By | Samantha Higgins
Even though you may be living your dream as a business owner, you likely realize that being a business owner comes with several risks and concerns. Making money isn’t enough to keep a company afloat; you have to protect your business from lawsuits and claims. It’s also easy for a business to go into debt since you have to pay your mortgage or tent, pay vendors, and take care of bills associated with your marketing efforts. When you know the risks you’re up against, you’ll know how to avoid or minimize your risks and secure the success of your company.
Here are some strategies to keep in mind when you’re looking for ways to protect your business assets.
Select the Right Business Entity
You’ll have several tax-planning considerations to consider when you’re running a business. However, operating your company as a sole proprietorship isn’t the ideal choice if you’re trying to protect your assets. If your company is a sole proprietorship and you are sued for any reason, your personal property could be included in the lawsuit. It’s best to set up an LLC (limited liability company) or S corporation is best for shielding your assets and protecting you from being sued.
Keep Your Corporate Veil Intact
Once you’ve set up an entity, simply having the articles of incorporation in your file cabinet won’t help you completely avoid a lawsuit. Make sure you have a checkbook and bank account that is solely for your business and don’t use it for personal expenses. Use your company name on all official documents. If necessary, title your commercial property in the name of your business. Most importantly, be sure to maintain accurate corporate records and make sure you have someone to take the minutes at any important company meetings. Remember that LLCs aren’t exempt from this type of yearly maintenance.
Use the Right Procedures and Contracts
One of the quickest ways for creditors to attack your personal assets is if you commit fraud or behave negligently when it comes to managing your finances. You can avoid this by having lease agreements for your rentals that are in good standing. Be sure you place all your equipment and property titles in your company’s name and keep subcontractor agreements and contracts on file for any project pertaining to your business. It’s also best not to hire people to work under the table. You should only hire professionals who are insured, bonded, or licensed to assist you in growing and developing your business.
Get the Right Business Insurance
Insurance is an integral part of your company and you should include insurance payments in your business startup budget. No matter the type or size of your business, you need a proper insurance policy to safeguard you against any mishappening. Even a cold storage unit will require one power outage food spoilage insurance policy in place. Insurance gives you the financial security to take care of certain incidents that arrive in your business. Get the right insurance policy; professional practices, rental properties, and retail stores require different insurance policies.
It’s also best to obtain umbrella insurance. This insurance can be business or personal and acts as a supplement to your existing insurance policies. Umbrella insurance usually costs around $300 a million but you can receive $1 million or more in coverage. However, umbrella insurance won’t protect you in every situation. For instance, this type of insurance won’t cover reckless, negligent, fraudulent, or criminal actions.
Place Assets In Your Husband or Wife’s Name
If your spouse has a job or lifestyle that involves more risk than yours, you should make sure assets are in your name. However, if you’re the one with the riskier occupation, assets should be in your husband or wife’s name. In general, the creditors for one spouse won’t be to use the assets of the other spouse as payment for a debt. The rules of this are different for every state. For instance, if you live in Delaware, you can set up a Delaware statutory trust so your valuable assets are considered separate property from your spouse with very little risk exposure. If you’re engaged, you may want to consider getting a prenuptial agreement in which you clearly state asset regulations between you and your spouse.
In most states, if the husband owns a business and creates liabilities as part of running a company, he and his wife can compose an agreement stating that certain assets will be classified as the wife’s separate property. This protects the assets from the husband’s creditors. When you’re conducting estate planning or marital property planning, thinking about the implications of deeding property into one spouse’s name. This also helps you properly divide assets if you decide to divorce.
These helpful tips can ensure your assets are shielded from risks that can affect the future of your company.