When prospective business owners finally launch their idea into reality, one of the biggest risks to those who struggle to gather initial investment funds or enter into high-risk financing arrangements is the danger of business woes negatively affecting personal assets. While there are countless resources available to assist business owners letting losses impinge on their personal savings, few give much advice on how personal circumstances can end up hurting your business.

While business-to-personal finance risks are certainly a primary concern that should factor into what sort of business you start, it’s also important to protect yourself from outside liability should disaster strike. Here are three things you can do to assure your business remains safe during times of personal duress:

1. Explore the protection options available to you

Official business protections vary from state to state. If you’re serious about starting your own business and want to ensure it can withstand an outside threat, start by reviewing your state’s laws to gauge what safeguards are already in place for you. Don’t assume that simply by putting it into a limited liability company (LLC), you are automatically awarded protections. The same should be said for limited partnerships (LP’s) as well. Both of these titles carry different definitions depending on where you live.

Some states offer LLC Charging Order Protection, a relatively wide net of protection that covers your business’ property, equipment, and other items inside the LLC or LP. This stronger protection blocks creditors from foreclosing on the business in order to get legal access to the property held within an LLC.

There are also a number of states offering domestic asset protection trusts. These ensure more long-term protections for a wider range of assets including homes, businesses, stock accounts, and rental properties. This creates a strong barrier between your company and potential creditors who come knocking.

2. Draw up a financial statement of your company’s assets.

Depending on the complexity of your business, creating a complete list of everything you own under your company’s name may require the help of a CPA.  Either way, this list should be a straightforward “master record” of your assets and their values you can change as time goes by. Mutual funds, stock, office supplies, rented items, rented property, are all things that should be listed and priced accordingly.

For the items that secure debts such as loans or mortgages, be sure these are not only listed and accounted for, but updated regularly if the rates are fluid. Use this list to find out if any equity in your assets are exposed.

3. Compare quotes for adequate insurance coverage

Never jump into buying umbrella insurance coverage without adequate research. Prices can range considerably, but prepare for costs to float somewhere in the area of $300 – $500 per year for about 1 million dollars of total coverage. Keep in mind these plans are always separate from your home, car, and business insurance.

Keep in mind this kind of coverage will mostly likely only cover accidents, be aware that fraud, reckless behavior and other situations showing intent or negligence won’t fall under these plans. Because of this, it’s wise to put together a wide-ranging asset protection plan rather than simply rely on insurance to foot the bill.

Before moving forward with any of these methods, it’s important to establish an effective and organized bookkeeping system that can include all potential liabilities if disaster does unfortunately strike.

If you’re a business owner and need to establish a bookkeeping system, give us a call. Our outsourced accounting and CFO services experts can help you navigate these waters.

Photo Credit: Mexicanwave via Compfight cc

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