7 ways to protect yourself as a small business owner
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Small business owners are operating under a lot of pressure these days. It can be tough to stay afloat between a polarized economy, constant competition, and increasing consumer demand. It’s not enough to just run your business and hope for the best. You need to protect your business and your personal finances to continue to grow and succeed in the future.
According to one study, almost one-third of small businesses fail within the first five years. Running a small company requires both personal and business-side awareness. You need to prioritize your business and maintain a healthy work-life balance. It’s no easy feat, but with the right plan, it’s entirely possible. Here are some simple ways to protect yourself as a small business owner.
Legally separate yourself from the business
Many small business owners worry about the personal liability of their business. For example, if someone slips and falls in your store, you could be legally responsible for any resulting injuries. But by separating yourself lawfully from the company, you can protect your personal finances from the risks of running a small business.
While sole proprietorships and partnerships are simple business structures to establish, there is a potential problem with these business forms. There are no legal means to separate the business’s assets (and debts) from those of the individual owner or partners. As a result, if the company ceases operations, the obligations are transferred to the owner’s personal liability.
Because there is no difference between a sole proprietorship and a partnership, when a sole proprietorship or partnership files for bankruptcy, it effectively files for personal bankruptcy.
A corporation is a legal entity distinct from its owners; its assets and liabilities are not the property of the individuals who own the corporation. If a corporation goes out of business, creditors can only pursue assets that are the property of the debtor corporation. The result is that if a company goes out of business or becomes insolvent, the majority of its liabilities will not be the responsibility of the firm’s owners. You can hide your identity when registering as a limited company to add extra protection further. Using a third-party package to register is Ideal for protecting the privacy of your home address and other personal detail you may not want to be made public.
Do not personally guarantee the business debt
If your business is struggling, this might be a tempting option. The intentions are good, and you want to help. You may offer to personally guarantee business debt to keep your company afloat or get it back on track. But what you’re doing is putting yourself in an overwhelming position. There’s no telling how much debt you could be signing up for, whether or not the business will even work out, or how long it will take for the finances to recover. And if the small business fails, you’ll be responsible for paying that debt off with your own personal finances. If your company can’t afford the risk of owing money, you shouldn’t either.
Keep meticulous records
As a small business owner, you should always keep meticulous records of your finances. It’s not enough to keep track of the profit and loss statements; you also have to maintain detailed records on the balance sheet. This will help you identify when your company may be in trouble and alert you to any red flags that might indicate future problems. One of the first things an entrepreneur should do when starting a new business is to create a record-keeping system.
Avoid having friends and family as directors.
Having friends and family as directors might seem like a no brainer at first; after all, you want to share the success of your business, but there are some valid reasons why this isn’t a good idea.
Firstly, if they have little or no knowledge of what you do or what needs to be done to operate, they might not have the best interests at heart regarding making the right decisions or having an input in the day to day operations. Unless they have knowledge and experience in this position, it is best not to add them as directors.
Similarly, if there are any future financial issues, they would be liable for debts, meaning they may have to file for personal bankruptcy if the worst happens.
Avoid this by making sure directors are only those who are active and experienced in the role and understand the risks and the business.
Have some business insurance coverage
Entrepreneurs and independent professionals who run their own businesses or work for themselves can benefit from business insurance to safeguard themselves against everyday risks such as blunders, stock or property damage, and legal expenses (known as Liability insurance). Depending on the policy, it may also protect against business interruption and supply chain failure.
When your company suffers an unforeseen setback, you can be assured that this insurance coverage will protect you and your employees. Meanwhile, your insurance can assist you in getting your company back up and running as quickly as possible.
Business insurance may also help establish credibility for your company by proving to prospective customers and potential employees that you are a reliable company with whom to do business.
Consult professionals for advice
It’s essential to consult with professionals when you need help. Accountants, lawyers, and other business advisors can provide much-needed expertise on various topics related to running your company. They can also offer advice on how to protect your business best. Plus, they represent a trusted resource who can provide guidance when you need it the most.
Conclusion
Small business is challenging. It takes a lot of hard work, expertise and passion for getting a small business off the ground and make it successful. But you don’t have to do it alone.
When you work with accountants, lawyers, and consultants, you can make sure your business is continuously operating on the up and up and that you’re well-prepared for whatever might happen.
It’s essential to have a team of professionals on your side who can help you avoid any unforeseen problems that can come up in running a small business.
