Skip navigation

Legal & Insurance

10 Posts authored by: Touchpoint

Some small business owners believe that they don’t need business fraud protection, but nothing could be further from the truth. Often, small and midsize businesses don't have the resources to invest in robust security measures, making them attractive targets for cyber criminals and leading to devastating results. Take a look at the following infographic to help you become aware of the risks and how implementing small business fraud prevention measures can be a strong first line of defense.




Click here to download a PDF of the infographic.



Similar Content

Checklist: Don’t Let Fraud Win

Guarding Against Fraudulent Financial Transactions

Why You Should Adopt EMV Chip Card Technology

Tech Tools To Keep You On Track

Avoid Cash Flow Pitfalls

Small Business Checking

Disaster_Planning_body.jpgby Matt Krumrie


Major disasters such as earthquakes, hurricanes, tornadoes, winter storms, and spring floods make headlines. Smaller disasters such as fires, burst pipes, power outages, Internet failure and hacker disruptions can destroy small businesses. That is, if there is no disaster recovery plan in place.


"Disaster planning and preparedness can be your lifeline to staying in business," says Bob Boyd, president and CEO of Agility Recovery, a Charlotte, North Carolina-based company that offers disaster recovery solutions and business continuity services for small and mid-size businesses.


Boyd said between 40 percent and 60 percent of small businesses without a disaster recovery plan never reopen their doors. And 25 percent of those without a plan eventually fail after reopening because of lost customers and a damaged reputation.


"Most disaster recovery strategies are easy and free," says Boyd. "You don't need to come out of the gates and have the Rolls Royce of recovery strategies.”


Among the top strategies Boyd suggests small businesses put in place are related to communication – who/how do employees make contact in case of emergency; backup plans – how to keep operations moving forward in case of emergency; and understanding how to handle a worst case scenario.


Says Boyd: “If you woke up and your employees couldn’t get to work, or weren’t able to do their job, what would you do? If you don’t know, you need a disaster plan.


Act quickly

Jeff Stoks is chief technology officer at Sexton Printing, a third-generation printing and marketing services company based in West Saint Paul, Minnesota that has been in business for 60 years and has 60 employees. While there haven't been many issues over the years, a leaky roof once forced the company to shut down a press, and a severed cable a few miles down the road in downtown St. Paul cut off Internet access.


"All our clients send files via email," says Stoks. "When the Internet is down, it can have a ripple effect."



As for that leaky roof, the company quickly hired a roofer, secured tarps to cover equipment, hired a cleanup crew and then made sure no other paper or machinery was damaged.


Reid Bradley, an Anytime Fitness franchisee owner in Moore, Oklahoma, went through the worst type of natural disaster in 2013 when an F-5 tornado rumbled through the town, damaging everything in its path, including his gym. No one was hurt and the club has recovered, but it was an experience he never wants to go through again.


"No one can plan for a disaster perfectly," says Bradley. "Communication is vital in making sure everyone is okay. We have group texts to make sure (employees) are safe during and after a disaster."


As the national media director for Anytime Fitness, Mark Daly oversees the company's Crisis Response team. The company has developed a crisis response guide, much of which has to do with helping franchise owners handle, deal with, and solve any crisis, no matter how small or large.


The team meets on a quarterly basis and in the monthly company newsletter Daly regularly includes safety tips and stories about infrequent crises or mini disasters at clubs throughout the franchise. The tips include best practices and information on how staff responded. "In the face of medical emergencies, we have staff that have responded in heroic fashion and lives have been saved because our staff is prepared," says Daly.


Defining a recovery plan

Any disaster plan should include key information such as bank account numbers, customer and employee lists, and an inventory of assets, to name a few, says Stoks.


At Sexton, if there is no access to the office, board members meet at the president's house to implement the disaster plan. They would also set up an impact analysis to assess the situation and determine who or what is needed to get back up and running. A workflow transition plan would also be implemented. That consists of ideas and strategies on how to work with industry peers, outsourced vendors, and client resources to keep work moving.


Once in place, experts recommend reviewing the disaster plan yearly to make sure it is accurate and still reflects the company’s needs. For instance, in the past few years Sexton has changed insurance companies, IT providers, and paper vendors and that new information is now part of the plan.


Disaster Planning: 5 tips for success

Boyd highlights cost-effective disaster plan steps any company can implement:


1. Power: Statistics show that if organizations had a power outage, 70 percent of companies wouldn't know their power requirements. Any electrician can look at a panel and tell you how much power you would need to get back up and running, says Boyd. Other questions to ask:  Where do you get the power? Do you have your landlord’s permission to bring in a generator?


2. Communication: How will you communicate with all key stakeholders, such as employees, customers, and vendors? Phone, text, social media, 1-800 emergency number are some options. Develop a communication plan.


3. Educate employees: A disaster plan isn't beneficial unless employees are educated and aware of how the plan would be implemented, says Boyd. Inform and train on procedures and operations at least once per year. Practice and conduct drills on steps employees are responsible for in the event of an emergency.


4. Cross train staff: Prioritize which staff members are crucial to get back up and running. At Agility, they train accounts payable staff on all member service functions and on how to interact with customers in case they are needed to answer phones in the event of a mass disaster.


5. Understand your insurance: Boyd says in the wake of Hurricane Sandy in 2012, there are still small businesses wrangling with their insurance companies over payment for damages from the super storm. Simply put: Know and understand your insurance coverage and adjust as needed.


"I think the big message is that small businesses have to have some kind of plan in place," says Boyd. "Business owners shouldn't think it’s something that will take a lot of time and cost a lot of money, or require a lot of staff to do. Any small business that does not have a plan is not going to cut it."

QALegalAdvisor_Body.jpgby Heather Chaet.


You are the Superman of your business. You can leap over personnel problems and make deals in a single bound. You can handle anything…except a complicated tax transaction or a complex vendor contract or a possible lawsuit or lots of other legal issues. That’s why having a general counsel who is familiar with you and your company—big or small—is as essential to the success of your business as your website and your ideas, if not more so. Jason Smolen is co-founding principal of SmolenPlevy in Vienna, Virginia. For more than 30 years, Smolen has gained recognition for his expertise with complex business transactions, trusts and estates. Smolen chatted with business writer Heather Chaet about the benefits of having a legal advisor on board at the genesis of your business and how folks like him help entrepreneurs like you with their superhero legal mojo.


