Growing cyber threats require legal help

There are 32.5 million small businesses in the United States, and all of them should “lawyer up,” experts say.

The United States tort system's commercial liability totaled $343 billion in 2018, and small businesses were responsible for $182 billion or 53% of those costs, according to the U.S. Chamber Institute for Legal Reform.

Many small to mid-sized business owners dislike spending money on legal services because the upside isn't readily apparent to them. However, paying lawyers to fix a problem after the fact is almost more expensive than just doing things correctly in the first place, according to Julie Herzog, a partner at Colorado-based Fortis Law Partners.

Herzog's firm has launched a general counsel subscription service to address the needs and budgets of small to mid-sized businesses.

“A subscription-model service allows business owners to tap into a set number of hours of legal counsel, used flexibly throughout the year, makes much sense,” Herzog told Advisors Magazine. “A brief conversation with your attorney can help you avoid major expenses or even generate revenue if they have advice that helps you develop a better business model.”

Now that the business owner has access to legal advice, they need to address some common legal issues in 2022, such as commercial contracts, employment matters, and intellectual property.

Businesses would benefit from having an attorney develop commercial contracts for customers and outside suppliers and vendors. According to Herzog, these contracts would include detailed descriptions of services being provided, payment terms, any dispute resolutions, and termination of the agreement.

One item most business owners probably didn't think they should use an attorney for is the employee handbook. The handbook is more than just an outline of formal guidelines, company policies, and a description of the company's mission. More importantly, laws mandating that employers provide certain information to employees in writing.

“Employment litigation can be costly, distracting, and embarrassing, and a comprehensive handbook can help provide an extra layer of protection,” Herzog said.

It is also critical to protect your business's intellectual property or trade secrets through formal nondisclosure agreements and procedures. Trade secrets can be technical information about a company's manufacturing processes, test data, designs, or commercial information such as distributing the products, a list of suppliers and clients, or advertising strategies.

Growing cyber threats require legal help

Cybersecurity and data privacy threats are one of the most damaging issues facing small to mid-sized businesses. The use of ransomware to attack governments, utilities, hospitals, and small companies has been rampant for the past two years, and it continues to grow. While the pandemic sent companies online, unfortunately, the cybercriminals followed.

The pandemic had a significant impact on many of the security challenges companies are facing, according to Tami Erwin, CEO of Verizon Business.

“As the number of companies switching business-critical functions to the cloud increases, the potential threat to their operations may become more pronounced, as malicious actors look to exploit human vulnerabilities and leverage an increased dependency on digital infrastructures,” Erwin said in a release.

About 37% of businesses globally reported that they were hit by a ransomware attack in 2021, according to the U.S. Chamber of Commerce.

This month, the Chicago Public School System said that its vendor had a ransomware attack. That vendor, Battelle for Kids, is a small Ohio-based company with under 100 employees.

There's been a 13% rise in the use of ransomware, New York-based telecommunications giant Verizon noted in its 15th Annual Data Breach Investigations Report. Eighty-two percent of the security breaches were attributed to human factors and not technological problems, the May 24 report said.

Small businesses can be easy targets for hackers as they don't often invest many resources in cybersecurity. These businesses need to be aware of the data they collect, how it's stored, and where. Herzog advises businesses to get counsel on solid privacy policies and procedures that need to be in place to promote the responsible and legal handling of personal information.

Having robust data privacy protocols builds trust and prevents lawsuits and regulatory fines. If a buyer uncovers imperfect data privacy practices during due diligence, the business's valuation may get slashed, according to Herzog.

“The fundamentals of security remain the same. Assess your exposure, mitigate your risk, and take appropriate action,” said Dave Hylender, the report's lead author. “As is often the case, getting the basics right is the single most important factor in determining success.”