Protecting Your Personal Finances from Business Liabilities

paying cash

Building a company from the ground up is not a walk in the park. While you can apply for a business loan, you will also have to infuse your own money into the business. However, if you want to succeed in any type of business, you should learn never to mix personal and business money. Not only are you putting your own family’s finances at risk when you don’t divide your finances well, but you’re also not letting the business thrive on its terms.

An asset management system software can help you keep track of the hardware and software assets of the company. While it is tempting to let your business cover some of your own digital needs such as your anti-virus and office suite subscription, for example, don’t do it. Never let your business and personal finances get mixed up. It’s for your and the business’ own good.

Record Everything

Keep a record of all transactions—whether personal or business. When you buy something, take note of it on your smartphone. If you’re old school, keep a notebook and write down all the expenses you make in a day. This will allow you to monitor how much you are spending a month.

When it comes to your business, it is even more important to monitor income and expenses. Make sure you are earning more than you are spending. What’s the use of having a business if you spend far too much money than you’re able to make? A record of your assets and liabilities will give you a picture of where your business stands financially.

Set up the Right Entity

A sole proprietorship is the simplest option when starting out. You don’t need to prepare a lot of requirements. There are fewer fees to pay. You’ll get approved in no time. However, this is not the best option when it comes to protecting your personal wealth. In a sole proprietorship, you won’t be able to protect your personal assets. You may be risking your assets unnecessarily to a lawsuit.

You may choose to set up a business entity such as a corporation or a limited liability company. This separates your personal and business assets. If your business comes into trouble, your personal wealth such as investments and properties will be protected. In fact, some entrepreneurs even set up a two-layer approach where the business is a corporation and the building where it is situated is in an LLC.

closeup of a credit card

Open Separate Bank Accounts

Really, who would not open a separate bank account for their business? Your personal bank account should be under your name while your business bank account should be under the corporation’s or LLC’s name. The checkbooks should be separate as well. This makes it easy for the accountant to file your personal taxes and the business’ taxes.

Use the corporation’s or LLC’s name in all official documents. You cannot be negligent in your finances when you own a business. It’s so easy for the government or a potential plaintiff to attack your business because you aren’t keeping your finances in order. Some of the things you have to do to prove the separation of your personal and business assets are paying the required fees, holding meetings, keeping minutes of those meetings, and complying with rules and regulations.

Be a Law-abiding Business Owner

It is easy to get into trouble if you aren’t doing your part as a law-abiding business owner. Be a stand-up entrepreneur by keeping a record of all your business transactions, paying your dues, and fulfilling all your obligations. If you are faced with a legal situation, your history as a good follower of rules will work in your favor. A judge needs to look into your responsible business dealings and operations, so make sure you toe the line.

Buy the Proper Insurance

fall into the trap of insurance salesmen. Look deep into the insurance policies that you plan to buy. Make sure that your business is well-protected. There’s an asset protection feature in some insurance policies. While that may be more expensive, remember that insurance is an integral part of a business. It should be budgeted for from the start.

The insurance keeps your business assets protected. In case of a lawsuit, you can make claims for the parts of your business that are under insurance. You can recuperate lost assets.

Always consult with a licensed attorney when setting up a business. A lawyer will discuss with you the different ways you can protect your business. You should start by keeping a record of all your financial transactions.

Share on

Share on facebook
Share on twitter
Share on linkedin
Share on pinterest
Share on tumblr
Scroll to Top