Entrepreneurs tend to focus on forming the legal entity as the very first thing they do when they start a business.
Yes, it’s important to form a legal entity, but it’s not the most important thing that needs to be done right away.
An LLC should be only one part of a broader legal strategy that includes written contracts.
Doing business with well-drafted contracts will do more to protect the business owner and the business than anything else.
This is especially true for service providers.
So… What’s more important for entrepreneurs to do first? Even more important than setting up that LLC?
First, get a good customer contract template.
Many of my clients have started their business and think that just because they have insurance, they’re protected.
Of course, having good liability insurance coverage is very important, but insurance is the safety net of last resort. Insurance may not cover a particular loss depending on the type of case it is. And as you know, insurance companies are in the business of making money, which means denying claims, not paying claims.
The risk mitigation strategy of first resort is a good customer contract.
Most of the disputes between customers and service providers result from misunderstandings about who is going to do what. Often, I see clients who have been either relying on handshake deals, or using poorly written contracts they found online that don’t fit their business. A good contract will not just limit the kinds of risk the owner is exposed to but also will cap the dollar damages the service provider has to pay.
A good legal strategy involves more than just setting up an LLC. If you haven’t thought about a legal strategy yet, give me a call.