Asset Protection for Small Business Owners
Different businesses have different strategies for protecting their assets. Big companies consider the formation of a captive insurance company to protect them from unfortunate business risks. Sadly, small business owners fail to take the necessary steps to secure their valuable assets from potential claims or and future lawsuits.
If you’re running a small business, you own a combination of assets such as cash, raw materials, properties, and office equipment. Lenders and claimants can seize these assets and will put your business, as well as your finances, in great danger. Here’s how you can secure your investment:
1 Choose the correct business structure
The most important decision that you have to make when starting a business is choosing the most sensible legal structure. The type of business structure determines the taxes that you have to pay, the amount of required paperwork that you have to accomplish, your liabilities, and your trade’s ability to raise profits.
There are four business structures- sole proprietorship, partnership, company, and trust. Remember that no structure is better than the other. To make a smart choice, you must consider your circumstances and business needs. It’s rare to find one size that fits all in the business world. So you wouldn’t want to make this tough decision alone. Seek advice from a specialist about the ideal corporate structure that matches your financial realities, present circumstances, and business needs.
2. Wear the corporate veil
Lawsuits are nasty surprises that threaten your assets. You must wear the corporate veil so that you can protect your finances and properties in case of claims. The corporate veil separates your corporate actions and funds from your private expenses and properties. It offers you the protective advantage of corporate status and saves you from being liable for your business’ debts. Create a separate checkbook for your small business, put your company name in work transactions, and keep an updated corporate book. Complete documentation will back you in case a lawsuit comes your way.
Additionally, you can protect your assets by getting the right insurance policy. Insurance will give you coverage against clerical mistakes, unexpected accidents, and claims by third parties. If you want complete peace of mind, you can consider relinquishing your control over your assets to an investment vehicle such as trusts. A trust protects your assets from legal claims and assures you that it will be kept for your beneficiaries.
3. Be careful when getting loans
Getting a loan is not a bad idea, but you have to be cautious and be fully aware of its danger. Do not agree on giving personal guarantees if it’s possible. But if it’s an utmost need, negotiate just a percentage of your assets that a lender could grab when you default. Double-check if your business can afford sustainable repayments by reviewing previous cash flow records and projecting cash flow. If getting a loan will squeeze your profits, it’s not a wise decision to get into debt.
No matter how small your business is, you should be adept at safeguarding your assets to save yourself from future heartache – protecting them after a lawsuit is a desperate move.