Jonathan: I recently spoke to Doug Bend of the Bend Law Group about how to best create layers of defense for a retail business
Jonathan: Before getting to how a business should create layers of defense, what exactly are we defending against?
Doug: Our firm has counseled hundreds of business owners, including many retail businesses. The owners who sleep the best at night are those who have made strategic legal and insurance investments to protect their business and personal assets. That's why we recommend four layers of defense for small business owners.
Jonathan. Ok. What’s the first layer of defense?
Doug: It's hard to overstate the amount of litigation that could be avoided by great customer service. The saying "penny wise and pound foolish" is never more true than when it comes to a customer potentially suing you for negligence. All it takes is for an unhappy customer to complain to an attorney at a cocktail mixer who responds, “You should sue!”. The least expensive legal defense you will ever pay is apologizing and comping the customer product or providing them with a discount. If a customer was harmed at your business, apologize and be quick to fix whatever might have caused the injury, and err on the side of reimbursing the customer's reasonable, documented expenses.
Jonathan: And if you are able to nip this problem in the bud, not only might you prevent potential lawsuits, but you might turn what could have been a 1-star review into a 5-star review.
Doug: Yes, you might gain new customers and not lose any potential customers because of the bad PR.
Jonathan: I’m sure that sometimes the apology and offers to reimburse the cost of products does not insulate a retail business from unhappy customers who want a pound of flesh. So what’s the next layer of protection for retailers?
Doug: Yes, even with great customer service there may still be a lawsuit. A solid insurance policy can help cover the costs of the litigation, and if you lose the lawsuit, the damages. Be sure to know what the insurance policy covers and what it doesn't. Many mistakes occur when a business believes they have coverage when they actually don't. They're only left to find out after a potential claim has been brought to their attention.
Jonathan: What’s the final layer of protection?
Doug: A properly formed and maintained legal entity can serve as a crucial last line of defense to help protect your personal assets from your business activities. If a customer isn't satisfied with your apology and your insurance don't cover the claim, a legal entity can serve as a final backstop to prevent the customer from going after your personal assets. Consult with a business attorney and your CPA about the best type of legal entity for your business, as there isn't a one-size-fits-all legal entity choice.
Jonathan: This last layer of protection sounds like the very first thing a business owner should do.
Doug: A legal entity certainly provides the most bang for the legal buck for most retail businesses
Jonathan: I know there is also a bit of pushing between the attorneys and the accountants over the ‘best’ legal structure for a business. The attorneys are looking for protection and the accountants are looking at tax efficiency, and they may not come up with the same answer. Do you have a feeling which should prevail?
Doug: Many of our retail clients form an LLC, but there is not a one size fits all answer. It depends on each client’s goals, sources of financing and other factors to make sure we select the best legal entity for their business.
Jonathan: Many thanks for your time as I know how precise your time is and this is not a billable event.
Doug: Thank you for this opportunity to talk, and if anyone would like to discuss business formation, I’m reachable.