While you plan to start your own business on a small-scale, it is necessary to look into each matter very minutely. Starting any business on a new note involves many uncertainties. In cases where it involves your personal wealth investments in the business, it becomes even more crucial to ensure that any financial threat does not sweep you off your personal belongings.
The term “asset protection” involves all about shielding your personal property from any potential business peril. The possible threats can really be dangerous for you as well as for your business. In case anything goes wrong, a good asset protection plan would protect you from being accountable.
Understand the probable threats and secure your wealth from getting seized. You may go for some high priced asset protection plans that may not provide the required protection. Some go for more insurance to play safe.
Learn these six fundamental personal asset protection plans instead to have a basic idea of the whole scenario:
1. Go for the right legal business entity: While you may register your company as a sole proprietorship or as a Limited Liability Company (LLC), the former runs the chance of risk in case of a lawsuit and your personal belongings like, home, cars and other personal property are entirely exposed for seizure. Instead the latter provides a better chance of protection than this one. As the name goes, the liability is limited only to the extent to which the company’s involved and not beyond that. Here, only assets of your business are at a risk and not your personal ones.
2. Keep corporate and personal finances at bay: After registering your company as an LLC, the most significant and necessary thing to do is to separate your personal finances from that of the business. This can be easily done by opening a bank account in the name of the company. Maintain the bank account and use the cheque book distinctively for business purpose. Use the company name in all documents related to it. Use the company letterhead to do the dealings with suppliers, employees and else. Also don’t forget to maintain corporate records and log the details at your annual meeting.
3. Insure your business properly: Getting your company insured with the proper plan is quite significant and should be done on its very initiation.It is better to include this in your start-up budget. Insurance helps you to have a financial coverage in case of threats and clamours from others. Depending on the type of the business you own, you need to decide on the correct plan of insurance. Hire a good insurance agent and be aware of the policies that would provide maximum coverage. Do an annual review with your agent to get an idea on the options and policies on your platter.
4. Place some assets in the name of your spouse: Plan strategically for your asset protection by placing some property in the name of your spouse. This will immediately set the property out of the claiming purview of your creditors. The reason being this is that the valuable assets are then considered as the separate property of the spouse with no involvement of you or your business in it whatsoever and hence run the least exposure to risk.
5. Act responsibly: The one thing that would be considered during the lawsuit is how responsibly you have acted as a businessman or entrepreneur. In such cases, the character of the person is taken into consideration and any proof of the action he has taken to secure his employees or customers is contemplated. Acting negligently or fraudulently can get you into trouble. Hence, it is better to be futuristic and avoid working slackly and in a fraudulent manner that can be worrisome during such instances.
6. Have some contingency plans: Business, in general, is an uncertain venture to some extent. At times monetary needs can press hard against your personal finances. To fight these exigencies, it is better to have some contingency plans up your sleeve that would lend economical support during tough times.
You can consider the following plans:
- Arrange some funds and keep a separate account for that to be used during emergency.
- Explore some other avenues of passive sources of income, like, investments, rents etc.
- Maintain the family expenses and cut it short where required. More flow of money today should not refer to more spending.
- Keep yourself open to grab a day job in case your business does not turn out well.
Keep these six points in mind and don’t forget to consult an experienced licensed attorney with specialization in asset protection and business planning, before jumping off to start your small business venture.
Guest Author: Mehul Panchal, an entrepreneur, business adviser, mentor, speaker, writer, gymer. Also founder and Chief Managing Director of Filter Concept Pvt. Ltd. For more about me visit my website, Mehul Panchal