Your Legal Risk Audit — Part 2
What Do You Own and What are You Unwilling to Lose?
Whenever I work with someone, I always like to ask them what they own and what they're unwilling to lose.
Why? Because a lot of folks in the corporate contracting world aren't aware that their business has valuable assets or that those assets can be used to create new revenue streams and negotiate higher paying corporate contracts.
When you know what you own, both from a personal and business perspective, and what you're unwilling to lose, it helps you get clear about what you need to protect in your contract negotiations with your clients and it also helps you identify potential upsell opportunities in your client deals.
In this article, we'll cover:
How to identify and categorize your assets
How to identify which assets you're unwilling to lose (both personal and business)
How to recognize when your assets are involved in a contract
If you haven't read Part 1 of Your Legal Risk Audit, then I invite you to check that out first before proceeding.
Otherwise, if you're ready let's get into these issues.
Why Not Knowing What Your Assets are can Cost You
When you work in corporate contracting, the default standard is to style the contract as a work-for-hire contract. That means that whatever you create and deliver to your client becomes their property. They own all the intellectual property rights to that work and in exchange, they pay you a certain amount of money for them.
For the most part, this is usually a non-issue. Usually, the whole purpose of your service is to create Deliverables for your client that they can then own and use however they want to.
But sometimes, what the thing your client wants is actually the right to use your intellectual property.
I know. Usually when I say this to folks they look at me like I'm crazy, but it's the truth. It's possible that by doing the work you do for so long that you've developed some unique methodologies, processes, and/or thought leadership that your audience and your clients have come to value.
Oftentimes you don't even think of it as intellectual property or a valuable business asset, but it is. This can lead to what I call "asset blindness" in your contract negotiations, which means that you often go into contract negotiations not knowing what your assets are or why they're important to your business, which increases the possibility that you're accidentally giving up your rights to valuable assets that are current or potential future revenue streams.
Maybe you're reading this and you're like, "who would be dumb enough to do that?"
And well, my answer is that the people I know who have accidentally done this aren't dumb; they just didn't know any better because they didn't understand the value they were sitting on.
So instead of debating the merits of who's dumb and who isn't, let's walk through the process that ensures you never find yourself sitting in their shoes.
The Two Categories of Assets That Matter for Corporate Contracting
We're going to talk about two types of assets that you need to be thinking about for purposes of corporate contracting. The first type is your personal assets and the second type is your business assets. The personal asset inquiry is pretty simple and the business asset inquiry can have some twists and turns depending on your business goals, vision, and current and future revenue streams.
Personal Assets
The conversation on personal assets isn't complicated, but it is important. Understanding what personal assets you own and which of them you're unwilling to use helps you choose an appropriate risk mitigation strategy for protecting those assets. Some of that strategy will be implemented BEFORE you reach the contract negotiation stage and other aspects of it will be a part of the negotiation process, specifically how you negotiate certain terms to ensure the contract terms don't undo or undermine the mitigation strategies you've already implemented.
So let's get clear on what your personal assets are. Think about what you own personally: a house, a car, bank accounts, investment accounts, inheritances, etc.
This inquiry is different for every person. You might live in a city where you rent an apartment, and don't have a car because you rely on public transportation. Someone else might live in the suburbs and own a home. Others might be married with kids and have college funds for their kids. Other folks might live near the water and own other vehicles like a boat.
Take the time to walk through your personal assets so you have a clear picture of what you own.
If we use our hypothetical from part 1 of this series, then let's say our content marketer Sarah has the following: a modest checking and savings account, a retirement account under $100k from an old job, and the furniture in her apartment that she rents. She doesn't have a car or any other vehicles.
Business Assets
When we talk about business assets, we're talking about more than the tangible things your business might own. We're also talking about your reputation, your client relationships, and your potential revenue streams.
Taking time to understand what you're business's assets are is how you identify where the value in your business is often hidden in plain sight.
Here's some categories of assets to to identify:
Bank Accounts: This is pretty straightforward, but whatever money you have in your business bank accounts is considered an asset.
