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Identifying & Mitigating Potential Threats & Legal Risks When Starting a Business

Only 50% of small business owners are optimistic about the next six months, down from 57% last year, according to a recent survey by the Small Business Association of Michigan. This is attributed to economic uncertainties, post-pandemic shifts, inflation, labor availability and geopolitical tensions.

For new business owners, understanding and addressing the common risks can mitigate uncertainty and lay a strong foundation for success, whatever lies ahead.

Perils Along the Path to Entrepreneurship

  1. Choosing the Wrong Business Structure

Selecting an inappropriate business structure is a major unforced error. Sole proprietorships, partnerships, LLCs and corporations have different liabilities, tax obligations, and regulatory requirements. Consult legal experts to determine the best fit for your business model that will minimize personal liability and optimize tax benefits.

  1. Inadequate or Poorly Written Contracts

Contracts govern business relationships with suppliers, customers, employees, and partners, so poorly drafting them can lead to costly performance issues, disputes and litigation. Investing in professional legal advice to draft and review both standard agreements (like purchase orders) and transaction specific documents ensures that all parties understand their rights and obligations while reducing potential conflicts from the outset.

  1. Non-Compliance with Regulatory Requirements

Another significant risk is failing to comply with local, state, and federal laws and regulations. This can result in fines, legal action, and damage to your business’s reputation. Whether workplace, employment, tax, environmental, or other regulatory or statutory requirements, staying informed about relevant laws and rules and consulting with compliance specialists can make all the difference.

The Bottom Line

Proactively managing these risks is essential for creating a foundation for long-term success.  You cannot play ostrich and stick your head in the sand and hope it all works out.  Face these issues head on at the outset.  What you spend up front to be in compliance will cost you a tenth of what you spend defending enforcement or litigation.

Engaging with the right professionals and adopting strategic risk management practices will give your business the resilience to navigate uncertainties confidently and thrive in a dynamic environment.

If you’re starting a new business or need guidance on managing legal risks, reach out for a consultation.

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