How to avoid the pitfalls of being underprepared
We’ve all heard the saying “take more risks.’ Launching a business can be a great achievement, but many business owners face similar difficulties that may prove to be too risky. Not only do employers have to learn how to run a successful operation, but most small business owners are also challenged with how best to minimize compliance risk.
Dealing with unanticipated problems poses one of the biggest challenges for small business owners. When a business begins to grow, many companies’ organizational structures are not primed to handle scaling. While it may be perceived as a minor risk in the short-term, in reality, being underprepared could have a serious impact on the organization in the form of fines or even bankruptcy.
Some of the most important types of risks for which business owners should be prepared are Loss of Key Person/ Founder Dependency, General Liability and Compliance Risk. While larger organizations likely have dedicated human resource professionals to address these issues, smaller companies may not be as fully prepared to assume such risks.
RISK: Depending at which stage an entrepreneur may be in the business cycle, he or she may face the challenge of Founder Dependency, meaning the business cannot operate without the Founder or Key Person assuming their daily duties. What if the founder was no longer “able-bodied” to complete his or her tasks? Something as trivial as not being able to sign checks could leave a business in tremendous debt or even worse.
PREPARATION: It is important for the Key Person to be replicable–Appoint someone who can perform essential duties in case of the owner’s absence. There is also insurance protection, such a Key Man and Business Overhead Expense/ Disability Insurance, to help business owners prepare for unforeseen events.
RISK: Owning a business also exposes one to General Liability claims. Business owners run the risk of being held accountable for workplace injuries, which could lead to damaging lawsuits. Among the different types of liability risks, including Employment Practices Liability and Hiring Practices Liability, accidents and injuries are the most common. In 2014, the U.S. Department of Labor reported over half of nearly 3 million injury and illness cases occurring in the private sector resulted in days away from work, job transfer or restriction.
PREPARATION: While it’s impossible to eliminate altogether, business owners can reduce liability risks by providing formal training to management and employees. Professionals can provide small business support with human resource systems and other useful industry tools. Additionally, workers’ compensation insurance can also protect against lawsuits from employees seeking money for damage, suffering or anguish.
RISK: Who knew there was a fine for not keeping a company handbook? Under the Fair Labor Standard Act (FSLA) – Wage & Hour Violations can cost employers fines up to $10,000 per incident, and a second conviction may result in imprisonment. Due to the vast number of guidelines, it is easy for business owners to find themselves in violation of the many labor laws. According to the U.S. Small Business Administration survey, small companies spend 80 percent more per employee on federal regulatory compliance than large companies.
PREPARATION The U.S. Department of Labor’s website addresses compliance concerns and can also work with an organization to provide resources for solving these issues.
No business is too big or too small to fail, and with great growth comes great risk. Understand and manage your company’s liabilities and approach them with systematic solutions to protect yourself and your organization from audits and legal challenges. Professionals and federal organizations provide resources to help educate your team so that you can focus on morale. When you own your own business, you can be sure to expect one tiling – the unexpected. Be prepared to protect your million-dollar business investment.