ACE board member Carrie Yardley offers advice for how to protect a small professional services business.
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Q: What legal tools are available to manage risk in my small professional service business?
ACE Advises: I recommend three tools: 1) professional liability insurance, 2) the right business entity and 3) a contract that a client can understand, matching the way you do business.
Of the three, insurance protects you from a professional’s greatest risk: that you will make a mistake. An insurance policy is a legal tool. It is a contract shifting the cost of your mistakes to an insurance company.
Every profession has its own perils, and the costs of your error may outstrip your annual revenue. If you are a financial consultant hired to develop a business strategy, you may learn that there was a significant mistake in your assumptions after your project is over. If you are a marketing consultant and mistakenly use content copyrighted by a third party on a client project, both you and your client may be liable for copyright infringement.
With adequate insurance, a business entity may be less important. Many solos never form an LLC, corporation or any other limited liability entity, particularly if their overhead expenses are low. If your business includes a number of practitioner/owners, it makes sense to create an entity protecting personal assets from business debt AND defining the rights and responsibilities of each stakeholder.
Finally, make sure that your agreements with your clients are well-documented. Nailing down your scope of work and deliverables will protect you from a dispute more effectively than any legal terms any lawyer might draft. Legal terms must dovetail with your scope and your business practices. It makes no sense to allow the client to terminate a contract for convenience if you get paid upon completion.
But first, get insurance.
ACE board member Carrie Green Yardley is an attorney at Yardley Esq. PLLC, a law firm providing services to small businesses and their owners from start-up through succession. She can be reached at carrie@yardleyesq.com