A major contract falls through and you cannot pay one of your suppliers, or someone had an allergic reaction to one of your products. Now you find yourself staring down the barrel of a lawsuit. You’re likely to be out of money, and you’re afraid that they will come after your house as well.
That’s one of the worst things that can ever happen to any business and business owner, aside from going broke, of course.
How do you protect yourself and your business? It all depends on your actions from the start — when setting up your company — as well as the day to day decisions you make to keep it running today.
Never Skip the Paperwork
Many people are so excited with their business ideas and are eager to start right away. Most of the time, they don’t take the time to form a separate entity. Set up a proprietary limited company (Pty Ltd) — it’s well worth the effort.
By setting up a Pty Ltd, only the bare minimum is required to form the company. As the business starts making more money and the risks go up, you can start doing the things most complex businesses do.
Make Sure You’re Insured
Make sure you have general liability, casualty, and business interruption insurance in place. Find a broker you can trust from Reliance Partners and other similar brokerage companies, and then discuss which policies are truly necessary.
You might even want to establish a team of advisers, consisting of a broker, a lawyer, a CPA, and someone who has done what you are doing before (they can be your informal advisor).
Document the Loans
Chances are your company will need additional resources, but what is there is no money in the account? The likely scenario is that you will spend money directly from your pocket and tell yourself you’ll sort things out later.
That’s okay, but make sure to document every single time you put in money or take from your personal savings. Make sure to indicate that it is a loan and not an investment, so you do not get in trouble later.
Any business can be sued at any time — including yours. It is part of the legal system. An unhappy customer or supplier, or someone claiming they got hurt at your location are all potential plaintiffs against you. It is a scary thought, but it can be easier if you know what to do before it happens.