HC: Can you share a little bit of your background, how—and why—you began working with small businesses and entrepreneurs?

JS: Larger, established firms always have representation, whether it is inside counsel, outside counsel, or a combination of both. They know it is a cost of doing business and a cost that is well worth it. It is much easier and less expensive to do something right then to fix it later. Smaller companies and start-ups are usually so busy creating their market share that management might overlook or not even be aware of the value of professional advice. 


From early on, I’ve focused my practice on estate planning and business law. The two go hand in hand. Just like their house and personal fortune, a small business owner has to think about the future of their business estate. Plans have to be in place in case something unexpected happens and for the long haul. I’ve had to learn almost every detail about each client’s business, because if it’s not in shape from a business and legal perspective, it won’t make it to the next generation—or to the next owner. Working on that road map together with the owner (or owners) helps get things in order and achieve that success.


HC: Why should small businesses—with maybe only one or five employees—consider having a legal advisor from Day One?

JS: Having a good attorney advising a business can help avoid those pitfalls that could crush one before it gets started. If the company is a start-up, selecting the type of company and making the proper tax elections is critical for economic and management efficiency. Any time you have more than two owners, the potential for disagreement exists, and there is no better time than in the beginning to sort out the issues. Depending on the business, there are compliance issues, employment issues, and business issues. Something as simple as negotiating and drafting a proper lease for the location of the business can be critical. A company needs employment and contractor agreements, and strong non-competes, if they’re applicable.


HC: For those that may be uncertain about the various options out there, can you briefly explain the different ways a small business owner can hire and work with a legal advisor.

JS: There are many ways to engage an attorney on behalf of a small business. Probably the most common arrangement is straight fees-for-services, in which case the client pays for the time and cost expended. Its downside for smaller businesses is that owners may have anxiety when calling their lawyer because they are getting charged each time—I can only suggest that if you are thinking of calling your lawyer, you probably should. A way around this [anxiety] is to meet with your attorney so that you can both discuss the needs of the business and agree to a retainer paid on a monthly basis for that year. It’s possible to work out a budget that might exclude certain items, for example, litigation, but generally cover everything else. That takes the anxiety out of making a phone call to your counsel any time you need advice. For certain work, flat fees can be negotiated as well.


HC: What are the top legal mistakes you find small business owners make— and how those missteps affect their business success or may affect it down the road?

JS: I would say the top non-operational mistake is not paying proper attention to tax matters. Without proper planning, the company or its owners could pay more taxes [than necessary], or force themselves into litigation or a dissolution event upon a departure of an owner.


From a human resources point of view, not having a good employee handbook and intake and outtake processes can consume a lot of resources for almost any business. For general business matters—whether it is a lease or vendor agreements you enter into—your decisions can save money and make you more profitable. Maintain compliance with regulatory issues that affect your business and the arrangements you have with your customers. If they are done right, you can spend your time on your business. If they are done wrong, you will pay for it for quite some time.



QALegalAdvisor_PQ.jpgHC: Tell us a few examples of how you work with small businesses on a long-term and day-to-day basis—from the trouble patches you may have helped them through (or helped them avoid) to stories of successful growth that came from having a legal advisor?

JS: Most people approach problems through the prism of their own experiences. Someone may be a very sophisticated businessperson but he is only familiar with the deals he has seen. A good legal advisor not only brings his or her legal talent to the table, but also adds value with the experiences he or she has had with what works and what does not. It is an invaluable practical asset.


Sometimes the best way to start a business is to buy one. I had a client that negotiated the purchase of a modestly successful service business. The parties negotiated the deal without counsel, and the purchaser was referred to me to review the deal. Neither buyer nor seller understood the tax cost of the transaction because of the structure of the [deal]. We worked to save our client millions of dollars on the transaction, which added enormous profitability to the business going forward.


An area of concern for some clients is the protection of their intellectual property. There are times where a prior employee can cause a great deal of damage to the goodwill and trade secrets of a company. I had a client who had one key employee who left my client’s company and tried to start a competing business. As a result of our prior advice to put in place the appropriate documents to protect our client’s business we were successfully able to prevent that departing employee from improperly competing with our client and [avoided] great damage to the business.     


HC: What are the trickiest issues facing your small business clients today?

JS: No business can ignore social media. It can be a tremendous boom for growth— provided the right messages get out. Significant damage to a long-developed reputation may arise when social media problems are not addressed. Navigating these issues is a complicated web of free speech, defamation laws, user agreements, and marketing. It is important for business owners to be properly guided through this from the very beginning, including internal use of social media and the web.


Another area that I’m constantly focused on for my clients is a legal due diligence check-up, examining the company as if it was being marketed for sale—you find many of the gaps that the company might have when scrutinized by potential purchaser. I always believe that it is better to live in a nice house now than simply fix it up for the next buyer to enjoy.


HC: Any advice for a small business owner looking to hire a legal advisor, on how to find the right one?

JS: Foremost is competence in the areas that the business needs.  Most good business attorneys will have a solid foundation of the state requirements for organizing and operating a business entity within that state and a more-than-adequate knowledge of the tax issues involved in choice of entity and structure. It helps if the attorney has resources available for the other issues that could come up on running a business—this saves you having to shop different firms for everything you may need, such as leases, business contracts, and tax matters. (Editor’s note: exploring personal referrals from other business professionals is a good first step to finding an attorney, or check out the American Bar Association’s Lawyer Referral Directory or Best Lawyers, which is the oldest peer-review publication in the legal profession and quite respected.)


If you get past those threshold requirements, it is really a function of what the fit is like. You can be the best attorney on earth, but if you and your client don’t see eye-to-eye or the client is not comfortable with opening up on all issues involved in running a business, it is probably better to move on and seek someone else. The most valuable relationships are the long and trusted ones. You don’t want to educate a new attorney every other year on your business needs.


This interview has been edited for length and clarity.


Disclaimer: Since the details of your situation are unique, you should always seek the services of a qualified attorney or relevant professional for advice specific to your business.

