How to Secure Your Business from Financial Loss?
There are many misused and misunderstood concepts in the business world. However, nothing is more misunderstood than avoiding financial loss. Many business owners fall victim to pricey asset protection plans that don’t provide the promised level of protection. Other business owners opt for more insurance instead. However, it’s like putting it all to luck and chance that an accident or expensive lawsuit doesn’t happen.
Protecting your assets from financial loss is also about securing your personal wealth from business liabilities. However, these responsibilities can pose a dangerous threat to both you and your business.
Asset protection plans and insurances are great. But relying on them alone is going to spell suicide for your business. What you need is to reinforce them with effective methods that will help protect your personal wealth. In the event that your business is held accountable for legal matters, you need to be equipped and ready to deal with the problem.
Here are four methods of avoiding financial loss and ensuring that your personal wealth is protected:
1.) Select a Business Entity
Sure, operating as a sole proprietorship may be the most straightforward option when starting a business. However, it’s not the best choice if you want to protect your personal wealth from financial loss and business liabilities. By opting for a sole proprietorship, all of your personal assets will be exposed to potential lawsuits. That means your personal property and investments are at risk.
Fortunately, you can remedy the situation by setting up an entity for your business. Corporation or Limited Liability Company (LLC) are better options. Choosing one of these entities will ensure that your business is protected in the event of a lawsuit.
For example, you can opt for a two-layer approach to your business structure. That means you can operate your business as a corporation while holding your other business assets (like your establishment) in an LLC. This structure will cause any injured customer to first look to the corporation as a business and then to the LCC as the entity that owns the building. By mixing two entities in one, it will become more difficult for any plaintiff to attack you and your customers. In turn, it will prevent you from unwanted liabilities and financial loss.
2. Separate Business and Personal Finances
Whether you’re just starting your business career or is a veteran for quite a few years now, you might have heard of this one. Separating your business finances from your personal finances is ‘Business 101.’ So, in case you didn’t know this one, you might need to review your resources again. But just in case you need some more light shed on this topic, let’s proceed.
You shouldn’t feel secure and contented even after you’ve set up an entity. This documentation isn’t enough to save you when a serious lawsuit comes your way. To secure your personal wealth, you need to do the following:
- Have and maintain a separate checkbook for all of your business-related transactions.
- Use the company name on all business-related documents.
- Title the property under the company’s name (if necessary).
- Maintain a corporate book.
- Do your yearly minutes.
Just because you established an entity for your business doesn’t mean you cannot cut corners. You should ensure that your business has all the proper documents for any type of entity. At the same time, you also need to do your annual maintenance by paying the state’s required fees. Hold your meetings and keep notes of every important discussion.
With all the necessary documents in place, you can quickly review them and confirm that you comply both internally and with the state. You wouldn’t want to be in a situation where you have to recreate all the paperwork for the past years and lie on your books since you weren’t keeping tabs. Make sure you separate your business and personal finances and record all of your transactions. That way, it will be easier to keep track and recall everything if needed.
3.) Provide Proof of Being a Stand-up Business Owner
One of the easiest and most used methods that creditors use to attack a business’s personal assets is when a particular business act fraudulently or negligently. For example, a business under a lawsuit was able to show that he had a regular procedure for building maintenance, and he did all he could to inform and warn customers about the potentially hazardous areas in the establishment.
This information is what a judge wants to hear when considering whether to go after a business owner’s personal wealth. Make sure you always have proof whenever your business encounters a lawsuit, as it will make the decision in your favor.
4.) Acquire the Right Insurance Plans
Finally, we have insurance – one of the most misunderstood concepts of business. Some starters think that their business is protected after acquiring insurance. However, if you don’t acquire your insurance from a reputable company, then your business might still be in danger. Make sure you do your research and choose the company that’s right for you and your business.
Be wary of shady asset protection companies that advise you to hide your wealth or set up an entity. Both are important for your business, but they are not enough. To complete the entire setup and secure your personal wealth, you need to have insurance in place as well. That’s why insurance should be part of your budget from the very beginning. Having insurance in place will give anyone who is after your money a target to pursue. In addition, insurance will also take care of any incident that occurs within your business.
Also, make sure you get the correct insurance policy. Many businesses claim that their insurance wasn’t able to solve their lawsuit woes. However, the main problem was them not choosing the right insurance policy.
Depending on what type of business you own, you’re going to need very different types of insurances. You can even reach out to two insurance providers – one for the actual business and another one for the establishment. Also, don’t forget to review your insurance yearly. Book an appointment with an insurance agent and ask for advice on what options and policies you may need.
5.) Secure Payments
One way to protect your business from financial loss is by keep track of your incoming and outgoing payments. Doing so will ensure that all the money that comes into your business is protected from any malicious criminals trying to steal them.
You can secure all of the payments coming to your business by utilizing accounting or invoicing software. An invoicing system can prove helpful as it helps you in a lot of ways. With a reliable invoicing software in place, you can create and personalize your invoices, send them securely to your clients, and get paid under a safe and secure payment gateway. Everything is done within the system, making it more enticing to your customers. Most of all, it also ensures that your personal wealth is safe from financial loss.
Sometimes, the financial loss can be inevitable. But with the help of these four effective tips, you can potentially reduce the chances of financial loss to a minimum. Avoid losing money on unwanted lawsuits by equipping yourself and your business with the right strategies for preventing financial loss.
Ossian Rey is a Digital Marketing Consultant at ReliaBills, a software that helps businesses
get paid on time. Loves milk and small chat.