Intellectual Property: Your methodologies, frameworks, content libraries, and proprietary processes. If you have a standard process you use to perform work for each of your clients, that's intellectual property. Your blog on your website, your social media posts, and your newsletters are all intellectual property. So are courses, workshops, or other digital products you put together.
Client Relationships: Your network, referral sources, and repeat client base. These relationships generate ongoing business opportunities and referrals. They also count as valuable business assets.
Professional Reputation: Your brand, thought leadership position, and industry credibility. This is what enables you to charge premium rates and attract high-quality clients. For most folks in corporate contracting, your reputation is the bedrock of your business, which makes it an extremely valuable asset so we want to ensure we're thinking about what that means from a legal strategy perspective.
Revenue Streams: The different ways you monetize your expertise - 1:1 services, mentoring, courses, speaking, consulting. That includes how you monetize your expertise now, how you've monetized it in the past, and how you want to monetize it in the future. Sometimes, just identifying other business assets like intellectual property can help you uncover new revenue streams.
For each asset you identify, do your best to discern how much revenue is being generated.
It's okay if there's overlap between the assets you identify. We just want to see a holistic picture of all the assets your business owns and how much money they're bringing in. That helps us do a basic assessment of their value.
If we look back at Sarah's business where she works as both a content marketer for clients and a coach to other content marketers, here is her basic asset inventory:
Now, you might not be able to assign numbers or percentages to your business assets that show how much revenue each asset is bringing in. But a simple review of even your bank account transactions can start to show you how money is coming into your business and a review of DMs, emails, etc. can give you an idea of how the money is making it's way to you.
If finding this information feels haphazard to you, know that you can work with a bookkeeper, an operations person, and/or someone similar to help you create systems that track this information so you know exactly how your business's assets are driving revenue.
Risk Management Based on What You're Unwilling to Lose
Once you identify your personal and business assets, then you need to get clear about what you're unwilling to lose.
The first step to figuring that out is making sure you understand what's at stake.
What You Could Lose
Usually when folks are talking about legal protection, they're talking about ensuring you're protecting assets that you don't want to lose.
But that begs the question: what am I losing those assets to?
The first and most common answer is that your business could get sued, someone could win the lawsuit and be eligible to collect a money judgment from you. Depending on what risk management strategies you have in place, that person or entity could collect that money judgment from your business assets (business bank account, equipment, and intellectual property rights) and/or your personal assets like your house, your car, and your personal bank accounts.
The second and less common answer, is that you could accidentally give away business assets that you want to keep in contracts if you're not clear about what your client is really asking for and/or what the contract terms say.
So getting clear about what you're unwilling to lose is the first step to figuring out how to ensure those things are protected as best as they can be in alignment with your personal risk tolerance.
Decide What You're Unwilling to Lose
Alright, now that we're clear about what you could lose, go ahead and list the things that you're unwilling to lose.
For personal assets, it could be your house, your car, your inheritance, banks accounts, etc.
For business assets, think about the revenue each of your assets is generating. Once you have that list, let's talk about your risk management options.
Managing the Risk of Losing Personal Assets
If you have any personal assets on your unwilling to lose list, then the easiest way to manage that potential risk is to register your business as a formal legal entity. For lots of folks who are consultants or freelancers in the US, the looks like registering your business as an LLC in your state.
From there, you can get an employee identification number from the IRS, apply for a business bank account, and keep your business and personal assets separate.
If you have very low risk tolerance, this may not feel like enough so an additional layer of protection for those assets would be getting a business insurance policy.
Lastly, in your actual contract negotiations, you would want to consider terms like indemnity from your client and limitations of liability, both of which help to protect your assets in case you get sued.
Please note that this list is not exhaustive, but covers some of the primary risk mitigation strategies.
Managing the Risk of Losing Business Assets
For business assets you're unwilling to lose, the first mitigation strategy is getting a business insurance policy. That helps protect both your personal assets and your business assets in case you get sued.
