Legal risk in business describes the chances of your business experiencing reputational or financial loss due to a lack of experience or knowledge surrounding how laws apply to your unique business model. It might also relate to your business’s indifference to the law and how you operate within it.

Not every business owner understands just how imminent a possible loss or threat could be, which can give them a false sense of security regarding not needing to create a legal risk management plan. If you’re starting to wonder if your business might be susceptible to legal perils, here are a few things you need to know before taking action.

You Can Perform a Legal Risk Assessment

When you’re unsure of the legal risks that might apply to your business, consider performing a legal risk assessment with the help of experts. These assessments are vital for addressing legal risks and developing short- and long-term strategic plans to manage them. When legal risks are identified, they can be prioritized, and controls can be put in place to expose residual risk and limit risk overall.

The First Step Involves Identification

Realizing that there might be legal risks in your business can be scary, especially when you’re unsure how to rectify them. The first step can involve identification, which your preferred law firm can help you with. Start by writing a list of possible legal risks, then analyze each of those risks to calculate the likelihood of them impacting your business and how severe any impact would be.

Typically, you can measure the impact and prioritize each of your business’s risks by their financial toll—the more expensive the risk, the more priority you might like to give it. However, cultural and reputational damage could also see some risks classed as more severe than others.

Focus On Contract Risks

Most businesses rely on contracts for daily operations. You might have a supplier with a contract to supply you with goods or services or contracts with customers that outline agreements between you and them.

While performing a risk assessment, don’t forget to go through your contracts with a fine-tooth comb. Failure to review contracts might result in unexpected liabilities, breaches, and potential voided agreements due to law and regulation changes you didn’t anticipate or account for.

Your Business Must Ensure Legislative Compliance

Rules and regulations are constantly changing, which can mean that the systems and processes you have in place now may not comply with the law in the future. Part of legal risk assessment involves having systems in place to identify changing regulations that have the potential to impact your business.

With a system in place, you can ensure your business remains compliant and train your staff in those new measures before they take effect. Otherwise, you might be at risk of investigations and regulatory actions you didn’t anticipate.

Managing legal risk can be time-consuming and stressful, but it can also be crucial for the reputation and financial security of your business. Put time into legal risk assessments now, and you might reduce the risk of severe consequences for your business in the future.