HackInsurance_Body.jpgby Erin McDermott.


You’ve firmed up firewalls, strengthened passwords, and locked up hardware—all in the name of securing company computer systems from malicious hackers. But what if you’re breached anyway? There’s protection that more small businesses are starting to choose: hacking insurance.


Cyber liability policies are being issued to cover everything from the cost of informing customers and post-attack credit-monitoring accounts to the loss of business from denial-of-service attacks. While some traditional policies include coverage for computer-related losses, the rapidly expanding methods of data breaches mean business protection plans have had to adapt to an increasingly menacing digital landscape.


Small businesses haven’t exactly been keeping up: Symantec’s 2013 Threat Report estimated 31 percent of all attacks targeted U.S. companies with fewer than 250 employees, up three-fold from the year before. Yet 83 percent of SMBs surveyed told the security software maker and the National Cyber Security Alliance they weren’t concerned about the rise in hacking, with 59 percent reporting that they had no contingency plan in place in the event that they were breached.“When we focus on hackers in the news, small businesses take that to mean it’s a problem for big conglomerates,” says Gary Sutherland, chief executive of the North American Professional Liability Insurance Agency in Framingham, Mass. “Most don’t believe they’ll be hit. They don’t think they’re big enough.” He points to a recent case where a small accounting firm’s staffers showed up on a Monday morning and found they were unable to log in to their computers. When managers investigated their locked equipment room, they discovered what may be many small business’s worst nightmare—all of their servers were gone.


The industry that aims to ease the pain from these worst-case scenarios is growing: In June, The Betterley Report, an independent guide to specialty insurance products, pegged the cyber-liability market at $1.3 billion for 2013, up from $1 billion a year earlier. (Sutherland estimates small businesses with cyber coverage still only account for 3 percent of that market.)


HackInsurance_PQ.jpgJared Kaplan, senior vice president of products at Chicago-based Insureon, says he’s seen a two- to three-fold increase in demand, particularly as doctors and other health-care firms summon technology to adapt to HIPAA privacy protections and navigate the Affordable Care Act (known by some as ObamaCare). “We’re seeing real-world examples of hacking every day now,” he says. “The whole world is digitizing and it affects everything. The key is to manage the risks appropriately.”


But if you’re still in denial about the threat to your small business, don’t think you won’t be held responsible if the unthinkable occurs. Letting customers know their private data may have been stolen isn’t just the right thing to do; it’s also the law in a majority of U.S. states. There’s no one single federal law and rules differ from state to state, with varying mandates on how to alert clients (in writing or via email) and even in the definitions of what constitutes “personal information.” (Here’s an interesting guide to the requirements.) Some states require that the state attorney general’s office be informed.


Sutherland estimates the cost of a data breach for even small companies totals around $100,000. Other industry observers put the average at as high as $250,000. Even at the lower price, it’s enough of a surprise expense that could break the bank for most small enterprises. Sutherland says he dealt with a West Coast small business that had an intruder steal a laptop from their front counter—not for the data inside but for the perceived value of the machine, police said. Still, the computer contained stored customer information, and the theft triggered a chain of costly mandatory notifications and procedures that led the firm’s owners to decide to sell the business.  


How does cyber-liability coverage work? It can be an add-on to a basic policy or a separate, custom product. Depending on how it’s written and a business’s specific needs, there’s coverage for post-attack forensics, malware and ransomware damage, crisis management services and marketing, as well as legal settlements and penalties, and even actions by rogue employees.


Policies are generally designed to cover two tiers, known in the industry as first and third parties. First party coverage applies to a business’s losses incurred by the breach and its aftermath; third party refers to expenses sought by clients, including class action lawsuits, claims from vendors or customers, or penalties.


The price of a policy varies, depending on the size of the firm and the operating that needs protection. Sutherland says annual coverage for the smallest businesses can be in the ballpark of $2,000; for enterprise firms with 100 or so employees, expect to spend around $15,000 per year. 


Where to begin? Look first at your main policy, Kaplan says. A standard BOP—or business owner’s policy—may cover general liability for items like theft or physical damage, while data breaches could require an optional add-on.


Then think about what needs protecting. Are all documents shredded? Where are paper files stored and who has access? What if an employee’s portable device, thumb drive, or smartphone with customer data went missing? What if a vendor was negligent with your private information?


“It seems exponential in the ways to cause damage now,” Kaplan says. “We’ve had to do our own effort to keep things protected. There are still lots of things people can do to mitigate the universe of computers.”

Noncompete_Body.jpgby Iris Dorbian.


It’s a story that can induce a million nightmares: the disgruntled employee who quits your small business only to take both your trade secrets and clients and start his/her own competing company—and within your own neighborhood, no less! Unfortunately, without proper legal safeguards in place, like a non-compete agreement, which prohibits an employee to work for a rival or launch a similar business within a certain timeframe and geographic radius after leaving your company, such a nightmare scenario is tough to avoid.

For small business owners whose revenue may hinge on proprietary or confidential information (e.g. a secret recipe or software application), having employees sign a non-compete contract may be a no-brainer. However, the agreement could be deemed unenforceable by the courts if the provisions are considered too draconian in scope, such as preventing an exiting employee from pursuing his/her livelihood in the same region and industry sector for five or 10 years. 


If you’re a small business owner contemplating having your employees sign a non-compete, it’s imperative you heed these important guidelines well before anyone signs on the dotted line—particularly if you want the agreement to hold up in court.


Consult an attorney

Whether it’s a non-compete or a non-disclosure agreement, unless you’re a trained lawyer (and even then, only if you’re an attorney specializing in labor and employment law), you should always consult with a legal professional first before having your employees sign any document. Not doing so could open you up to a lawsuit filed by an ex-employee.


Sharron Senter, founder of the Boston-based Senter & Associates, a marketing consulting firm, strongly echoes this best practice. Prior to striking out on her own, Senter was the co-founder of  Visiting Geeks, a small computer networking and security company that was sold in 2011. Having her employees, which at their peak numbered up to 10, sign non-competes was a necessary strategic move that protected the interests of her company, she says. It also provided her with the experience and insight to impart several lessons learned to small business owners when it comes to drawing up non-compete agreements, one of which is always use a lawyer.


