Personal asset protection should be a simple decision for any business. However, small business owners have every reason to be more protective of their wealth, as it's often tied up in their business.
While you have to protect your assets with affordable, proven, and simple methods, you don't want to get taken advantage of either. If there's ever a claim or lawsuit, you should fully protect yourself and your business, but many companies just purchase more insurance.
It's better to learn more about today's changing asset protection methods, like purchasing an umbrella insurance policy or getting rid of old paper documents with a local document shredding service. This article discusses some essential asset protection strategies used by most businesses today.
Protecting Your Personal Assets Small Business
If your business is ever held accountable in a claim, there are a few ways you can protect your wealth and assets.
Do Business Under the Right Entity
For those business owners just starting, you may have set up a sole proprietorship, but that doesn't protect your wealth. Your home, car, investments, and other property are completely at risk in a potential lawsuit.
It's best to do business as a corporation or limited liability company, which protects your assets in case of a lawsuit.
Don't Mix Personal Finances with the Business
If you set up the right entity, you still need to maintain a separate account and bookkeeping for your business, using the company name on all documents. The property should also be titled in the company’s name, and you'll need to maintain a corporate book.
You should have documentation showing you pay your annual fees in your state and hold meetings, keeping minutes to ensure that it's documented. This all goes into maintaining your corporate veil to ensure that people see your business assets and not your personal ones.
Businesses Must Buy the Right Insurance
The proper insurance for any business depends on your property type. Do you own a rental property or professional practice? Perhaps it's a retail store or even a food truck. You'll need different types of insurance depending on what kind of stuff you want to protect.
Business owners should look into umbrella insurance to cover personal and business assets, costing just $300 to $500 each year for up to $2 million in coverage. It's worth the expense. However, umbrella insurance doesn't cover fraudulent, criminal, reckless, or negligent actions.
You should also be wary of any company that offers asset protection while suggesting you can avoid insurance and hide your wealth. It's simply not true, and it's likely a scam.
Don't Keep Outdated, Undestroyed Data
Cloud services have connected our world but also easily exposed unsecured databases. Even corporate businesses have dealt with data breaches that cost millions in lawsuits.
Many small businesses don't know what to do with all the old data in their systems, leading to lawsuits if there was ever a data breach. You should always review and destroy irrelevant, old data that may compromise your business. If hiring a secure data destruction company, you should get a written certificate of data destruction that shows the data was properly destroyed.
Don't Cut Corners
You may realize too late that you put your name on a lease agreement when it should have been your company name. You may have emailed back and forth, revealing personal information. It's essential always to use formal contracts and set up official procedures to avoid exposing yourself to any risk.
Final Thoughts: Protecting Your Personal Assets Small Business
Business owners must be careful not to allow any creditors to penetrate their corporate veil. Also, always use licensed, bonded, and insured contractors with your jobs. You don't want to provide any reason for a claim against you.