To be in business is to accept risk in order to secure rewards. Generally, the most successful businesses minimize risk and manage risk.
Sometimes the risks are pretty clear. If I operate a tanning business, my clients who tan could over-tan or not use appropriate UV protection. Alternatively, my tanning bed could malfunction, or I could accidentally overbill a client. These events create a risk of loss for the business, whether the business is at fault or not.
For many self-evident risks, like the ones identified in the last paragraph, the risk of a mistake or problem can often be remedied. Thus, the ramifications can be small even if the risks are frequent.
In contrast, some risks are very uncommon but are potentially so devastating to the business that they could cause the end of the business. These risks are a particularly unique problem in business, because the incredibly small likelihood of the negative, potential event occurring can make the negative, potential event to appear so tiny as to almost not exist at all.
Regardless of the size of the risk or the likelihood of the risk, there are four ways that businesses properly minimize or manage risk.
First, regardless of the substance or size of a business, every business needs to have insurance. Obviously, my business has malpractice insurance. I also have insurance for errors and omissions that I might make on the real estate side of my business. And several years ago, I asked my insurance agent to purchase cyber-crime insurance from Lloyd’s of London in order to protect my clients’ personal identifiable information.
Second, sometimes encouraged or required by insurance, best business practices can help eliminate risks. Not every task can be regimented and organized through required patterns. But implementing best business practices often helps to decrease risks associated with financial transactions within a business or with third parties who may be customers or other businesses.
Third, businesses can organize themselves as legal entities like LLCs and corporations. Not all entities provide protection from risks. The best business entities cannot and will not eliminate all risk. Instead, properly formed and managed entities minimize and limit risk.
Fourth, many businesses contract with their customers to limit risks associated with interactions with customers. These contracts are often called liability waivers.
Liability waivers cannot protect a business from an intentionally harmful act that affects a customer. However, good liability waivers include certain key attributes that can minimize and sometimes eliminate risks posed by customers who participate in causing the risks.
Good liability waivers will be in writing and are sometimes in a document separate from the contract for services or goods itself. The liability waiver being a separate document is not a deal-breaker, but if the risks are high, drawing attention to the waiving of risks only helps to increase the enforceability of the waiver later. Written waivers should also explicitly state that the customer “acknowledges and voluntarily assumes risk” and “releases the business” from liability.
Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at [email protected] or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.
