re a business owner and are caught drinking and driving in a company vehicle, these penalties can be a lot worse, not to mention the detriment to your business’s image. Consult a reliable agent to help you choose the right insurance.
Starting a business can be overwhelming. Getting startup finances and managing business affairs. Dealing with legal affairs is probably the last thing an entrepreneur wants to handle. They don’t see the need until it’s too late. The truth is that legal mistakes can ruin your business.