Now that tax season is coming to a close, it may be tempting to take a pause from policy and document review, but before taking a break, there are 3 business audits you need to do this quarter (hint: not tax-related).
Process and policy audits are ways to continue to protect your growing business. Likely, your company does not operate today in the same manner it did at launch. We often see business owners forget to update their procedures and contracts as growth and change occur. While unintentional, these types of oversights can lead to potential legal liability, financial strain, or a disruption in day-to-day operations. Here are three key areas to audit sooner rather than later:
- Employment and Independent Contractor Contracts
- Customer Contracts
- Business Succession Plan
Employment & Independent Contractor Contracts
Before hiring additional employees, it’s always a good idea to make sure your employment contracts are in order, but there are other times when it makes sense to review employment contracts.
When laws are updated. Clarifying the language in your contracts may help avoid unnecessary legal issues down the road. It’s also critical to check for compliance with state laws – laws may have changed or been added/removed since forming the original contracts. An audit will highlight any verbiage of concern or deficit which needs to be addressed.
When your company policy changes. As companies grow, their needs, requirements, and unfortunately, liabilities may grow also. The policies that worked for your company when you had two people working for you may not still suit you with a workforce of 50. Your attorney can help you identify which laws become applicable to you when you have over a certain threshold number of employees.
When using independent contractors. If your business uses independent contractors, it’s important to conduct a close inspection of contracts, language, and agreements to ensure contractors are not actually employees under the law. Misclassification can result in a large legal concern, including hefty financial implications.
Quick Guide on Classifying Employees in NC
Consider: degree of control, methods vs results, who provides the tools
Even if you’re not sure if your business should be concerned with employment contracts, it’s a good idea to start relationship with a trusted attorney now. They will alert you when it’s time to review employment contracts and point out any areas of concern. Read more on how and why to start the relationship here.
Bringing on new customers and growing your client base is an incredible feeling, unless you’re using outdated contracts which have loopholes, missing clauses, or unclear language which could leave you vulnerable in a legal battle. Customer contracts may seem straightforward (terms of what service/product is provided and how) but what happens when you feel a contract hasn’t been upheld by your customer? For example, what happens if a customer isn’t paying you on time? What options does your business have?
Entrepreneur reports that late or missing payments can result in hiring freezes, pay cuts, delayed equipment purchases/maintenance, marketing budget reductions, and inventory problems. Each of these outcomes carry several subsequent consequences, as well. See the full infographic and article for a breakdown here.
Reviewing and updating customer contract language can help minimize the frequency and impact of late payments, as well as protect your company from liability concerns should a customer-filed lawsuit arise.
Business Succession Plan
As a small business owner or manager, your role is intertwined in the day-to-day and long-term operations of the business. Wearing multiple hats is a requirement of the job which makes everything you do crucial to the company’s success and survival. What happens if you aren’t there to fill the role? What if you want to retire and want to sell your business? How will your spouse inherit the business if you die? A succession plan is a step toward ensuring that your business can continue to exist, even if you aren’t involved.
From Entrepreneur, “There are several points to keep in mind when you sit down with your lawyer and accountant to draft your succession plan.” Note they mention creating a success plan (whether for cases of retirement or in case of the proverbial bus that comes out of nowhere) with professional advisors. You need to have experienced and trustworthy guidance from an outside party to make a plan which will be effective, legally sound, and clear.
If you don’t already have a succession plan, prioritize this on the audit list. Even if you already have a plan drafted, you should review it periodically, update any language which is outdated and add information which may be missing. It’s best to hand this process off to a trusted third-party who can review from a legal perspective.
About Our Business Audit Process
Small businesses often seek us out to help audit or review their contracts and business practices to spot potential problems and suggest improvements – everything from contracts with vendors/suppliers, employment contracts, commercial leases, succession plans, etc.
If you aren’t ready to hire a legal partner, you can also opt for contract audits. This is a cost-effective way to take advantage of the firm’s knowledge and experience. We can point out red flags or problems in contracts we see, help prioritize items to address for the purposes of budgeting, and assist with creating any new documentation you may need. Then, as you need us, we can continue to work through the priorities list as budget/time allows.
Our process for audits is to discuss the scope of the work you need (including prioritizing needs), provide a cost and time estimate, review required and requested documentation to complete the audit, meet with you (face-to-face or phone call) to review findings, suggest changes and priorities, and build a plan to help your business get up-to-date on your schedule and budget.
Ready to protect your business? We’re ready to help.