Does your business pose a risk to your personal wealth?

As a businessperson, you understand that your business is your biggest asset. Every business comes with a certain amount of risk involved, and as a new business owner, there is a lot of uncertainty associated with the job. Do you know how to protect your assets from judgments against your business? Or does your business give you a false sense of security? Read on to find our best tips on how to secure your personal assets from any eventuality that your business might face. 

You need the right asset protection strategies.

While you might think that you have done a good job of separating personal and professional assets, in the eyes of law, they might still be closely related. If your business faces a lawsuit or owes creditors, your personal assets are fair game for collections or settlements. This is even more plausible if you are the sole owner.

To shield your personal liabilities, the best way is to set up an entity such as a Limited Liability Company (LLC) or a Corporation, through which all your business commitments will be routed. Similarly, on the personal side, the best way to ward off business interests is by creating a trust to protect assets.

Keep your work and personal affairs separate

Merely setting up an LLC or a Corporation is not enough; you should always ensure that your business and personal entities remain well separated. Open separate bank accounts for your business, and always use the name of your company on all official documents, contracts and agreements. Follow all company regulations and maintain records carefully.

Adding multiple layers of legal protection also help you in minimizing the risks to personal wealth. By setting up separate legal entities for each part of your business, your entire business won’t get affected even if one component is taken to courts.

Get your business insured

Now that you have set up legal entities for your business, you need to get separate insurance policies for all of them. Not only is it important to know how to protect your personal wealth from the risks inherent in any business, but you also need to insure your business in the event of a negative incident.

As a small business owner, having your business insured helps you cover many common liabilities that you might face. Ask yourself this: Does my business too face some of these risks?

  • You have a physical location for your registered business, and are not necessarily running it from home.
  • You have valuable physical assets on location which can be damaged or stolen.
  • You can be sued by your employees or customers for issues relating to financial offences, harassment claims, unethical business practices, workplace injuries, etc.

Clearly, for most small businesses, having a Public Liability insurance policy is a must. For comprehensive coverage from claims by your employees, you should consider getting Employers Liability insurance. Similarly, to protect your business from claims arising from cyber crime or data theft, Cyber Liability insurance is available today. Apart from protecting against compensation claims and losses due to damage or theft, most of these policies cover your legal costs as well.

Businesses in the service sector face even greater challenges. Since most services consist of greater interaction with your clients than other businesses, there are many new possibilities for a visit to the courts. A Professional Indemnity (PI) Insurance Policy will keep you in good stead against claims of fraud, corruption and negligence. 

For private practitioners and professionals, having a professional indemnity policy is even more important because they are directly exposed to claims by customers. Having indemnity insurance will help you cover the representation costs, legal charges and all other expenses associated with a lawsuit or investigation.

Prepare in advance for unforeseen situations

While you may be doing everything in your hand to minimize risk, it is possible that your business will be exposed to a claim. When your business is going through a lean patch, it helps to have a backup plan ready. 

Your plan should cushion your impact and give you the financial freedom to weather any storm. Think about other sources of earnings – from taking a side hustle to utilizing your spouse’s income. Keep in touch with other businesses and employers, so that you can easily find work if your business goes bust. Make exit and transition strategies for your company with a clear roadmap in place.

Having a plan in place will save you time when it will often be in short supply. Getting a head start will also help your business fare better than others, who are similarly placed but have no idea where to start during a downturn.

Diversification is key to your investment plans

While your business ownership represents the largest chunk of your investments, it is very similar to an equity investment. The ups and downs of the market affect every business and yours is no exception. Having your entire money in one business is not a sound financial habit, as it negates the benefits of liquidity and lowered risk that come with diversification. 

After you have reached a certain point in your business, your primary concern will not be accumulation, but preservation and consolidation of wealth. The best mantra for risk mitigation is to diversify your investment pool. This has the added benefit of maximizing returns if you invest smartly. 

Have a good mix of liquid and long term assets. Do not hesitate to take professional investment advice if you feel the need. Having a well-designed portfolio takes half the pressure away from you even before investment.

Learn more by attending the Seminar organized by Sam Kodi.

Interested in reducing the risk to your personal wealth?                                                   Contact us to schedule an appointment, and we will answer all your doubts and queries on how you can protect your assets from the risks posed by your business. We will be happy to help!