[This is for] two reasons: one, what you may be asking could be illegal; and two, why upset a valuable and well-trained employee over something that isn't enforceable by law?” she says, adding that most small businesses cannot afford to take legal action on a violated non-compete.


“Generally speaking, the responsibility of proof falls on the employer,” notes Senter. “This said, what's the good of the non-compete? It helps keep some employees honest.”


A non-disclosure might suffice rather than a non-compete

Small business owners who are concerned about employees leaking a trade secret might be better served having them sign non-disclosure agreements instead of non-competes. Or they can have them sign one in conjunction with the other. It all depends on the situation and what will give the small business owner better peace of mind when it comes to safeguarding the future of his/her business.

Todd Kulkin, a White Plains, New York-based lawyer who specializes in small business cases and has drafted a number of non-compete agreements, says employers need to assess what they’re trying to protect. 

“For example, if you’re worried that someone who works in your factory, who’s kind of low in middle management is going to go off to a new employer and give away all your trade secrets, then maybe what you really want is a non-disclosure,” explains Kulkin, adding that nondisclosures are usually easier to enforce than non-competes. “If on the other hand, you’re worried that this person will learn everything they can about what you do and then go down the street and start their own firm or business doing exactly what you do using your secrets, then a non-compete makes sense.”


For most instances, Kulkin feels a combination of both types of contracts is the best solution. “The reason why you have a noncompete in conjunction with a nondisclosure if you’re a small biz owner is to protect your trade secrets,” he says. “The trade secret is a form of intellectual property, which doesn’t have a lot of tangible protection. It’s not like a trademark in which you can register or a copyright where you have certain rights.”


Noncompete_PQ.jpgOnly high-level employees should sign noncompetes

Making everyone in your business, from the vice president to the guy who works the french fries station, sign a non-compete agreement is ridiculous and contrary to the purpose of the document. Plus, according to Kulkin, it will never hold up in court due to the disparity in power between the employer and the low-level worker. (Although in that instance, again, you might be better served having these workers sign non-disclosures to eliminate your insecurities). Only those who are high up on the corporate ladder should sign noncompetes.


Be fair and reasonable

When putting together a non-compete agreement, avoid using draconian language and excessive terms. Think about if it were you signing the non-compete. Wouldn’t you want to pursue your livelihood eventually instead of being prevented from doing so for an inordinate length of time?


Kulkin offers an example of a client who had signed a prohibitive non-compete contract: “He was forced into a non-compete that kept him from using his own intellectual property in the New York area for five years,” he recalls. “It was completely unenforceable. He didn’t know what he was doing initially. It was like, “Oh [no], I signed this thing and I’m completely going to regret it!”

Joshua Weiss, CEO of TeliApp Corporation, a mobile application development firm based in Linden, New Jersey, says that small business owners have a duty to protect their survival and ought to take whatever measures necessary to ensure that—within reason, of course. Weiss, who founded his company in 2010, currently has a staff of 16 full-time employees, all of whom he had sign non-disclosures, confidentiality agreements and non-competes the day they were hired.


“I have had ideas stolen from me in the past and had to learn the hard way that as much as I'd like to think that all the people I choose to work with are trustworthy and good, some may not be,” he says. “It really shouldn't be a big deal for an employee to sign a non-compete so long as it is fair. For instance, I have software developers and if the company lays one off, or if one gets an offer from a competing firm, I have to make sure that none of the ideas in development at my company are used elsewhere. But the employee may believe that it is not fair for me to limit them to working for a competing company to one year after a termination event, since the job market in software development is difficult. So I have language that prohibits the developer from working at a competing firm that either has or intends to develop software that would be in competition with us.”


Having an employee sign a non-compete can also be a good deterrent to a rogue ex-employee who might depart with less than the best intentions. However, there are steps you need to take beforehand to ensure the legality of your non-compete. Not doing so could lay the groundwork for a costly and time-consuming lawsuit.

QAmarkmauriello_Body.jpgby Erin McDermott.

It’s a fact of life for business owners: At some point, you will likely have to confront a lawsuit. The idea of a costly foray into the courts can be the stuff of nightmares. But what to do when it actually happens? Recently, business writer Erin McDermott talked with lawyer Mark A. Mauriello, who has not only owned and operated small businesses in the New York area, but has spent time on both sides of the legal table.

EM: You’ve seen both sides of disputes. In your experience, why do small businesses get sued?

MM: Part of it is lack of knowledge—a glaring error. More often, it’s a monetary dispute. It occurs if there’s a faulty contract that was inadequate to the task. In my experience, it’s often a leverage issue, where someone wants to change the deal, or sweeten the deal, or catch you with a weak flank. And their way of punctuating the sentence is with a lawsuit—which they know ultimately is going to be negotiated out.

A businessman I met once said: ‘Why we write a contract is to remember what it was we said we were going to do when we were still friends.’ You could do business on a handshake if everybody was just honest about what you agreed to. In that regard, your contract is your battlements.

EM: From a lawyer’s perspective, what should a small business owner do when they get served with a lawsuit? What are the first steps?

MM: Get yourself a cup of coffee. Sit down. Take a very deep breath. Get yourself to a calm place and re-read the papers. Stop being angry about it and read it dispassionately and first understand what it says. What are they saying you did or you didn’t do? Don’t worry about not understanding the legalese; just try to understand why you’re getting this. Think as a businessperson: What are they trying to accomplish? Be honest about it: Did this really occur this way? Now write down for yourself in some kind of marginal notes or write a summary of what you really believe happened. Put the paper down and clear your head. Your next call is to your attorney.

If you don’t have somebody that you’ve used in the past regarding commercial litigation, then call your most trusted business colleagues. Ask them for referrals, but more importantly ask them: “What is it that you like about that lawyer? What makes them good at what they do? What was your experience going through a litigation like that?” And just listen. You’ll get a short list. And then you’re going to make contact with them and ask them to do a consult. You’re going to be very clear—and many places don’t do this and they leave it to the very end—about the money involved. You’ll get them the legal papers you were served and you’ll set up a conference. And you need to be prepared to speak the truth. However painful you think that is, that lawyer needs the absolute, dispassionate, objective facts so that a determination can be made about what your options are from there.

