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Real Estate and Business Law

Risk Management: What does it really mean for small business owners?

Risk Management: What does it really mean for small business owners?

I recently attended a craft brewery seminar in which the founders of Smog City Brewing Company told their story. It was compelling and inspiring and made me very thirsty for their award winning Ground Coffee Porter, but I digress.  What was not surprising to me is that they engaged an attorney to help them with their lease and  according to the Smog City folks, the attorney almost caused them to lose their lease.

I do not know the details of that interaction, but I do know that in my experience some lawyers tend to “over-lawyer” a lease.  I try to always keep this story from Smog City Brewing Company in mind because my job is to be on my client’s team and certainly not to impede their success.  I often have to deliver the gloomy news of certain risks, but risk management does not mean pointing out and fighting about every single word in a lease.  Risk management is about identifying potential costly issues in any contract or business endeavor and giving the landlord or tenant the information to make their best business decision.

Risk management means clearly defining relationships, minimizing conflicts and disputes, and maintaining your rights to pursue or defend against any future legal action.  Put your business in the best position possible to succeed no matter what obstacles arise.

For some entrepreneurs or business owners, they consider risk management to simply be the act of getting insurance.  Most individuals, whether owning or just starting a business, are familiar with homeowners insurance which is certainly a good idea and required by most loan providers.

However,  for a business, risk management is about forming and maintaining your business in a way such that if anything goes sideways, you can deal with the problem while continuing to grow and build your empire. Certainly, risk management includes property or renters insurance.  Risk management also includes choosing your entity structure, such as a limited liability company or partnership.  Every partnership starts out with the best intentions, but if a partner want out of the business, a partnership agreement should be in place at the outset to avoid costly disputes.  (More on this topic in a future post).  Other items to consider include protecting your brand, logo, trademark, assets, furniture fixtures and equipment, employee relationships and trade secrets.

One of the most overlooked areas of risk management is that very fine small print in probably the most important document you will sign, your lease.  I cannot count how many times a tenant has told me that they did not read the lease or have an attorney review it.  Trust me, I personally understand as a small business owner, that money can be tight when starting out, but there are certain things such as a lease that if not reviewed by an attorney may cause you major headaches down the line.  Provisions which provide for who pays for major repairs like air conditioning or plumbing can be costly if not addressed up front.

Another important area of risk management is choosing a business structure and documenting how the company will operate and terminate if necessary.  All partnerships start off between good friends, trusted colleagues or even family, but when one partner wants to exit or change the direction of the business, there needs to be a partnership agreement in place that sets out exactly how the parties go about terminating the partnership and moving on. This is just one example of how planning up front can save time, money and headaches down the line.

Talk with your attorney about taking steps towards managing your risk and taking care of your business. Don’t be afraid to have a candid conversation about costs because some risk is inevitable and not worth the cost of eliminating (see Smog City experience above!). You have worked so hard to build your business everyday and it is certainly worth protecting.

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