The holidays are more than a time for reflecting on what you’re grateful for—it’s a time to get your legal ducks in a row to prepare for the new year.
For independents, the end of the year signifies a time for reflection, planning, and getting our businesses to accomplish our goals in the new year. And while we often think of profit margins, team-building, and other exciting objectives, many would do well to revisit the fundamental elements that allow them to reach those levels of success without unnecessary risks. In other words, it’s time to talk about legal audits for small businesses.
In many cases, independents are quick to “set and forget” certain business aspects that are less than appealing. For example, who wants to take time out of their busy schedule to call their insurance broker and update their insurance? How do you know when it’s time to change your tax election to an S-Corp? How often do you really need to update those service agreements?
- Why should I audit my legal documents?
- Audit all legal documents—and update them as needed
- Follow market fluctuations and adjust accordingly
- Revisit employment guidelines in your state
- Secure your intellectual property
- Ensure your website is legally sound
- Schedule recurring legal audits for small businesses
Why should I revamp my legal documents?
For some, it is easier to ignore the legal aspects of a business. Independents tend to focus on more fulfilling work, like selling top-tier packages, developing click-worthy content, creating new products, or pitching to an industry-leading podcast.
However, letting your business foundation collect dust from a legal perspective puts everything in jeopardy. One outdated contract or misclassified contractor can undo years of hard work and cause significant financial losses. In addition, legal battles consume time and energy, so it is better to avoid the courtroom altogether than play a game of chance with your business’s future.
As the year winds down, it’s time to stop cutting corners and do the work to protect your business in 2023. Here are the areas to review in your end-of-year legal tune-up.
Audit all legal documents—and update them as needed
Service agreements are subject to change based on market conditions and your business’s growth, so avoid thinking of your contracts as set in stone. If your products and services evolve, your contracts should follow suit. Aim to audit your agreements at least twice a year to ensure they fully protect your business as an entity and you as the business owner. Here are some questions to ask yourself when reviewing contracts:
- Which comments do I most often receive from clients about my contract? Does anything need clarification?
- How should I address previous pain points in my updated contracts proactively?
- What are my current pain points?
- Has anything changed in the market that necessitates an update (e.g., COVID, inflation, etc.)?
Adjust your contracts on an as-needed basis
Outside of biannual audits, do not hesitate to adjust your contracts throughout the year if the need arises. For instance, if a new client crosses a boundary you did not even consider, update your contract right away to avoid similar situations in the future.
It is also wise to re-review contracts you have signed with other businesses when it comes time for renewal. If you have a retainer agreement with a marketing agency, freelance writer, or virtual assistant, revisit your contracts annually to see if anything calls for modification. The same goes for ongoing arrangements with industry publications, including memberships, directory listings, and advertising.
Follow market fluctuations and adjust accordingly
Before 2020, many business owners could skate by with the same contract for years. But when COVID struck, there was no option but to update all legal agreements. While entrepreneurs tried to figure out how to stay open, the air of uncertainty meant consumers became meticulous about reading—and questioning—the terms of a contract.
Cancellation policies and force majeure
As a result, business owners had to overhaul their cancellation policy. They learned about “force majeure” (something they will never overlook again!). They tightened their language to define minimums, price increases, and non-refundable retainers (not deposits!) clearly. Thus, many spent the first year of COVID in reactionary mode, trying to cover their bases and preserve their financial interests in the face of the unexpected. And while we can’t predict the next catastrophe to turn the business world upside down, you can take a proactive approach to your legal foundation.
Consult an attorney to review and strengthen your contract, closing any potential loopholes. Then, discuss contingency planning. What are the worst-case scenarios for your business, and how can you shield yourself against them? Think natural disasters, severe illnesses, property theft, and even supply chain delays if a ship gets stuck in the Suez Canal. (Who saw that coming?!) Remember: You do not have to know what is coming down the line to safeguard your business against it.
Revisit employment guidelines in your state
Every business owner should clearly understand their state’s employment guidelines and what constitutes an employee versus an independent contractor. Misclassifying a contractor that performs the work of an employee is against the law, making you liable for back taxes, back wages, criminal penalties, and even prison time. It’s not worth it!
Employment guidelines are subject to change, so it is wise to review them for updates annually. Then, look at the people on your team and how you classify them in your business. It is natural for roles and responsibilities to evolve, so someone who started as an independent contractor may have morphed into an employee. If that is the case, file the necessary paperwork to convert their employment status (i.e., W-4, I-9, etc.) and update your payroll accordingly.
What if I don’t have any employees?
If you’re an independent with no employees or contractors thinking you can sit this one out, think again. If you intend to grow your business, you will need to hire support at some point. When the time comes, knowing your state’s employment guidelines will ensure you stay on the right side of the law when building your team.
Plus, if you provide services as an independent contractor, it is important to know your rights and address situations in which you are treading into employee territory. For example, if a client expects defined working hours or pushes your work out of scope, you will have the legal know-how to push back and set boundaries that protect your business (and your client’s interests).
Secure your intellectual property
From digital products to a new brand logo, your intellectual property (IP) should belong to you. Otherwise, any person off the street can take your IP and use it as their own. And when you have invested time and resources into creating your IP, it would be disheartening to see someone else “steal” it without any chance for recourse.
Unfortunately, many small business owners do not take the time to register their IP. At the very least, you should have trademarks registered with the U.S. Patent and Trademark Office (USPTO) for your business name and logo. But it is also prudent to consider whether you need to register the copyright for any of your creations.
If the idea of patents, trademarks, and copyrights makes your head spin, consult with an IP attorney specializing in this area. Leaving your IP unprotected can leave your business vulnerable to fraud and other scams, so take care of it before it becomes a problem!
Ensure your website is legally sound
As consumers, these are the pages full of fine print we usually click on in error while browsing a website’s footer. Yet, while we may not care to read them for every website, they exist to protect website owners from undue legal challenges.
If you already have these policies on your website, include them in your biannual legal document audit to determine if updates are needed.
Schedule recurring legal audits for small businesses
Setting aside time to audit your business’s legal protection each year sounds critical, but it’s easy to slip through the cracks when you’re busy. Avoid missing these essential check-ins by scheduling repeat tasks on your calendar or project management software. That way, you can let your systems hold you accountable and never fall behind on the legal housekeeping in your business.
While you may never love working on the legal side of your business, you will love the peace of mind that comes with knowing you are fully protected. And with regular check-ins, you can identify and close gaps that open you up to liability so you can stay ahead of the curve.
Legal tune-ups prevent losses from out-of-date contracts, unprotected IP, misclassified employees, and more. So take some time this year to get your business in order for 2023, then plan for routine audits to give your business foundation some much-needed maintenance throughout the year. Your future self will thank you!
Manage each step of your clientflow and ensure nothing slips through the cracks.