QAmarkmauriello_PQ.jpgEM: From that moment, what does your lawyer want from you?

MM: The first, and very important, thing is you’ve got a ticking clock. You as a businessperson will have to be aware of what is your drop-dead moment that the proper papers must end up in court. It is surprising, but many cases are lost because people actually just don’t show up in time. The timing is very important—just accept that no matter how much you want to avoid this lawsuit, it has to have your full attention. This has to go to the top of your to-do list for now.

Aside from that? We’ve all watched all those “Law & Order” episodes—every defendant I’ve ever sat with, the first thing they want to do is tell you why this isn’t fair and why they should win the case and then they argue the case. Your lawyer doesn’t want that. The lawyer wants facts, wants you to immediately start gathering the papers. You’re about to put up a defense, so the lawyer is asking you for ammunition. Go to your files. Go to that summary you wrote about why you should win the case and then go get the data, documents, and correspondence that supports those defense arguments. If you don’t know what they are, that’s OK. At least gather all documents that have to do with that underlying controversy—the contract that went bad, the you-said-this-I-said-this, the shipment that didn’t show, the contract that didn’t have the change order. In the businessperson’s files should be all of the information regarding that.

You want to keep tight reins on the legal bills—keep the communication crisp until you look at the money involved and what kind of case this is. 

And at this point—and most defendants don’t know this—it’s important that you must not damage, alter, shred, erase electronic documents or anything to do with this case. Anything you’ve said or recorded calls—don’t erase them. It’s as if you’ve froze everything in time. You may not like that information. If you think you have bad or damaging information, your knee-jerk may be to get rid of it. But that’s a very bad thing to do.

EM: Thinking ahead of time on this, how can a small business owner prepare? What are some best practices when it comes to correspondence, data, and other information?

MM: The first rule I ever learned was “paper the file.” What I’d want, as an ‘in-house’ counsel for a small business, are policies that try to prevent suits. Whether you’re preventing a suit or defending a suit doesn’t change the fact that documenting your company’s internal communications are a part of business life.

You paper everything succinctly. There is plenty of assistance out there for document management now. But for small businesses, I tell them to organize your correspondence files in a way that makes it easy to retrieve. It’s similar to what your accountant tells you about organizing for your taxes. Just assume there’s going to be an audit someday and what you would need for that audit. If you have all of this, you don’t even worry about the audit. If you can put your hands on everything that touched the controversy, it will help you build your responses. That’s the essence of what’s going to be argued about.

EM: How do you talk about expenses? What should a small business owner be prepared for?

MM: Most business owners are great at negotiating their supply chain or their cost of goods. I think many people are just intimidated in the presence of a lawyer and they don’t behave the same way they do with their vendors. So, just treat lawyers like vendors. You’re entitled to ask any question—you want to know: “What are you doing for me? How much is it costing?” You need them to respond to your calls. You’re going to vet your lawyer the way you do your vendor—and be bold. Be as upfront as you are with the other things you do because you need to be confident—you are the customer!

Even if you’re with an hourly attorney, make them tell you how many hours something might take. How much time to deal with a pre-trial motion? How much time to develop the answer? Hold their feet to the fire on budgeting time. Nine times out of 10, the guy that’s going to give you that answer is the lawyer you’re going to go with.

And get their strategy first. Hear the options: We’re going to do A, B, and C, or just B and C and possibly A, and how much that might cost and a frank opinion on if you might win. Then you’re making a more informed choice. If you’re being sued for $50,000 and it’s going to cost $45,000 for a defense, you can see the cost-benefit balance easier. You need to see the downside, and a lot of lawyers won’t analyze that for you. Without that frank discussion, how is the businessperson going to know if there are alternative options to throwing money down a bottomless pit? You need to be able to make the other side understand that there’s different solution here, where the parties’ interests intersect and diverge—and now let’s make an intelligent decision here. You have to stay in this like it’s just another business transaction.


This interview has been condensed and edited.

Disclaimer: The opinions expressed therein are solely those of the individual. Since every small business’s situation is unique, entrepreneurs should contact their own attorney before proceeding with any legal recourse.

Body_RiskyBusiness.jpgby Jen Hickey.

Small business owners are usually well acquainted with risk. After all, starting a business is one of life’s most momentous decisions and often requires a leap into the unknown. However, you can improve the odds for your business by identifying those risks early on and devising a plan to eliminate or minimize their impact. While it’s probably not healthy to think about all that could go wrong, asking “What if?” when it comes to every aspect of your business is key to its survival.

Lay the right foundation

Even before your business opens its doors, there are important points to consider. “First, you need to decide how to set up your company,” says Barbara Weltman, tax and business attorney and author of Small Business Survival Book. “If you’re a corporation or an LLC, creditors can only look to business assets to satisfy claims. Personal assets, like your house, car and savings, are protected.” But these assets are exposed when a business is a sole proprietorship or partnership. Weltman urges anyone thinking of starting a business to meet with a legal advisor to see if your business type requires such entity protection. “If your business deals with the public, it faces potential liability,” notes Weltman. “These require legal steps.”

Match risk mitigation to your specific business

Next, you should select an insurance agent to help you determine what kind of coverage your business needs. “Every business owner should have a business owners’ policy (BOP), which includes protection for property in case of storm and fire damage, as well as liability coverage to protect against claims from customers and creditors,” advises Weltman. Purchasing a packaged policy like a BOP, which typically includes coverage for property, business interruption, and liability, is generally more affordable than purchasing individual policies.

Depending on the industry your business is in, as well as its location, you may also need specialized coverage in addition to a BOP. “A basic liability policy doesn’t cover professional action or inaction,” says Weltman. “A professional liability policy covers errors and omission.”  It protects professional businesses, such as consulting firms, ad agencies, law offices, and medical practices, against lawsuits for negligence or malpractice.

By law, any business with employees must pay for workmen’s compensation, unemployment and, in some states, disability insurance. If your business requires the use of vehicles to transport your products or services, you will not be able to register or operate your vehicle without commercial auto insurance. Businesses that manufacture or sell certain products may also need product liability insurance to protect against lawsuits resulting from injury due to a defective product. 

