RESOURCES AND TOOLS: LEGAL AND BANKRUPTCY
Times are Uncertain: Learn How to Protect Yourself
With the employee and customer implications of Covid-19, protecting yourself legally through personal finance, contracts and other forms of risk mitigation is critically important. Rule number 1 - consult your attorney! Also, in the unfortunate event that you have to close your business, the bankruptcy could be an answer; learn how to navigate through it.
For clean and accurate recordkeeping, it is best to keep business and personal bank accounts separate. Avoid commingling funds, whether that be credit cards, loans, expenses, or other financial transactions. Also, consider forming a separate legal entity or changing the type of entity for the business. Options and procedures for doing this will vary by state. Seek legal counsel to assist with this process. If the business cannot afford a lawyer, check out these free resources.
Follow the established CDC guidelines for employees and customers to reduce the risk of being sued if someone contracts COVID-19. Consult local government’s guidelines prior to reopening or expanding operations.
Best practices employed by companies include:
- Establish and distribute safety guidelines to employees.
- Implement temporary store hours, time allocated for at risk and/or elderly people.
- Increased cleaning and disinfecting as established by industry per CDC and OSHA guidelines.
- Teleowork (remote work) if possible.
- Offer delivery and curbside pickup.
- Post safety recommendations for customers with a disclaimer.
- Limit the number of customers allowed in the store at a certain time.
- Require customers and/or employees to sign waivers prior to entry.
- Require all customers to wear masks.
- Remove self serve stations (coffee bar, deli, etc.).
- Provide hand sanitizer and disinfecting wipes.
- Install employee safeguards to reduce contact between employees and customers.
- Adjust return policies.
- Ensure Worker’s Compensation policies are current.
The following resources may also be helpful:
Occupational Safety and Health Administration (OSHA) COVID-19 guidance by industry
Center for Disease Control (CDC) Business Plan, Prepare and Respond webpage
CDC Guidelines on preparing small business employees and customers for the effects of COVID-19
Reed Smith article on Workers Compensation protection with COVID-19
Businesses may be dealing with contractual obligations with their customers and suppliers due to closures, cancellations, and delays brought on by COVID-19. While every situation is different, here are some things to consider while navigating contractual obligations:
Communication is key
Now: maintain contact with suppliers and be upfront with customers.
Negotiate with suppliers
Now: When interacting with suppliers, consider negotiating contracts based on the situation. See if the suppliers are willing to be lenient.
Negotiate with customers
Instead of issuing refunds, consider giving customers credit to use in the future. Give partial refunds as viable financially.
Plan for the future
Consider adding terminology to contracts with customers or suppliers to account for future outbreaks. Also, consider whether to add more attractive terms to contracts to attract customers for future business.
The following resources may also be helpful:
University of Washington Entrepreneurial Law
Description of Resources: The University of Washington Entrepreneurial Law Clinic (ELC) compiled a comprehensive list of COVID-19 related legal resources for Small Businesses and Nonprofits
Local SCORE Mentor state chapters also have legal resources
'Bankruptcy' has many negative connotations as it is the last resort for many people and businesses. However, it is a necessary and helpful part of business closure that minimizes losses and organizes debt. The following provides a brief summary with practical information and sources to find professional advice. Please reference the downloadable infographic below to determine if, and what kind of bankruptcy, is right for you.
Chapter 7 bankruptcy is a last resort to reset finances and clear away many forms of unsecured debts for individuals or businesses. This is done through the liquidation of assets to pay back creditors. Unsecured debts such as tax debts are paid first followed by secured debts.
Chapter 11 involves the restructuring of a business’s debts and assets in order to pay back creditors overtime. This form of bankruptcy essentially gives the business or individual a fresh start. While medium and large businesses use this the most, small businesses and individuals can benefit from it as well. The repayment plan allows businesses to continue operating while paying off debt.
Chapter 13 is typically used by individuals to create a repayment plan to pay back all or a fraction of what is owed to creditors. Chapter 13 allows you to avoid liquidation of your assets by creating a manageable payment for unsecured forms of debt.