3 Liabilities Small-Business Owners Need to Be Prepared For

A word like "liability" can be something of a small-business boogeyman. It seems liabilities are lurking around every corner, in every closet – maybe even under your bed.

Spooky stuff. But what is a liability, anyway?

In a nutshell, a liability is a situation in which you could be legally responsible for the physical or financial harm another person suffers. Everyone (not just businesses) has liabilities.

For example, say you're walking Fido and he attacks someone. You could be liable for the injured person's medical expenses. Life is full of these risks.

When you open a business, you have a whole new set of liabilities to worry about, and the stakes are high. You could be sued, and even if the lawsuit is meritless, it can still cost $5,000. So let's look at three liabilities most business have and what you can do to minimize your risks.

1. Premises Liability: When Someone Gets Hurt at Your Business

As the name suggests, premises liability holds the property owner responsible for unsafe conditions on their premises. So if, for example, a café-goer trips over a shag rug at a funky coffee shop, they could sue the owner. After all, the visitor has a reasonable expectation not to get injured while buying a cup of joe.

In court, a judge or jury will determine whether you created or ignored unsafe conditions at your business. Hazards like wet floors, slippery tiles, icy sidewalks, exposed extension cords, or loose handrails could lead a court to rule that you're liable for a person's injury on your property.

If you've ever set out a "Caution: Wet Floor" sign after you've mopped a floor, you've taken a step in reducing your premises liability risk. Here are some other ways to protect your business:

1. Consider carrying General Liability Insurance to cover lawsuits over slip-and-fall injuries.
2. Keep your business's location tidy.
3. Don't put off repairs to your property.

2. Professional Liability: When Your Business Makes a Mistake

Professional liability refers to your business's responsibility to pay for mistakes that cause financial losses. In white-collar industries like IT, accounting, consulting, and architecture, the cost of these professional errors and omissions can be hefty.

For example, if a software developer messes up their code and it causes a client to lose hundreds of client records and thousands of dollars in sales, the developer could get sued.

An architect who installs the wrong windows at a new condominium could be sued for the cost to rip out and replace them. Even if that architect only made $50,000 in revenue on the project, they could be sued for damages many times that amount.

To address your business's professional liabilities…

1. Consider carrying Professional Liability Insurance that's tailored to your industry and can cover your professional risks.
2. Use contracts that outline exactly what service you will provide for your clients.
3. Err on the side of over-communicating with clients to manage their expectations and reduce disputes.

3. Cyber Liability: When Your Business's Data Is Unlawfully Accessed

If your business has computers, it also has cyber liability – a responsibility to keep stored electronic information safe.

Whether you run a secondhand clothing shop tucked away on a quiet street or a major e-commerce website, your business has data on its customers. If that data is stolen or breached, you could be on the hook for major cleanup costs.

Say, for example, your point-of-sale system is hacked or a someone snoops through your data by breaking into your website. You might be liable for the cost of credit monitoring and other cyber protection services and legal expenses if someone sues you over identity theft.

To address your cyber liabilities…

1. Consider carrying Cyber Liability Insurance for your business.
2. Upgrade your point-of-sale systems – old payment technology is a hacker's best friend.
3. Use two-factor authentication for business logins.

Key Takeaways for Small-Business Owners

While a word like “liabilities” evokes scary images of lawsuits, the truth is that there are simple ways small-business owners can protect their company:

• Keep your premises clear from trip hazards.
• Always use contracts to formalize agreements with clients.
• Keep your technology in tip-top shape.

By doing these things and securing your company with business insurance, you’ll strengthen your protection from lawsuits, accidents, and cyber incidents.