Because some risks are unique to a particular business and often depend on type, industry, and location, assessing your business’s risks might involve taking steps not listed here. To perform a more thorough risk assessment, consult an insurance agent, as well as your attorney and accountant to make sure all regulatory and tax obligations for your business have been fulfilled.

Prepare for the unexpected

While the chances of a natural disaster may seem remote, if affected by one, your business will not likely recover if you don’t have property or business interruption insurance. According to the Red Cross, 40 percent of businesses that experience a disaster will never re-open. As seen when Hurricane Irene hit the Northeast coast last year, but caused the most damage to interior regions, violent weather can wreak havoc in the unlikeliest of places. So, this is not an area where a small business would want to cut corners.

While insurance enables a small business to transfer some risks to a third-party, should a loss occur, it needs to consider out-of-pocket costs. “A way businesses can manage their costs is to pay a high deductible,” notes Mitchel D. Weiss, adjunct professor of finance at the University of Hartford and author of Business Happens, set to publish in December 2012. “You want to be sure to have the cash set aside to cover them.”

PQ_RiskyBusiness.jpgLook inward

You also need to assess the risks to your business you can control, such as operational and human resources. “You can protect your business against internal risks through checks and balances,” Weiss explains, “by having stated policies and procedures and segregation of responsibilities.” For example, the accounting department or your bookkeeper should keep track of expenses incurred by your employees. “One way to protect against internal risks, fraud in particular, is to have good, solid controls in place, so that the person that benefits from something is not the same person that authorizes the receipts.”

Your employees are your greatest assets. But they also can be a significant source of risk without proper policies and procedures in place. “One of the biggest areas for legal action are claims by employees for discrimination, sexual harassment, and wrongful termination,” Weltman points out. “Having an employee manual that sets forth procedures for reporting harassment and reasons for termination, for example, will help thwart such action.” Requiring all employees to read and sign a release that they’ve read the manual can help minimize unwarranted claims.

Hiring the best people and creating a work environment so they can thrive can also help reduce risk. “If you’re not investing in your people and putting the right people in the right places, that’s a risk that could translate into a potential failure of your business,” notes Weiss. “In addition to paying them fairly, one of the most effective ways to hold onto your best talent is to invest in their training, so they’re [worth] more tomorrow than they are today.”

Safeguard your business information

Next to its people, your business’s data is what keep it running. Look at possible threats to your company’s computer and network security. Assess the risk for viruses, malware, or outsiders hacking into your system. Your business’s reputation is at risk if you have to notify your customers their personal information and/or credit card numbers have been stolen.

While property insurance will cover the cost of replacing equipment destroyed by fire or flood, it won’t bring back all your business records. “The loss of data could put you out of business really quickly,” says Weltman. “Backing up your data or working from the cloud” can eliminate that risk.

Be systematic to avoid missing trouble spots

Take a look at each of your business operations for risk exposure and assign each a probability of loss and cost.  Weiss recommends creating a four-way grid to assess risk: “Those that have the highest probability and the highest impact; those with low probability but high impact; those with high probability but low impact; and those with low probability and low impact.” Then, devise a plan to eliminate or minimize those with the highest impact or costs based on probability first, and then work down the list.

Once you’ve identified, assessed, and eliminated or minimized the most likely and costly risks to your business, “rinse and repeat,” says Weiss. “Risk management is not a once-and-done kind of thing. It’s something you need to revisit to make sure you’re on target. Did you identify all the things that could go wrong or have other things happened you didn’t think about?” It’s important to review and revise your risk management plan (download the SBA’s Insurance and Risk Management Guide here) at least yearly to add any new risks and re-prioritize old ones. Think of it as an anniversary present to your business, one that actually saves you money in the long run.

Body_PatentUpending.jpgBy Sherron Lumley.


Vast changes to U.S. patent law—the most sweeping since 1952—are rolling into effect through 2013, and for small business owners and inventors with patents, it’s time to get in the know. The U.S. Patent and Trademark Office is working under a new law, called the America Invents Act of 2011 (AIA). It was signed into law on September 16, 2011, with some elements taking effect immediately and others being phased in over an 18-month period.

PQ_PatentUpending.jpgGet that patent filed

John Boyd is a patent attorney in New York and he also holds five patents himself that he sold to Apple in 2010. Historically, the first-to-invent system relied on various methods to prove the date of the invention. “This is no longer the case,” says Boyd, a partner at Rimon Law PC in New York. “Now it’s whoever files first, and this harmonizes us with international law,” he says.


Indeed, getting the U.S. in line with the times was a key motivator behind the patent law reform, seen by many technology firms as long overdue. Supporters of the new law included the likes of 3M, Apple, Dell, eBay, Facebook, General Electric, Google, IBM and the Small Business & Entrepreneurship Council representing more than 100,000 members.


“There’s been a lot of concern in the small business world about the changes to patent law,” says Boyd.  As an inventor and an attorney, he is not only interested in the current law changes, but can see the pros and cons clearly from different perspectives.


The core AIA change to patent law is to do away with the old system that gave preference to first-to-invent dates and adopt the international standard of first-to-file. This means for all patent applications having a filing date on or after March 16, 2013, the new patent law takes effect and the first person or entity to file will be granted the patent regardless of who can prove they invented it first.

What’s to like in the new law for small businesses

Judith Szepesi has been a patent attorney for 15 years and is a partner at Blakely Sokoloff Taylor & Zafman LLP in Sunnyvale, Calif., in the heart of Silicon Valley. She works primarily with start-ups and small businesses and focuses on intellectual property protection in the software, hardware, security, and telecommunications industries. And for fun, “I do write the occasional bicycle seat, manual toy, or other mechanical device patent,” she notes.


Szepesi follows patent law carefully for her clients large and small, and points to one piece of good news for small businesses. The AIA has added a micro-entity status for very small inventors with no more than four patents (not including those assigned to an employer) and with gross income of less than triple the national median household income. Although a 15 percent patent fee increase went into effect with the new law on September 16, 2011, Szepesi says a file fee reduction of 75 percent is on the way for micro-entities, pending further definition by the fee setting authority of the U.S. Patent and Trade Office.


