I recently read a blurb in Staffing Talk’s Staffing News Of The Day that while small business owners are increasingly optimistic about the prospect for growth this year, many are mindful of additional legal risks they may encounter as their businesses grow. Since the U.S. Small Business Administration estimates that companies with fewer than 50 employees generated 65% of the new jobs in this country over the past decade-and-a-half, I thought this subject was worth devoting a little more time and space to.
Rocket Lawyer’s new survey uncovers challenges that concern small business owners.
When asked about the hardest part of running a small business, 29% of those company owners surveyed say it’s dealing with legal issues.
This outranks other responses including managing profit, at 26%, and staying ahead of the competition at 19%.
Specifically, here are the Top Five legal areas identified in the survey as of most concern:
- Contract negotiations
- Real estate transactions
- Corporate compliance
- Debt collection
- Incorporation issues
These issues come into play as businesses enter into new contracts, hire new employees while staying compliant with HR and employment laws and also upgrade to new office space.
“As small business owners take bigger risks and start spending again to capitalize on new opportunities, staying on top of potential legal issues is more important than ever,” says Charley Moore, executive chairman of Rocket Lawyer. “Adapting from a mindset of preservation to one of growth means business owners have to be aware of their legal opportunities as well as risks.”
Rocket Lawyer suggests a trio of strategies that can help small business owners mitigate their legal risk(s).
1. Avoiding IRS red flags can help small businesses steer clear of a tax audit. Even though relatively few small businesses were audited last year (1% of corporations with less than $10 million in revenue were audited last year according to the IRS), the Rocket Lawyer survey found that a significant portion of small businesses (40%) say that they are more fearful of an IRS audit than any other legal issue.
“As small business owners take bigger risks and start spending again to capitalize on new opportunities, staying on top of potential legal issues is more important than ever.”
Common red flags include misclassifying employees as independent contractors and declaring higher than average business related meal and entertainment expenses, among others.
2. Learning contract negotiating skills is a must for small business owners. Tax audits cause a significant amount of trepidation, but they aren’t the most common legal issue faced by small business owners. According to the survey, out of the 52% of small business owners who faced legal complications in 2011, the most common problem concerned contracts, and more specifically, failure to collect money that was owed.
3. Document, document, document. Of any small business ownership group, staffing company owners are probably among the most diligent when it comes to documenting and putting in writing things such as employment agreements, independent contractor agreements, nondisclosure agreements, and the rest, but here’s your friendly reminder. If there’s any doubt, the agreement should be on paper with both parties’ signatures. A verbal agreement is very hard to prove in a court of law, so having a written agreement is an inexpensive way for small business owners to avoid legal hassle
Is there anything in the survey that you think got left out? What legal issues have tripped you up in the past? Do you agree with the main findings of the survey that a fairly significant number of small business owners find legal issues to be an impediment or obstacle to growth? We’d love to hear from you.