How to preemptively protect your business from potential litigation

Business News | 26 Nov, 2020 |

Protecting your business from lawsuits is one of the foremost responsibilities of any small business owner. There’s really no way of preventing potential litigation entirely, so the best that you can hope to do is ensure your business and professional legacy is well-protected in the event that any legal action is taken against you or your company. Read on to find out more.

1. Secure insurance for your company

If you’re looking to cover your business for financial loss arising from payouts, or claims made against you for personal injury or property damage, it’s strongly recommended that you secure your organisation some public liability and professional indemnity insurance. Professional indemnity insurance is particularly crucial for small businesses that offer consulting and other professional services, as comprehensive cover will provide your business with defence costs so you can fund your defence for any claims, allowing you and your staff to get on top of protecting the reputation of your organisation and maintaining business as usual. In situations like legal proceedings, it’s common for business owners to switch to ‘survival mode’ and fail to prioritise maintaining cash flow over simply getting through the litigation. In situations like these, the freedom to adopt this priority can often be the difference between a business bouncing back from litigation and a business going under. In this sense, securing the necessary insurance means giving your company the highest chances for longevity and prosperity.

2. Keep meticulous records

The best way to ensure you’re well-protected during any legal proceedings is simply by having solid and indisputable evidence to support your organisation. Be sure to keep your company’s financial statements including income and sales records, employee and independent contractor records, as well as any other business records that you feel may be imperative to keep. It’s also recommended that you keep electronic copies of critical documents such as employee and client contracts, as well as all the paperwork that will accompany your commercial lease agreement and insurance plans.

Be sure to communicate with your administrative or accounting staff so that you won’t need to keep records organised single-handedly alongside running your small business. If you’re keeping meticulous records, chances are high there’ll be far too many files for just the one person to manage, so do not expect yourself to possess that level of organisational know-how.

3. Know your organizational structure

A company that doesn’t know its own structure is usually a sign that the company is either being mismanaged or will be more likely to fall into mismanagement. You want to make absolutely certain that your staff is aware of their position and the responsibilities that come with this position. If you as the business owner decide to promote any member of your staff or expand your body of staff, be certain to update their employee contract to reflect any promotions and newly created positions. If you hire new employees or your existing employees are given added responsibilities without the necessary paperwork to back up these organisational changes, you may be liable as the business owner if any legal action in response to negligence or other forms of potential organisational mismanagement.

4. Abide by all industry laws

Two of the leading causes of business litigation in Australia are negligence and breaching the Fair Work legislation. Both of these causes can be mitigated simply by ensuring your company is above board when it comes to training as well as matters regarding employee wages. You can minimise your company’s chance of being the subject of any wage disputes by ensuring your employees are well-compensated and that their respective rates of pay align with industry standards.

Similarly, you want to ensure that your workplace is free from all potential hazards to minimize any risks of personal injuries. Take any new staff members through all the necessary OH&S training required and ensure that the training is repeated wherever necessary.

Keeping your business protected from potential litigation is really all about allowing your organisation to be as cohesive, productive, and positive as possible. Be sure to work with your staff, and always encourage them to communicate their own concerns so that you may have a greater chance of resolving issues internally.

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