One part of the AIA law that has already gone into effect—which, according to Szepesi, can be an key advantage to small inventors—is that the Patent Office now permits virtual marking of products. “Previously, whenever a new patent was issued or a patent expired you would need to change your packaging to reflect the updated patent coverage,” she explains. “Under virtual marking, the product can be marked with a URL (such as the company’s website) and the company can simply update the website when patent coverage changes.” This can be a big plus for a small manufacturing company, as they would no longer have to spend money reworking or buying all new dies when their patent coverage changes. 

Potential concerns

Some in the patent industry, however, worry that the impact of this patent reform might weaken the rights of patentees and, as a result, patents owned by startup companies, research institutions, and solo inventors might be easily encroached upon by large corporations. Alexander Poltorak, CEO of General Patent Corporation and founder of the American Innovators for Patent Reform, suggests small inventors and small business owners have their patent attorneys regularly review their current inventions to determine which will require patent protection, and then file a provisional application as soon as possible under the new first-to-file law. And if a small business does suspect a patent infringement Poltorak says it’s imperative to hire a good patent attorney who is experienced in litigation. 

Additional links from the U.S. Patent and Trademark Office

AIA timeline and effective dates

Independent Inventors Newsletter

Patent Forms (web-file)

Inventor Resources

Scam prevention


For more information regarding specific patent law changes and potential impacts to your business, you should consult an experienced patent attorney.

Body_KeyMan.jpgBy Susan Caminiti.


When Micron Technology CEO Steve Appleton, 51, died in a plane crash on Feb. 3, the company not only lost its long-time leader, it experienced a stock price drop amid concerns about who would take the helm at the memory chip maker.


The company’s board of directors swiftly announced that COO D. Mark Durcan would replace Appleton. But what if—as is so often the case with small businesses—there isn’t another qualified person waiting in the wings should tragedy strike at the top?


If that's the case, so-called key person insurance can help soften the blow. This type of policy protects a company in case of an untimely death of a critical manager or employee; in the case of a small business, that usually means the owner or founder and a few top people. The company is the beneficiary of the policy and pays the premiums, so should this key person die, the business gets the insurance proceeds.


“The purpose of key person insurance is to help the company survive the blow of losing the individual who makes the business work,” says Loretta L. Worters, vice president of the Insurance Information Institute based in New York City. “The company can use the proceeds for expenses until it can find a replacement person, or if necessary, buy out the heirs of the deceased. It gives a company breathing room to make the next step when they’ve lost this key person.”


PQ_KeyMan.jpgAccording to Worters, a small business needs key person coverage when:


  • The business is a professional services firm and key employees can’t be replaced right away. For example, a law firm or medical office cannot replace an experienced attorney or doctor with a recent graduate.


  • The business cannot continue in the event of a loss of a particular person. Worters cites producer and director Tyler Perry of Tyler Perry Productions. “Without him,” she says, “there is no business.”


  • Business continuity is a concern. If there are partners in a company and one dies, the deceased’s shares will likely go to his or her heirs. Do they know the business? Are they interested in being involved in running the company? If not, the proceeds from key person insurance can be used to buy out their stake in the company.


  • Future financing is possible. Venture capitalists, banks, and other lenders often require key person insurance for start-up companies. In the event of a death, the insurance proceeds can be arranged to go directly to the venture capitalists to protect their investment.


  • The business owners are between the ages of 30 and 55. It’s human nature for young people to ignore their mortality and this lack of planning can hurt a company in the case of a tragedy, Worters says. Further, she adds, “Entrepreneurs are, by nature, risk-takers.” For instance, Appleton of Micron, was piloting a small experimental plane when he crashed and died—and had been in previous plane crashes as well. (The company’s financial filings with the SEC make no mention of key person insurance for Appleton.)


Despite all these reasons, less than one quarter of small business owners surveyed by the National Association of Insurance Commissioners have key person policies in place. Yet 71 percent say that they are “very dependent” on one or two key people for their company’s success. This disconnect stems from a belief that the insurance is prohibitively expensive or difficult to obtain. Not so, says Robert Garner, executive vice president of wealth management at CBIZ Insurance Services in Baltimore. “Most insurance companies will cover one to two times a person’s annual compensation,” he says.


The majority of key person policies are basic, inexpensive term coverage that spans the numbers of years until the person reaches retirement age—65 in most companies. The actual cost, says Garner, depends on the health, age, lifestyle (does the person like to fly small, experimental planes or bungee jump, for instance) and medical history of the person being insured. Permanent insurance—or a policy that accumulates a cash value—is more expensive to obtain, but allows a company to borrow from it with tax-free loans.


Carl Belt Jr., president of The Belt Group Inc., a construction company based in Cumberland, Maryland, has key person insurance policies for 10 employees and shareholders. The first policy was taken out on his father, who started the company in 1962. “By the time my Dad died in the 1970s, I was running the company and the proceeds from the insurance helped me buy out his stake in the business,” Belt recalls. “Basically, I was paying my mother for his share. It would have been difficult for me to do that without the insurance.”


Over the years, Belt’s business has expanded to about 250 employees and now includes roofing and paving businesses. He’s also taken on several shareholders. With nearly $60 million a year in revenues, he says key person insurance for his CFO, head estimator, and the heads of his roofing and paving businesses, seemed like a good idea. “If anything happened to these people it would affect the business, no doubt,” he says.


Belt says in the event of a death, proceeds from the policies would be used to buy out the ownership stake of his shareholders, and then finance the search for a replacement. Since he elected to buy policies that accumulate a cash value that he can tap into if needed, he views the insurance as a sort of “forced savings account.” Still he says, “You never want to think about anything bad happening to these people you depend on, but you have to be ready just in case.”

Insurance.pngInsurance is often an overlooked priority for small businesses due to cost considerations and the complexity of the coverage landscape. Different types of insurance have confusingly similar names.  Your state, town, or county may have its own insurance requirements and many industries have coverage specific to them. In fact, the Insurance Information Institute estimates that about 40 percent of small business owners carry no insurance whatsoever.


All enterprises need to protect themselves from the impact of unforeseeable events on property and revenue. For small businesses in particular, who tend to have limited economic safety nets, investing in insurance is truly a case of “an ounce of prevention is worth a pound of cure.” While premiums can be somewhat expensive, the cost of operating without insurance can prove to be much more extreme. Fires, accidents and litigation are just a few examples of adverse events that can put your company out of business or into severe debt and threaten your financial security and livelihood.


