Operating a small business is tricky enough without factoring in the many hurdles to overcome, including those aiming to damage your business. The most common business damages come from employee disputes, product liability, mortgage challenges, and consumer protection.
For your business to survive, you must learn to manage obstacles effectively, mitigate risks and protect your assets. Below, we’ve put together a short guide to help you do this.
Have Appropriate Insurance
Everything from your employees to products to business properties is considered an asset. You need to have appropriate cover and insurance in place to prevent damage to any assets.
For example, if an employee is injured through work, you need to cover their medical bills and will likely need to pay compensation. Therefore, you should take out appropriate workers’ comp for your small business.
Additionally, regardless of your product, we suggest taking out product liability insurance. If any users claim injury or losses because of your product, this type of insurance will help cover the cost and protect your financial assets.
Business Entity Considerations
The new Inflation Reduction Act is making IRS monitoring much tighter, and it will impact small businesses first. Therefore, we suggest avoiding sole proprietorship structuring. Instead, you should place all business assets in trusts, LLCs, or limited partnerships.
By organizing your business this way, you have control of everything while theoretically owning nothing – you are paid by your business.
Separate Personal and Business Assets
Putting up a “corporate veil” is the best way to protect your business assets. This means putting distance between your personal and business assets.
By doing this, only your business assets will be targeted if you’re faced with lawsuits. Here are some great ideas to get you started:
- Use the business name when buying property.
- Keep records of all business meetings.
- Maintain corporate logs.
- Separate personal and business accounts.
- Mark all relevant documents with the business name.
Consider Transferring Assets to Your Spouse
If you’re married, you can try to add an extra layer of security to your assets. You can transfer all of your valuable assets into your spouse’s name – the courts may not be able to touch spousal assets in business disputes, but it’s best to seek legal advice before taking this step.
That being said, regardless of your marriage’s state, you should have a pre-or post-nuptial agreement drawn up. Failing to do so will likely ruin your business if ever get a divorce.
Act Professional and Legal
While protecting assets may feel shifty at times, it’s important to note that it’s perfectly legal and above board. However, external entities may attempt to damage your business by exploiting loopholes.
To avoid this, ensure solid contracts are in place before beginning any project or entering into a partnership. Further, you should avoid paying employees off the books. If you have the available funds, fortify your business by hiring attorneys, tax advisors, and asset-safeguarding experts.
Risk is never too far behind where there’s money involved, and the business world is no different. Keep your assets secure by putting appropriate protective measures in place.