When you first become a business owner, it’s easy to forget that protecting your assets is extremely important. Without separating your personal assets from the liabilities of your business, you could lose everything. However, wrapping your head around dividing up the two can be confusing.
In this article, we are going to talk about how you can protect your assets as a business owner.
Let’s get started!
Determine Your Asset Types
The very first step in protecting your assets is to determine their types. While you may have some assets that appreciate, other things like vehicles and equipment can lose value. By going through everything that you own, you can make a record that will be much easier to refer back to. Trust us when we say it’s one of the most important steps that you should get out of the way as early as possible.
Choose the Appropriate Business Entity
If you’ve set up your business entity as a sole proprietorship, you will probably notice that it’s not going to give you much asset protection as they are entirely exposed. An S corporation or LLC (limited liability company) can be a much wiser choice, especially if your business has started to grow. Check out these business structure basics for more information.
Use Correct Procedures
The best way to avoid losing your personal assets is to use the correct procedures and avoid a legal battle altogether. Acting fraudulently will only work against you, so make sure that everything you do is done according to the law, anywhere from contracts to placing the right equipment in your company’s name. Alongside this, you only want to hire licensed tax professionals, legal advisors, and contractors to assist with your business.
Every business should have insurance, so if you do have an incident occur, it can be handled appropriately without making you bankrupt. However, it’s essential to make sure that you get the right policy. There are so many different types out there, from property, professional liability, product liability, and business interruption. You can even get umbrella insurance to cover claims in excess.
Maintain Your Business Records
By improving your company’s books and maintaining your business records, you can create a solid veil if you are ever exposed to a lawsuit. For instance, keeping a separate bank account for anything business-related and keeping records of meetings and events will all come in handy. Just think, the more evidence you have of doing the right thing, the less likely your veil can be pierced.
Consider Placing Assets in Your Spouse’s Name
While this may not always be a great choice, if you are comfortable, sometimes putting a few of your assets within your spouse’s name can be beneficial. Especially if you may have a riskier lifestyle. This way, if an incident does occur, certain things are protected. However, before thinking of doing this, it can be a good idea to have a pre or post-nuptial agreement in place that determines how everything will be divided.