Storms come for every business. How well your business weathers the storm depends on your level of preparation when it arrives. Most businesses are rife with unknown risks awaiting a storm to ignite them. Often we know the risks but can’t find the time or budget to deal with them. Known or unknown, unaddressed risks are cracks in the foundation waiting to topple your business when the storm comes. And come it will, eventually.
Whether you’re a startup hustling to scale or a mature business with established operations, it’s imperative to identify and prioritize your risks proactively so that you can fix the issues while the skies are clear. Some things just can’t be fixed during the storm. Some get worse with time. Trying to fix the issues in the middle of a crisis is suboptimal at best, and catastrophic at worst.
With risks identified and an executable plan in place, you can focus your time and resources on the milestones that move your business forward – whether that’s scaling up, raising capital, optimizing operations, or even selling the company.
A proactive legal health checkup is essential for any forward-thinking business.
Poor Record-Keeping and Documentation Kills Growth and Investment Opportunities
A keen attention to detail is necessary in any business. Organization paves the way to scalability. Effective documentation systems allow you to track all aspects of the business throughout its lifecycle. Many companies find themselves hampered by subpar record-keeping and end up having to fill those gaps through costly litigation and legal fees. Proper documents and organization can make all the difference when you face a tough lawsuit or when you’re trying to close that financing.
One of the surest ways to resolve disputes and preserve the integrity of your business is to ensure your documents are solid, current, and well-organized. It’s important to implement processes and systems for proactively handling legal issues as well as an accurate, consistent, and efficient record-keeping method. The wrong documents often expose companies to issues at the worst times. This can lead to employee misclassification liabilities, wage and hour claims, failed financings, and other business-crushing legal challenges.
We have had clients who had no choice but to pay out six-figure settlements to employees for misclassification violations – even after catching the former employee committing serious crimes on the job. In one case, an employee attempted to embezzle from the company on two occasions and still received a six-figure payout for misclassification claims because the law is fairly black and white in this arena. We have also seen clients who amassed so many misclassifications and other legal documentation issues that they became “uninvestable” by venture capital investors, who have no interest in taking on that kind of liability. With a decent legal health checkup, these clients could have avoided all these issues.
When considering the sale of your business or raising capital from a venture capital or private equity fund, your investor or buyer will most likely discover these types of issues during due diligence and is likely to back out of the deal if certain things are not resolved before the deal closes. Most experienced buyers and investors will not buy a lawsuit waiting to happen. They’ll take the due diligence phase to review all your records and ensure they’re not going to have to fill holes left by poor record-keeping in the past. These issues signal major red flags to potential investors and acquirers, potentially rendering your business uninvestable and untouchable. Conversely, a well-organized, well-documented business makes a positive impression and often sails through the deal process from due diligence to closing.
Waiting Until the Eve of a Deal is Often a Costly Mistake
It is always best to deal with legal issues proactively rather than reactively. Legal issues can metastasize into full-blown cancers for any business. Like cancer, you can only treat it if you are aware of it. Legal health checks enable a company to identify the issues before they grow into untreatable cancers for the business.
Discovering legal issues during the deal process is a surefire way to immediately kill the deal or to delay it indefinitely.. This, of course, doesn’t mean you shouldn’t do a legal health check during the course of a deal, it just means you should already have done one recently before a deal ever comes to the table.
Waiting until the eve of a deal creates an increased risk that could diminish the overall value of your company, significantly increase the costs on your end of the transaction, and derail the deal entirely. The truth is, the longer you delay a thorough legal review by reliable legal counsel, the higher the risks and costs for your business. Many investors use due diligence as an opportunity to identify issues so that they can drive down the price before the closing. This can cost business owners and shareholders millions of dollars by the time the deal closes.
Remember, rectifying these issues can take months, so timing is critical. Early detection and resolution of legal issues not only preserve the deal’s integrity but also enhance your negotiation position, potentially leading to better terms and a smoother transaction.
Get a Legal Health Check with Soloway Group
The Soloway team takes pride in proactively identifying legal issues so that our clients are prepared for any opportunity or challenge that presents itself as the business scales – preparing our clients to sustain through any legal challenge and scale successfully. Ensuring your business’s longevity necessitates regular legal health checks that preserve the integrity and value of your business at all times.
Our team of experienced attorneys will thoroughly review your business, pinpoint potential issues, and help you prioritize and strategize a clear path forward. This proactive approach not only mitigates risks but also positions your company for long-term growth and success. We’ve seen numerous businesses transform from borderline disasters to thriving entities through timely legal intervention. Don’t wait until it’s too late—contact Soloway Legal today.
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