We’re all liable for our actions. It’s something drilled into us from a young age. As a business, you’re even more liable. As the good old saying goes, “Where there’s blame, there’s a claim.” And you best believe that claim is coming for you if you do something, or something happens for which you’re liable. If that isn’t enough of a reason to start thinking about the term we’ll mention throughout this article, liability. Read on for more reasons.
What’s Liability?
We’ll mention the word an annoying amount of times throughout this post, so here’s a quick summary of what it means.
Business liability is the legal and financial responsibility of a business. That includes legal obligations from any and all business operations and debt owed. Many SMEs mistake liability as only relating to whether they do something wrong, like damage a property during a dishwasher installation (just an example). It’s pretty much everything you do.
Because You’re Liable for Everything You Do
It doesn’t matter if you’re selling sandwiches, software, or handmade candles. If your product or service causes damage, you’re liable. That’s the law. If you take out a loan to pay for the costs of those services, you’re liable to pay it back.
But there’s one difference. General liability insurance for small business services will cover things like product or service damage, but it won’t cover the inability to pay back a loan.
What will it cover? Let’s say someone trips on your loose welcome mat. Or gets a burn from a faulty lamp you sold. Or a client who claims bad advice from your consultancy costs them money.
Essentially, the minute your business impacts someone else—physically, financially, or emotionally—you can be held responsible.
It’s the price you pay for running a business.
Because Being Liable Can Be Expensive
You don’t even want to know how expensive the “where there’s blame, there’s a claim” saying can get.
Consumer Shield states that the average personal injury settlement is approximately $40,500. The actual payout can be so much higher.
A product fault might lead to a full recall. Allianz stated the average cost of recall claims due to contamination issues can reach up to $9.5 million. A professional error (the most common) could result in a $$$$$ lawsuit.
Do you have the cash flow to cover that? Probably not. Multiple sources state that at least 30% of businesses (and that was the lowest percentage we found) are at risk of serious cash flow problems.
Getting the right insurance from the start helps. Most policies don’t cover everything. Insurance companies will ask for your business risks and an analysis of your entire business operations, and will clearly list what they’ll cover you for.
Because SMEs Suffer the Most From Liability Claims
Big businesses have legal and crisis management teams. Oh, how lucky they are. They can survive a PR hit or a large payout. SMEs don’t have the same safety net.
SMEs might lose work. They might lose customers if word gets out. They might even lose the business altogether if the payout drains reserves.
It’s not always about the money, either. Liability claims take up time. Meetings, paperwork, insurance negotiations, and sometimes court appearances are standard. The stress is something you can’t imagine until you’re in that situation.
Because You Want to Protect Your Business
Liability planning is about protection. Every customer you serve, every order you ship, every service you offer—it all puts your name on the line. And one wrong move can undo months or even years of work.
Protecting yourself starts with being proactive. Do your research. Get insured properly. Have clear contracts. Make safety a priority. Don’t wait for a problem to force your hand.
Even if you feel too small to worry about it now, you won’t always be. And even if you feel too small to worry, it still circles back to being liable for everything you do. It doesn’t matter how small you are.
Those are our reasons why we think SMEs should think about liability from day one. There’s a long list of others we could go into. If you want to protect your business, think about what it’s liable for now.
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