Understanding Your Options

The first step to navigating the potentially daunting world of insurance is educating yourself about available alternatives. Insurance policies can insulate companies from a myriad of risks ranging from property damage to management negligence, but broadly, they fall into these areas of risk.  


  • Liabilities
  • Property
  • Business assets and equipment
  • Employee related

It’s useful to look at these categories as a framework for understanding which insurance policies may be most relevant for your business. As you conduct your research, your county or city clerk’s office, state insurance office, and/or local chapter of your industry association or chamber of commerce could serve as valuable sources of guidance and information.

If you decide to seek assistance from a professional, the following are a few recommendations to help you identify the right agent or broker partner for your business:


  • Understand the difference between an agent and a broker – Whereas a broker is independent and sells for a multiple companies, an agent typically just represents one product or company. There are relative advantages and disadvantages to each. While brokers can offer more choices, agents tend to have more leverage to make plan changes. Moreover, brokers are generally paid on commission by the insurance company, which could be reflected in the premiums. Agents, on the other hand, are normally paid by the insurers, so the business is not charged for their services.


  • Seek referrals from companies similar to yours in size and scope – This will help you identify candidates who are most likely to be knowledgeable about the types of products you may need and who will be experienced in working within your scale and budget parameters.


  • Check licenses, registrations and disciplinary records – This information can usually be obtained from your state insurance commissioner’s consumer hotline. You may also want to consider conducting an internet search.  Insurance Pull Quote.png


Types of Coverage

Though not exhaustive, the list below provides a sweeping overview of insurance alternatives you may want to consider. Prioritizing which policies are most pertinent for your business will involve determining the size of financial commitment you are comfortable making, assessing the needs of your particular operation, and identifying any state or professional requirements. Once you decide on a plan, review it annually with your agent or broker to make sure it remains relevant to your company’s needs.



  • Business Owner's Policy (BOP) generally provides coverage for property (fire, wind, theft, etc.), liability (injury of someone in your business or by your product), business interruption, and, in some cases, workers' compensation. The components of each BOP are different, so be sure to confirm that your policy contains all the requisite provisions for your business’ needs. It is important to note that if your company has more than 50 employees, or very high-sales volume, you may not be eligible for a BOP and will have to purchase a package with the same elements at higher limits.


  • General Liability Insurance covers personal injury or property damage that occurs on your premises, like a customer tripping in your store and breaking a leg. Similarly, this policy would kick in if you accidentally broke an expensive vase while visiting a client at his/her facility.


  • Product Liability Insurance protects against harm to a user or user’s property stemming from a design flaw in a product (defined as anything tangible that can be touched, used or consumed) you manufacture and/or distribute. Many BOPs include limited product liability coverage but if the specific nature of your product runs an elevated risk of potentially inflicting harm (e.g. toys, food), you should probably consider purchasing a separate policy.


  • Professional Liability (Errors & Omissions) Insurance is the equivalent of product liability but for professional services. This form of coverage is required by law in some states and for certain professions (physicians, attorneys, accountants and realtors). Moreover, professional liability coverage is increasingly becoming a condition of bidding for computer consulting and government services contracts.


  • Umbrella Insurance becomes effective when you reach the limits of your primary liability policy.



  • Property Insurance generally falls into two categories; building and personal property with the former covering damage to “real property” from such events as fire, lightning, wind, and vandalism and the latter protecting files, furniture, inventory, and equipment.


  • Commercial Automobile Insurance applies to cars, vans, or trucks used primarily for work purposes. If you use your personal vehicle for business but don’t regularly drive customers, most insurance companies will allow you to pay a little extra to extend your existing policy. It is important to note that if you travel with demo units, samples, laptops, etc. you should make sure either your auto, or property policy, covers potential damage.


Business Assets/Equipment

  • Business Income/Extra Expense Insurance is incorporated into most BOPs and reimburses business owners for revenues lost during downtime caused by property damage. So, if a part of your facility experiences a fire, the business income component will compensate you for earnings missed while you could not occupy the building while the extra expense portion would help with the costs of leasing temporary space.


  • Extra Equipment Coverage is a supplemental policy or rider to other insurance that provides an extra layer of protection for critical computer equipment. If considering this type of policy, you may want to consider a plan that also includes loss of data and breakdowns and failures caused by power surges, etc.



  • Health insurance has been the focus of considerable debate and concern given the proposed reform mandates. As costs rise and the economic environment remains challenging, many small businesses are cutting back on healthcare coverage. In fact, according to the Kaiser Family Foundation research, approximately half of small businesses offer a health plan versus 99% of larger companies.


While healthcare costs are undeniably significant, the implications of foregoing insurance altogether can be devastating. For small businesses with limited staff, an illness or an accident can impede or even halt operations entirely. In fact, nearly half of small business employees believe that dealing with a health, or financial problem, affects their ability to get their job done. Therefore, before writing off health insurance as prohibitively expensive, we suggest that small business owners explore potential alternatives such as group insurance plans offered through trade and industry associations or even offering healthcare as a voluntary benefit to employees.


  • Disability Insurance will cover a portion of your gross income if an illness or injury prevents you from working. This is particularly important for very small companies (especially sole proprietorships) whose survival hinges on one or two key individuals.


  • Key Man Insurance is most relevant if the survival of your business depends on a critical employee. In the event of illness or death, it would replace the income that this person generated and/or the cost or replacing the functions he/she performed.


  • Workers' Compensation Insurance is mandated by law in most states and is designed to help employers control liabilities when an employee is injured at work and pays for medical expenses and lost wages.


  • Employers’ Liability Insurance is generally required for any business with more than one employee and shields your business from monetary damages and/or legal fees arising from lawsuits brought by employees or their relatives for work-related injuries or illnesses.


Entrepreneurship is the fine art of balancing risk and optimism. Insurance is a vital tool for mitigating vulnerabilities created by unexpected events and preventing the risk portion of the equation from weighing down opportunities and ultimately the future of the enterprise.

Filter Article

By tag: