Small business owners lead a financial double life: one concerns your business finances, and the other one personal finances. Every operating business brings a number of financial risks to its owners, and these risks can endanger their personal finances as well. If you are juggling with your accounts, follow our instructions to secure your personal finances in case your business experiences unexpected problems.
Instead of operating as a partnership, make sure to establish your business as a strictly separate entity: a limited liability company or a corporation. Even if your business is little more than an extension of your personal affairs, respect this formality and don’t use your business accounts for personal expenses. Be serious about the bookkeeping and hold annual meetings.
Get an adequate insurance. The specifics will depend on the type of business you run, but at the very least you will need a basic liability business insurance policy. This is an effective and absolutely necessary method to protect your personal assets from any financial disaster that might hit you on a business level.
In cases where an LLC has only a single owner, current laws make it relatively easy to prove that said individual and LLC are the same legal entity. In case of lawsuit, this will leave your personal finances vulnerable to business-related disputes. To protect yourself, transfer at least a small percentage of business ownership to a partner (who is not your spouse).
While such sharing of company ownership protects you from lawsuits out to prove that you and your company are one and the same, a different type of transferred ownership might protect your assets from seizure. Lease the big assets your business owns – feel free to include all valuables that don’t need to formally stay in your ownership. The bottom line is: maintain control over these assets while not directly owning them.
Follow these advices and your personal finances will have better legal protection!