But other risk protection strategies are contract-specific. Here are some examples:
Critical revenue streams shouldn't be compromised. If an asset generates recurring income, like Sarah's mentoring business, any corporate contract involving that asset needs to be styled as a usage license.
Replaceable assets can be licensed or sold if the price is right. If Sarah develops a framework specifically for one client that's different from the core methodology she uses for all of her corporate clients, she might be willing to give them exclusive ownership rights for the right fee.
Growth assets should be protected because they enable business scaling and premium positioning. To protect her industry reputation, Sarah will want to consider dispute resolution terms that ensure any disputes between her and her clients are handled privately to avoid any reputational damage.
Now let's look at how this impacts your contract strategy.
How Understanding Your Assets Changes Corporate Contract Negotiations
Negotiating Terms that Align with Your Risk Mitigation Strategy
When you understand what assets you own, what you're unwilling to lose, and how you've managed the risk of losing certain assets, you go into a contract negotiation with a much clearer picture.
In Sarah's case, she's going into the contract negotiations with the following information:
She's organized as an LLC and follows the rules for keeping her business and personal assets separate so her personal assets are well protected. To maintain that protection, she wants to ensure the contracting party in all of her client contracts is her LLC and not her in her individual capacity. This seems simple, but it's definitely a mistake more than one person has made.
She has a proprietary method she uses for all of her corporate clients that she needs to maintain ownership of. That means the intellectual property section of her corporate client contracts needs to have a carve out for what is called pre-existing intellectual property that says she maintains ownership of her business's IP that was used to create the Deliverable, and her client, if needed, has a license to use that IP in connection with the Deliverable, but does not own Sarah's IP.
She has a proprietary framework she uses in her mentorship programming that corporate clients sometimes express interest in buying the rights to use it so they can sell it to their customers. In these cases where Sarah has an overlapping audience with her corporate clients, she knows that the intellectual property terms need to ensure she maintains the right to her IP because it's an important revenue stream in her business. So instead of structuring this work as a work-for-hire, which would mean she'd lose the rights to her IP, she now knows that the IP terms need to be structured as a usage license and that she needs to charge a very high rate for these types of contracts.
Sarah doesn't have business insurance, so she'll want to find ways to limit her liability in her contracts. Some potential options are adding a limitation of liability clause to her corporate contracts (this is usually a hard sell) and/or asking her clients to put a monetary cap on any indemnity obligations of the contract. She'll also want to do her best to narrow the scope of any indemnity obligations to very specific situations that apply to her work.
These are just a few of the things Sarah knows to focus on in her corporate contracts now that she's clear on what her assets are and which ones she's unwilling to lose.
Discovery Questions That Protect Your Assets in Corporate Deals
In addition to knowing how to approach certain contract terms, knowing what your assets are can also help you in the sales process so you can ask your client the right questions and price your work correctly.
Here are some questions that Sarah should consider asking in the sales/discovery call process so she can think strategically about how to leverage her business's assets to command higher rates from her corporate clients:
How do you plan to use this Deliverable? Will you use it internally, externally or both and for what purpose?
Can you tell me how my work fits into your overall goals so I can better understand what you'll need in terms of Deliverables?
Do you have a particular interest in one of the methodologies or frameworks that I use?
Would ongoing consulting on implementation be valuable?
Are there other teams in your organization who might benefit from this expertise?
Remember, the goal of asking questions is to gather information so you know exactly what kind of value your client is asking you to deliver and charge accordingly for it.
Conclusion
Knowing what your assets going into a contract negotiation allows you to be prepared and ask the right questions upfront to ensure you're getting the best deal possible. When you're asset blind and not sure what assets you own or how they're protected, it can lead to costly mistakes that leave your business unnecessarily vulnerable or at risk of losing or missing out on lucrative revenue.
Just taking the time to understand what you own and what you've created is enough to change your approach to contract negotiations. If you want to keep going with this assessment, check out Part 3 where I walk you through evaluating who your audience is, how you interact with them, and what that means for your business.