Protecting Your Business 101: Lawsuits, Cybercrimes, and More

Most business owners are worried about cash flow and sales. After all, regardless of your industry, the main goal is to earn profits. 

However, protecting those profits is also essential. Legal issues, cybercrimes, and other problems can wreak havoc on a small business. It is vital to adopt practices that protect your business. 

Failure to have the proper protections in place can lead to a wide range of legal and security problems. Even companies that escape lawsuits and financial losses may end up with a damaged reputation and ongoing issues with customers, vendors, or employees. 

The dangers are real for small businesses. For example, a 2019 survey by Keeper Security found that two-thirds of small business owners do not expect to be victims of cyberattacks. However, 67% did experience a security breach. 

Meanwhile, a civil lawsuit can prove ruinous. According to the Small Business Administration (SBA), the cost of such legal action can be between $3,000 and $150,000. In 2018, liability suits cost companies $343 billion. Small businesses shouldered a disproportionate amount of these penalties. More than half of the judgments, $182 billion, were against smaller firms. 

Businesses need to protect against legal and cybersecurity issues. Failing to do so can be costly and cause significant setbacks. 

Legal Protections

Legal protections are laws and regulations that help shield a person or entity from wrongdoing. A company needs to abide by these rules when dealing with competitors, customers, and employees. 

A company can protect itself in two different legal areas. The first is to understand relevant regulations and take steps, such as purchasing liability insurance, to provide extra protection if issues arise. 

A second legal consideration is to protect intellectual property, such as trademarks, processes, and trade secrets. This step involves filing the right documents with authorities so that you have legal options if someone wrongs you. Failing to register trademarks or get patents for ideas or processes is a common mistake that new business owners often make. 

Employment Practices

Both federal and state laws regulate relations between employers and employees. In addition to workplace safety regulations, these rules include anti-discrimination, fair labor, and equal pay statutes. 

A small business needs to be aware of these laws from the start of the hiring process and while drafting contracts for successful applicants. Authorities will also expect you to verify the employment eligibility of workers when it comes to age, immigration status, and criminal background.

Failing to understand the rules and regulations related to employment will not save a small business from fines or lawsuits. 

Other good employment practices focus on transparency and communication with employees. Well-written contracts can make worker expectations and guidelines clear. Also, explicit policies and procedures can ensure everyone is on the same page when it comes to workplace behavior, quality standards, as well as expectations regarding scheduling and days off. 

Finally, in today’s highly connected workplace, a small business needs to ensure they have similar policies, procedures, and contracts in place for telecommuters and freelance contractors. 

Liability Insurance

General business insurance coverage protects businesses against unforeseen events such as accidents, property damage, and theft. A company also needs liability insurance to guard against penalties from lawsuits or other third-party claims. These policies typically cover any financial liabilities and the legal costs associated with the lawsuit. 

There are three types of liability insurance. 

• General liability insurance covers any claims of injury or property damage caused by a business. For example, if a customer falls at your retail shop, the insurance will cover you if they sue for medical expenses. 
• Product liability insurance covers any injuries or damage caused by merchandise that you manufacture or sell. 
• Professional liability insurance is primarily for service providers. It covers damage or injuries due to negligence, malpractice, or other errors. This type of coverage is important if you run a business such as a beauty salon, a healthcare facility, or a repair business. 

Depending on your industry, you may also need additional coverage. If you have employees, you typically need workers’ compensation insurance. If you use vehicles during regular business operations, you also need commercial vehicle coverage.  

Finally, some businesses need to consider specialized insurance policies. For example, if you use or store large amounts of data, you can consider a data breach insurance policy.  

Trademark Registration

Trademark registration is a way to keep others from using the name of your business, its logos or brand symbols, and other identifiers. A small business should consider trademarking any titles, images, or designs that help it differentiate itself from competitors. 

You can start the trademark process by coming up with a unique name and logo. During this process, you can search the United States Patent and Trademark Office’s (USPTO) database to ensure that your chosen title is not yet in use. You then complete the paperwork to register your trademark with the USPTO. You can file these documents on your own or enlist the help of a legal specialist to handle the process for you.

You can also get legal help if there are issues with your trademark, such as an application failure. 

Finally, your trademark will become a significant part of your brand and an identifier for customers, vendors, and even employees. Because of this, you need to be absolutely sure to keep it active. 

You keep your trademark by filing maintenance documents after five years to show that you are still using the trademark. Between nine and 10 years after registration, you need to file both renewal papers and maintenance documents. You will repeat these submissions every decade after that. Depending on the type of business entity you have, you may need to register your company’s name with your state’s secretary of state or department of commerce. 

Trusts or Incorporation

You can also protect your business by creating a specific type of entity, such as a trust or a corporation. A trust is a type of fiduciary arrangement. A third party, known as a trustee, manages money and assets on behalf of a person or entity, known as the beneficiary. 

A trust can manage assets for an individual, but it can also work for a business. With a trust, you can protect assets from creditors or lawsuits and safely pass profits onto beneficiaries. Also, depending on how the trust is organized, it can provide tax benefits. 

A corporation similarly helps business owners separate themselves from their company. This is important for liability. If there is an issue with your company, someone would have to sue the corporation instead of suing you directly. Your personal wealth and assets would be safe from such legal actions. 

Record Keeping

Record keeping is essential for a business on more than one level. A business needs to collect and maintain financial records to meet reporting requirements in some industries. Also, records are a part of the due diligence process if you ever decide to sell your business. 

Furthermore, keeping a database of information about different aspects of your business can help with planning, risk management, and internal audits. You can use the information you collect to measure your performance against that of your competitors, weigh the risks associated with expanding your business, or plan for taxes. 

The more information you have and the better it is organized, the easier it is to make informed decisions and use data to enhance problem-solving. 

If you are ever involved in a lawsuit, the more data you can supply your legal team, the more effective they can be at building a case. 

Cybersecurity 

Cybersecurity focuses on defending computer systems from intrusion. A breach of your business’s servers, mobile devices, electronic systems, networks, or databases could cause significant damage.

A hacker could gain access to trade secrets or other intellectual property. They may also be able to see financial information or personally identifiable information (PII) for you, your employees, or customers. In addition to the expense and time you need to respond to a cybersecurity breach, you could also be liable if personal information of employees or customers is stolen. 

You can protect against cybersecurity threats by using firewalls, anti-malware applications, and email filters. Encrypting sensitive data and updating software and hardware regularly can also help secure your systems and networks. You will also want to train employees in proper cybersecurity measures, such as not opening suspicious emails and keeping work and personal devices separate. 

Expenses and Debt

Debt can damage your business on a practical level. It can reduce the amount of cash available for day-to-day activities and make it difficult to respond to unexpected expenses. 

Even if your financial situation does not reach the level of bankruptcy, a poor credit history can make it impossible to get loans when you want to expand or if you need temporary financial help to overcome unexpected expenses. 

You can reduce debt-related risks by managing existing debt payments and not taking on additional loans until those you already have are under control. If current payments are unmanageable, you can consolidate debts, refinance, or approach creditors about changing the terms of existing loans.