General Liabilities in Business: Mastering Contracts and Compliance

Running a business is one way to gain autonomy and build wealth. According to the Small Business Administration, in 2023, there were over 33 million small businesses in the United States. Small businesses employ 61.7 million Americans, totaling 46.4% of private sector employees. Financial Samurai is technically a small online business that began in 2009.

Owning your own business brings its rewards. Here are the 10 best reasons to start an online business. Starting Financial Samurai in 2009 enabled me to break free from a miserable investment banking job in 2012. Now I have the autonomy and creative freedom to do what I want.

However, beware there are also general liabilities in business as well. Unfortunately, a simple business agreement could turn into a costly legal nightmare. Regardless of size, businesses are vulnerable to legal disputes due to poorly drafted contracts or missed compliance requirements.

Understanding the nuances of general business liabilities is crucial to keep your business running smoothly. From the contracts you sign to the laws you must follow, every detail matters. Let’s break down how you can protect your business and stay ahead of potential legal and operational risks.

Understanding Liabilities: The Backbone of Business Protection

In today’s fast-paced world, grasping the concept of liabilities isn’t just good practice—it’s essential for survival. These general liabilities are not just legal obligations; they can also significantly impact your business's productivity, especially with the rise of remote work and shifting workplace norms.

Managing liabilities boils down to two main factors:

  1. Ensuring your contracts are airtight
  2. Staying on top of compliance.

Together, these two factors form a crucial defense in keeping your business within legal boundaries and reducing risk.

The Role of Contracts in Business Success

Contracts are the bedrock of business operations. Whether it’s a sales agreement, an employment contract, or a service agreement, each serves a unique purpose in clarifying roles, responsibilities, and expectations. A well-drafted contract is like an insurance policy—it minimizes misunderstandings and disputes by establishing a clear legal framework.

When two parties sign a contract, they agree to the terms and conditions outlined within and commit to following them. If one party fails to meet those obligations, the contract serves as legal protection for the other party.

For example, I've been a landlord since 2003. As a landlord, having a comprehensive lease agreement is essential. This agreement, signed by all tenants before they receive their keys, outlines rules, payment terms, penalties for late payments, rental deposit, and operational instructions for appliances. One of the most important aspects of being a landlord is conducting a thorough move-in walk-through, which includes taking pictures and documenting the condition of the property.

When the tenant moves out years later, the exit walk-through provides an opportunity for both parties to review the original documentation. Without the documentation, it's easy to forget. This comparison helps identify any damages beyond normal wear and tear. Any damages that haven't been repaired will be deducted from the tenant’s security deposit.

But in today’s era of remote work, contract enforcement becomes trickier. Managing remote employees and service providers adds a layer of complexity to traditional oversight. This makes it more important than ever to include specific terms that account for remote work conditions, expectations, and accountability measures in your agreements.

Compliance: A Non-Negotiable for Long-Term Business Success

Navigating the maze of industry regulations and legal requirements is no easy task, but it’s a non-negotiable part of running a compliant and sustainable business. Compliance ensures your business operates legally and ethically while safeguarding you from potential fines and legal actions.

For example, the healthcare industry must comply with HIPAA regulations to protect patient information, while financial institutions must adhere to anti-money laundering laws to maintain integrity.

Non-compliance in any industry can have severe consequences, ranging from hefty fines to business shutdowns. And with remote work becoming more common, maintaining data security and adhering to regulations from a distance adds an additional layer of complexity.

To adhere to compliance, businesses often hire compliance directors to ensure the business is following through. When I worked in investment banking, compliance officers held at least quarterly updates to ensure employees were following communication protocol and investing protocol. Another big issue was insuring employees followed the client entertainment policy with regard to expensing.

Managing General Business Liabilities

Risk management is the cornerstone of protecting your business from liabilities. Every industry faces different risks—retailers might deal with slip-and-fall accidents, while tech companies face data breach threats. Identifying these potential risks and addressing them proactively can save your business from costly setbacks.

Business insurance is one of the most effective ways to mitigate these risks. Whether it's general liability small business insurance, property insurance for restaurants, or professional liability insurance for consultants, having the right coverage in place is critical.

Staying informed about changing regulations and updating your contracts regularly will also help you stay compliant and protect your business from evolving risks.

Insurance is there to protect us in case of something bad happening. When it comes to business, having small business insurance can protect a business from going under. The more people your business deals with in a hands-on manner, the more you need to be protected. For example, it is vital for doctors to have medical malpractice insurance.

Proactively Managing Risk: Your Best Defense

Successfully navigating the complexities of general liabilities requires a proactive approach. Understanding the importance of contracts and compliance, along with implementing strong risk management strategies, will ensure your business is prepared for the unexpected.

The business landscape is always evolving, and keeping pace with liabilities will be crucial to maintaining long-term success. Whether you're running a small startup or a large corporation, the key is preparation—because in business, being ready for the worst is often your best defense.

By adopting these tools and strategies, you'll protect your business from liabilities and set yourself up for growth in a constantly changing environment.

After running my online business since 2009, my best advice is to always try and add value to your clients and be nice! The nicer and more thoughtful you are to your clients, the more understanding they will be if something goes wrong.

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General Liabilities in Business: Mastering Contracts and Compliance is a Financial Samurai original post. All rights reserved.