Gold Piggy bank with umbrella
Protecting your business and personal assets requires proper planning and monitoring of your assets, as your risk level may change over time as your business grows and changes. Understanding what your risk is and how it can impact your personal and business assets before a claim or liability occurs provides peace of mind and ensures you will not experience financial ruin due to unexpected occurrences that are out of your control.
You should consider all assets, business and personal, when evaluating how to best protect yourself from losses. This includes financial savings, personal and business property, and intellectual property. All these assets could be at risk of legal seizure or loss in the event of defaulting on debts or mortgages, claims from damages by your employees, product or professional liability, and consumer-protection laws.
As a business owner, you have increased risk of asset loss and must evaluate your options to better insulate yourself from potential loss. Here are some strategies to consider to help protect your business and personal assets. Always remember to talk to your professional tax advisor and lawyer to understand your options in more detail.
Regardless of the size of your business, establishing the appropriate legal structure (business entity type) is critical and beneficial to protecting your assets. There are several business entity types to choose from (sole proprietorship, partnership, corporation, LLP, LLC, nonprofit, etc.), each with its benefits and disadvantages. Read our article on Understanding the Different Types of Business Entities for more information.
Establishing separate bank accounts, even for sole proprietors) is essential to keeping a clear record of business versus personal spending. This includes checking, savings, and credit cards. This will ensure you can manage and report your income and expenses on your tax filings correctly, and it provides added fraud protection as you can maintain separate access rights and password protection protocols to your business accounts.
Be sure to maintain corporate records and log minutes of annual meetings, especially when making business decisions. Having multiple owners or partners in a business (as well as shareholders in the case corporations or LLCs) requires due diligence of transparency in business discussions and actions impacting the business. Secure all files (digital and hard copies) and create back-up procedures to prevent loss of records in the event of an emergency (fire, natural disaster) or due to cyber-attacks.
Having good lease agreements and placing property/equipment titles in the company name will help mitigate your risk of personal property loss by clearly establishing assets under the appropriate legal structure.
Always have written and signed subcontractor agreements and contracts for all projects (not just emails) to ensure you have recourse and obtain signed confidentiality agreements (nondisclosure agreements) to keep company information from becoming public knowledge.
Protecting your intellectual property is just as important. Apply for the appropriate trademarks, patents or copyrights to document your right of ownership and obtain legal protection of your ideas and your brand.
A trademark is a unique symbol or word(s) used to represent a business or its products. A patent is protected by a government issued right allowing something to make and sell a product or service for a certain amount of years without anyone being allowed to copy it. A copyright is a legal means of protecting an author’s work, which could include such things as books, poems, plays, songs, films, and artwork.
There are several insurance options available to protect your property and financial assets. Consult with your tax advisor and banker to determine the types of coverage that may help you. This includes (but not limited to) rental and property insurance, business insurance, employers’ liability insurance, key-man insurance, life insurance and umbrella insurance.