Starting a business is empowering, rewarding, and can bring you tremendous personal and financial growth. That being said, it takes a lot of work and research to ensure that it’s done the right way. When starting a business, the worst thing you can do is not take the proper steps to ensure that your personal assets are protected.
Protecting your assets is critical to the success of any small business owner. It would be best if you worked to guarantee that your own personal wealth will not be negatively impacted by any liabilities your business is exposed to. Lawsuits and accidents happen all the time in business; having the proper safeguards is essential in protecting your finances.
Here are the best ways to protect your personal finances as a small business owner:
Choose the right business structure.
Starting your business as a sole proprietorship can seem appealing due to its ease, but it also leaves your personal assets completely exposed to potential liabilities. Setting up a business entity, such as an LLC or corporation (or both), will protect you personally in the event of an accident or lawsuit. Putting in a little extra effort to select the right business entity goes a long way in keeping both you and your small business safe. If you’re new to this or need an extra resource to help understand business entities' differences, this article is beneficial to new small business owners.
Keep your business finances separate from your personal finances.
A smart business owner will have a separate bank account for the business and use the business name on all business-related documentation. Most, if not all, major banks in the United States offer small business banking. In addition to filing for an entity, annual maintenance is key in remaining compliant both internally and with the state, your business is registered with. Stay up-to-date on paperwork, pay the required fees, and ensure that your business is set up with all of the proper documentation to operate as its own entity.
Go with the right insurance.
Selecting the proper insurance coverage is a vital part of protecting yourself as a small business owner. There is no ‘one size fits all approach to purchasing insurance for your business, so conducting in-depth research is crucial. For example, someone looking for an insurance policy on a restaurant would need different coverage than someone looking for liquor store insurance. Getting the right insurance coverage in place for your business will help safeguard your assets in the event of an issue.
Minimize your debt.
It’s important to know when to use a business loan and how much you need to borrow. Sometimes it’s necessary to take out a loan when trying to grow and invest in your business, but make sure you keep your debt to a minimum so that you don’t end up swimming in loans you can’t payback.
Grow an emergency fund.
Nothing is guaranteed in business, and it’s important to have a ‘rainy day fund in the event of a financial storm. It’s always a great idea to create a separate bank account to act as your emergency fund. Set aside money in the account from the start, and continue to put money into it regularly until you’ve built up enough money to cover at least three to six months of expenses. It’s not unusual to go through a light month or season or for the economy to take a downfall, so it’s important to be prepared to prevent your business from any financial hardships.
Opening a small business is an exciting time for many people. It’s easy to focus on your business goals, but a smart entrepreneur prepares for the worst and puts safeguards in place to protect themselves against unforeseeable events. As long as you do the research and follow the steps outlined in this handy guide, your personal assets will be protected, and you can focus on growing your small business.