5 Important Things Every Business Owner Should Know

To say that running a business is demanding would be an understatement. You need to keep track of everything from your bottom line to managing your employees.

It doesn’t mean you should ignore the legal side of your business – an area in which issues can stop your venture in its tracks or wreck it altogether.

It’s not always easy to see potential legal problems before they happen.

However, if you familiarize yourself with some of these issues, you’ll avoid more significant problems down the road and steer clear of costly litigation.

Here’s what you need to know:

1. Importance of contracts

The strength of your business primarily lies in the power of your contracts.

While it is true that a verbal agreement is legally binding, and in most cases, a faster option, you’ll be in trouble if things ever go sideways. Oral contracts are simply too hard to enforce.

You should put every agreement down in writing, no matter who you’re dealing with. A good contract doesn’t only outline the obligations of each party but also addresses what happens if the conditions aren’t met. A well-written contract will protect you from future disputes.

Pro tip: If you don’t want to spend hours upon hours double-checking each term, you should take advantage of contract analytics softwareOpens in a new tab.. Tools like this automatically highlight every key detail present in your document and group it for easy access. Additionally, they can also spot mistakes and help fix issues with formatting, lists, and numbering.

Luckily, contracts aren’t as complex as people make them out to be. They only need to contain three elements to be seen as valid in the eyes of the law:

  • Offer and acceptance: one party makes, and the other accepts the offer.
  • Consideration: something of value must be exchanged between the parties.
  • Mutuality: both parties must agree to key terms in the contract.

However, aside from these three main elements, your contract should preferably contain details on things such as deadlines, payments, and what happens if the obligations in the contract aren’t met.

In other words, your contract should always be written with the worst-case scenario in mind and address all possibilities of how things can go wrong. This is why it’s helpful to write termination clauses, which describe scenarios in which a contract can be terminated safely.

For example, you can add a force majeure clause that allows the parties to terminate the contract if an unforeseeable circumstance makes the completion of the duties impossible.

2. Brand protection

Your brand identity is everything as it attracts customers and gives them a better idea of what your business is about. So just imagine the scenario in which another company legally stopped you from using your logo. You’d have to rebrand and possibly go to court – and both of those can cost you a lot of money.

Many business owners put off registering their trademark until they are well established, thinking a registered business name alone can keep them safe. However, you should file a trademark application as soon as possible.

Applying for a federal-registered trademark accomplishes two important things:

  • Prevents you from unwillingly infringing on the intellectual property of other businesses.
  • Gives you exclusive rights for the registered mark (a name or a logo) and stops other businesses from infringing on your intellectual property. For instance, if a company with a similar name or a logo sold a similar product to yours, you could take legal action.

You should consult a lawyer who specializes in intellectual property if you have any doubts about anything or want to get things done a lot quicker. Additionally, a lawyer can determine whether, for example, a tagline you came up with infringes on any existing trademarks to avoid the risk of being sued.

3. Separating your bank accounts

New business owners can usually get away with having a single bank account. But as your company grows, it’s important to stop mixing your personal and business assets.

A business bank account is going to help you protect your personal assets if, for example, someone filed a lawsuit against your company. In addition, a separate bank account can make tracking expenses easier and help you stay out of any legal issues.

Let’s take a closer look.

Since you can use business losses to balance out personal income, there is a high potential for fraud. Once the IRS takes a look at your record-keeping, a business account is going to make it easier to prove you’re a legitimate business owner rather than a con artist.

Furthermore, a business account is a must for small businesses with large expenses. If you have to respond to a tax audit, having separate accounts can make it more transparent as to which expenses are personal and which ones are business-related.

As a bonus, the process of budgeting and tracking your expenses, as well as filing your taxes, is going to be hassle-free.

4. Practicing contract compliance

We already gave you a crash course in the basics of contract law. Now, it’s time to show you how to ensure contract complianceOpens in a new tab. and why it matters.

If you neglect this step, any compliance issue could potentially lead to a dent in your bottom line. Hitting contract compliance out of the ballpark, on the other hand, ensures that both parties are delivering on their promises. It also improves customer and partner relationships and retention.

A good practice for compliance is starting a contract template library. As some contracts are going to be used repeatedly, this is going to be a major time-saver. Moreover, it’s also going to clear out any confusion about your obligations in the future.

The next thing you can try is an optimization of the entire work structure. Everyone in your business should have a clear role and an established deadline in mind.

Lack of systematization, division of labor, and communication problems are the usual culprits in compliance issues. If you pay more attention to the responsibilities of everyone on your team, you can uncover problems and troubleshoot before things go out of hand.

Finally, changes in legislation and consumer laws can often happen without warning. It’s your job to keep up with the changes to ensure you stay compliant through the way you conduct business.

5. Co-ownership

If your business has multiple owners, those relationships also need to be addressed in the form of a written agreement. As with any other contract, make sure to outline the roles and responsibilities of each owner.

Similarly, you should also address the worst-case scenario when it comes to your business. This is where a buy-sell agreement comes into place. It enables the acquisition of ownership interest if one of the owners chooses to leave.

Besides addressing how the business will be valued if a trigger event (bankruptcy, split between owners, death, disability) occurs, it also describes how the payout of the departed owner’s stake will be determined.

Keeping it legal

Knowing the legal basics (and a little beyond) is essential. Getting your agreements in writing, protecting your brand, and ensuring you are compliant can help you buy time until you get more familiar with the ins and outs of the legal side of running a business. Or at least until you have enough money to hire a professional legal counsel.

Author bio: 

Habib-Ur-Rehman is well-known writer for techOpens in a new tab., businessOpens in a new tab., food and multiple topic writer with updated info for the audience, believe in the researched based content writing with outstanding writing style.

Recent Posts