6 small business practices that increase liability exposure

Running a business is like crossing a tight rope – it’s a delicate balancing act. You may make it safely to the other side with careful action and planning. Or you may plummet to your demise with risky business practices that increase your liability exposures.

If you’re feeling a bit wobbly on smart business practices, never fear! These business professionals are here to share six ways to reduce risky behavior at your workplace.

1. Taking on unfamiliar tasks

As a small business owner, you may wear many hats – boss, HR professional, accountant, social media manager, and more. You’re at the helm of the business, but are you really qualified to handle every task?

Too often, business attorney Lenore Horton, founder of the law firm LFH ESQ and business consulting firm KETNOI Group, sees “business owners performing work for which they are wholly unsuited to do.”

“I often ask an owner, ‘Do you want to be the CEO of your business or the CEO, CFO, COO, general counsel, right on down to janitor?’" Horton says. “Truth is you probably can't do more than one really well.”

Reduce the risk: Take control of your business and delegate tasks that are outside your realm of knowledge or expertise.

“Be the leader of your organization and partner with professionals to handle the rest,” Horton says. She recommends being invested in the help that you hire. “Too often a business owner will hire a professional but abdicate responsibility,” she notes.

2. Ignoring regulations

If your business is just starting out, you may not be aware of important compliance issues or industry regulations. Playing the “I didn’t know” card may not go over well either.

HR consultant Deanna Arnold, president of Employers Advantage HR, offers this example: “A small business owner may not be aware of regulations related to the Fair Labor Standards Act, which covers wage and hour issues. Their pay practices may be unintentionally in violation of the FLSA and an employee can bring that issue to the Department of Labor, causing the company to spend a lot of time and money to resolve the issue.”

Reduce the risk: Arnold suggests researching regulations related to your business and comply accordingly. Check with local organizations, professional societies, and state and government resources to ensure you’re in compliance or prepare to face penalties or fines.

The U.S. Department of Labor covers a wide array of topics, including Equal Employment Opportunity laws, benefits, workplace safety, and training.

3. Failing to use adequate contracts

Contracts keep everyone on the same page and can help reduce disputes. Unfortunately, small business owners are often in over their heads when drafting legal agreements.

“Small business owners will pull contracts or agreements from the internet that are essentially useless because of the state, company size, or industry that they are attempting to apply the contract in,” Arnold says. “Business contracts are legal documents that should be handled by an attorney.”

Reduce the risk: Don't use one-size-fits-all contracts.

Matthew Kreitzer, managing attorney of Booth & McCarthy’s Virginia office, recommends seeking out a local attorney because commercial business is highly regulated from state to state. “Prepare standard form contracts that address your risk aversion to fit your individualized business plan," he says, "but understand certain clauses can’t be used in every area.”

4. Ignoring client complaints

You may be tempted to not engage with a particularly combative client, but letting a complaint go unaddressed is a surefire way to escalate the conflict.

“Address client complaints immediately and keep an open mind when listening to their concerns,” Arnold says.

Reduce the risk: After addressing a client’s complaint thoughtfully and carefully, Arnold recommends…

• Determining if there are any procedure changes that need to be made to avoid similar issues in the future
• Documenting each complaint, the steps taken to investigate the issue, and the steps the company took to resolve the issue

Regularly review your process to limit mistakes and improve customer service.

5. Hiring and firing without learning the rules

It's hard enough to find good help, but you also have to play by the rules when hiring or firing employees. Educate yourself on hiring and dismissal laws in your state.

HR consultant Sabrina Baker, owner of Acacia HR Solutions, says, “Seek out proper advice once the first employee is hired so that human capital practices are not only legally compliant, but also align with the business's overall goals."

Reduce the risk: Your business is responsible for complying with federal Equal Employment Opportunity laws, which aim to abolish workplace harassment and discrimination. Failure to comply with these laws can result in hefty fines and lawsuits.

Employment practices liability insurance (EPLI) can help address lawsuits brought by prospective, current, or former employees who claim they experienced employment discrimination at your business.

6. Not carrying insurance

Whether you’re a new business or you’ve been established for years, you probably need small business insurance of some kind. Not convinced?

You may need general liability insurance to meet a lease requirement. Or perhaps you just hired your first employee and you need workers’ compensation insurance. Maybe a client requires you to carry errors and omissions insurance before signing a contract to address any mistakes with your professional services.

Horton says she sees business owners failing to obtain insurance and not asking enough questions about their coverage. She says business owners are “not double-checking that their insurance coverage and limits meet the requirements mandated by clients in their contracts.”

“Oftentimes, failure to meet the mandated coverage and limits in a client contract is considered an automatic breach of that client agreement,” Horton adds, “but business owners often fail to review in detail and negotiate this point with a client.”

Reduce the risk: Kreitzer suggests you have an attorney on retainer and talk to your insurance provider. “They know how policies impact your business,” he says.

For more on pertinent insurance policies, check out “Why do I need business insurance?”