A lot of people dream of owning their own business someday. They have a hobby they think is lucrative, a passion they want to share with the world, or a knack for organization combined with a strong sense of independence. This article isn’t for mere dreamers though. It’s for you, someone who has actually taken the plunge and started to follow your dream. You’re not just a dream chaser. You’re an entrepreneur.
Only you know where you are in the business journey you've embarked upon. People get excited sometimes to start production and begin selling products to make as much money as they can — but they don’t always protect themselves legally in the ways they should! You need to be aware of what your liabilities are and how to keep yourself covered from the damage they can incur if not handled correctly.
Know The Law When It Comes To Outside Help!
The first part of protecting yourself from liability issues is simply knowing about that which you’re protecting yourself from. For this reason, you need to have pristine knowledge about the law. Become acquainted with the United States employment tax laws, including those that apply to insurance for employees (medical, dental, etc. — more on this below). If you find yourself utilizing outside help at all, whether that’s from employees or something you have contracted, failing to file and report that correctly on your taxes can get you in a lot of trouble. Be aware of who needs what forms from you.
Additionally, make sure you’re legally registered as a business and that you understand the legalities of hiring outside help. This applies whether we’re speaking of official employees or the increasingly popular freelance workers. You do not want to find yourself in a situation where you didn’t pay someone for their work or understand your agreement (see more about reading contracts below) and now have to pay for it. And of course, all proper licenses must be obtained to manufacture and publicly sell a product or service.
Insurance, Insurance, Insurance
Business liability insurance is rarely mentioned in articles like this, but it’s absolutely vital. It only takes one lawsuit over a personal injury by an employee not properly taken care of by a worker’s compensation claim to economically destroy an organization. Specifically, this is called commercial liability insurance. You would hope the personal injury insurance doesn’t need to be used, of course, and that all proper steps have been taken to reduce negligence on the company’s part by informing employees of safety precautions to take while on the job. However, nothing is ever guaranteed, making the insurance a very important thing to have.
Apart from personal injury, business insurance serves other important purposes. Fidelity insurance exists to defend employers from ill-intentioned employees, being a safeguard against fraud, asset damage, and information/identity theft. Business interruption insurance stands to protect you from damages when you need to cease your operations for a moment, financially returning a business to where it was had operations not been halted. The importance of having business insurance cannot be understated and could save you your entire organization.
The Importance of Reading Contracts and the Dangers of Breaching Them
How many times have you been warned to read the contents of a contract before signing it? Have you ever agreed to something, whether in business or your personal life, that you regretted because you didn’t understand or pay attention to the full terms of the agreement?
When hiring anyone, or drawing out contracts for any kind of exchange in services or money, you absolutely need to read every page carefully. Be completely aware of every penalty you may run into if you’re not cautious. When you draw up a contract for someone else to sign, they should be completely aware of these penalties as well.
Breached contracts on either side of an agreement can result in terrible lawsuits that cost your company thousands upon thousands of dollars, wasted resources, and maybe even your legal standing. Consider hiring a lawyer to help you read through these agreements as to avoid the worst of troubles.
Keeping Ahead of the IRS
There are a lot of write offs young entrepreneurs try and take advantage of and go overboard on. This makes you a target for the IRS and if you don’t have the resources to recover with, such as money, time, and a good accountant, it could ruin you financially. You don’t want this, and nobody wants it for you. Therefore, be on your A game.
What does this look like, you may be asking? Well, here are a few concrete examples. A lot of young, small business owners work from home and try to write off their home offices and equipment on their taxes. However, the process for doing that is extremely tedious and has to follow meticulous specifics. To summarize the problem, an item or expense’s primary purpose has to be business for it to be written off.
Let’s get specific: A family computer that you use for work cannot be written off. A home office cannot be written off unless it’s primary purpose is to be an office and you aren’t working elsewhere (and even then, you need to calculate it’s value with your mortgage by square feet, another meticulous task!). Of course, any travel expenses you write off need to be able to be proven with receipts, and vehicle maintenance must also be able to be proven to be from work trips. Your vehicle cannot be written off in full unless it — you guessed it — is a work specific vehicle. If you need something only for work, you know it’s a more possible deduction. If you’re just using a home item for work, you cannot write it off.
If you have any experience with liability lawsuits, or any advice for those trying to avoid them, we’d love to hear your story! Drop us a line in the comments below.