10 Tips on How to Make Your Professional Business Partners Your Risk Manager

Guest blog from Scott J. Richardson, Esq.

10 Tips on How to Make Your Professional Business Partners Your Risk Manager

By: Scott J. Richardson, Esq.

For many business owners, the day to day focus of operating and growing your businesstakes precedence over everything else. Minor issues are quickly forgotten and not addressed.Sometimes this is harmless and other times, minor problems if they are ignored, fester andbecome major problems that can result in lawsuits or government intervention. Using a teamof professionals – such as your insurance broker, accountant and attorney – can help insulateyour business and let you stay focused on your business. Minimizing the risk of being sued orthe consequences of having an adverse judgment lodged against you can be accomplished inseveral ways.

1. The most common method to limit liability is by obtaining insurance coverage for certainrisks. For the price of a premium, you transfer a certain amount of risk to an insurancecompany under defined terms and conditions. Common types of policies are generalliability, automobile liability, property/casualty, workers compensation, employmentpractices and in some instances errors and omissions coverage. Many policies includedefense coverage.

2. Have an employment manual to establish procedures and policies. These are a greatway to manage business risk. The caveat is that they must be kept current, followedand should be reviewed by an attorney for compliance with both federal and state laws.Following your well written policies should reduce employee actions for wage & hourviolations, overtime pay, wrongful termination or discrimination. In addition to having themanual, all supervisors and managers must be properly trained.

3. Pay your bills and taxes timely. If you are experiencing a cash flow crunch, talk to yourcreditors. The longer that you avoid having an honest conversation with your creditors,the larger the problem will become. The longer amount of time you wait to address theproblem, the fewer options that you may have. Not funding payroll taxes or employeebenefits such as 401k is a recipe for disaster.

4. Establish and follow good internal controls. Send key employees on at least a weekvacation annually and have someone else do their job. Breaks in internal controls, if any,will be evident. With electronic banking, make sure that adequate controls are in place.Use your banker’s expertise in electronic security.

5. Don’t rely on handshake agreements and verbal contracts. Spend the time to write acontract or agreement and preferably have it reviewed by an attorney. If you are handeda contract by a vendor, you can – and should – review and change important terms.With few exceptions, contracts can be negotiated and typically are written to benefit thecompany that prepared the contract. Verbal contracts are enforceable in some states.

6. Having well drafted employee covenants is an effective tool to protect your customerbase and trade secrets from being pilfered by a departing employee. The signedagreement needs to be stored in a secure location. Too often a key employee leaves andthe signed agreement is gone as well! Best practice is to send (or provide) a letter to thedeparting employee enclosing their employee covenant as well as explaining their dutiesand your expectations from them. Your attorney can assist with both the employeecovenants and the best practices letter.

7. Hiring is serious business. Do you run pre-employment background checks onpotential employees? They may have access to customers’ homes, business locations,confidential information or money. Possibly they are driving a company vehicle or drivingtheir own vehicle to perform work, thereby creating vicarious liability. Many companies
can run background checks ranging from criminal to MVD records, from social securitynumbers to credit reports. Some services provide a photo identification card for eachemployee that certifies they are crime free. It is vital to obtain a release from the potentialemployee prior to performing background and credit checks. Finally, do not forget theneed to use E-verify as it may provide a safe harbor for your business should you hiresomeone who is not legally in the country who was validated through E-verify.

8. Who is going to care about you and your business when you are gone? Do you havea plan for succession for the day you retire or can no longer work? Do you have a planto have your operation supervised during you absence for vacation, illness or similarsituation? A well crafted succession plan will keep your business from experiencingserious problems.

9. How often do you meet with your team of business professionals? If you meet your
insurance agent the day before renewal, you are likely to make insurance decisionsbased upon price and not necessarily on the types of coverage and the differencesamong them. Do you meet with your accountant on April 15th and just find out theamount of your business’ tax liability? Tax planning during the year is likely to reduceyour tax burden and a good review of your financial statements will keep your companyfiscally sound.

10. You should expect your lawyer to be your partner in assessing and addressing legal risks and thoroughly discussing them with you for the purpose of mitigation. You have heardthe phrase "you can pay me now or pay me later" and the "pay now" is almost alwaysmuch less expensive than the "pay later." Litigation is a way to vindicate rights. It can beexpensive, usually is time consuming and takes an emotional toll as well as time awayfrom business operations. Meeting with your legal team periodically will help eliminatepotential problems and ultimately lower your business costs.

If you find yourself in the unfortunate situation of being involved in a lawsuit, it affords yourcompany the opportunity to learn from past errors and manage risk more effectively in the future. Was the risk that brought on the litigation something that could have been prevented ormitigated? Having your attorney assist you in identifying business risks will require that theythoroughly understand your operation and business practices.

Past litigation, problems and insurance claims are good places to start your review:

  • What was the cause of the situation?
  • Was it a risk I could have insured against?
  • Was it something that could have been prevented had we simply known of the risk?
  • What would it have taken to eliminate or mitigate the risk?
  • Are we are at risk of the situation happening again?
  • What steps have I taken to prevent this situation from occurring again?
  • Are our efforts legal and ethical?

Keep notes of your answers and spend the time to talk over possible solutions with your attorneyand insurance brokers. While lawyers can solve many risk issues there may be a need forinvolvement of your accountants or other professionals. Finally, if your lawyer, banker, insurancebroker or accountant is not interested in helping you manage your business risk, it is likely youwill be exposed to issues that you may not fully understand and that is not a risk you should take.It may be time to find new professionals that will partner with you.

Remember you are the client of your professionals. You should insist upon risk management asa focus of your joint efforts and meet regularly to keep that focus at the forefront. Otherwise, yourmeetings with your professionals may be to deal with preventable problems.

About the author: Scott J. Richardson is a business attorney at the Phoenix law firm of JaburgWilk. Scott assists clients with business issues, insurance coverage, licensing issues andlitigation. He has represented hundreds of companies. Scott can be reached at 602.248.1012 [email protected]

This article is not intended to provide legal advice. Always consult an attorney for legaladvice for your particular situation.