2020 has been an unpredictable year and everyone has been impacted by it in some way. Many small businesses have suffered due to Covid-19 and the corresponding lockdowns across the nation. As we close out the year, and nearly 10 months of some form of quarantine, we’re looking back at the year to determine what small businesses can learn from 2020, and how to apply it to planning for 2021.
A major issue that has come into harsh light during quarantine involves signing long-term contracts for leases, software, merchandise and other business needs. In the world of COVID-19, the unexpected is a dime-a-dozen. How can small business owners protect themselves?
Force majeure is a common clause in contracts that accounts for circumstances completely out of one’s control or reasonable expectation. It frees all parties from liability relating to said “act of God.” In 2020, the pandemic often counted, at least contractually, as such a thing, but it may not in the future. Neither will a government shutdown. This clause has been discussed and negotiated more in the past nine months than in decades prior, and it will continue to be for the foreseeable future.
In order for force majeure to be upheld, the party asserting that the performance of its contractual obligation was impossible or impracticable must establish three key points.
- The first is that the circumstance preventing the performance of the contract was completely unexpected.
- The second is that the circumstance was so abnormal that the “non-occurrence” of it was a basic assumption to all parties.
- The third is that the circumstance did make contract performance impossible.
Small businesses should have plans to protect themselves, both financially and legally. Any business involving person-to-person contact is at risk of a shutdown at any time. Hospitality services like hotels, restaurants and bars are particularly susceptible. It is important to plan ahead, but stay adaptable in case the worst comes to pass.
It is more important than ever for small business owners to connect themselves with resources that will help to support them in times of crisis, like a pandemic. Business interruption insurance has historically been an expensive luxury and that is unlikely to change anytime soon. COVID-19 has also caused a seismic shift in what “business interruption” even covers anymore. Still, it is worth looking into.
Perhaps even more important than insurance is an attorney to look over employment, vendor, and location agreements. In these unpredictable times, it is vital to have people you trust to watch your back.
Perhaps this may be a bit redundant, but it is definitely worth repeating: keep yourself flexible. As a business owner, it is unbelievably easy to overextend yourself and promise products or services to your clients and customers that you may find yourself unable to provide. Don’t presume anything. 2020 taught us that anything can happen at any time. Make plans, but be prepared to change them, hire trusted counsel, and be sure to thoroughly review and negotiate your contractual agreements.
At the end of the day, small businesses have to look out for themselves. The landscape is ever-evolving and reshaping itself. Adaptability, planning and forward thinking are the greatest qualities for a business owner to have. Be prepared and ask questions when you need to. We’re here to help. Good luck!