Protecting Your Assets: Easy ways to Ensure your Money is Kept Secure
What would you say are the biggest risks facing your business? Increasingly strong competition? The possibility of a global financial crash? The threat of global terrorism? Or the ever-present threat of cybercrime?
Some of these ‘risks’ might sound somewhat unlikely or implausible, but even the most optimistic entrepreneurs know that future success is never guaranteed. In order to safeguard future prosperity, proactive planning is absolutely essential, especially when it comes to protecting your assets.
But in spite of a growing list of business threats, sometimes the old ways are the best. More often than not, you can protect your assets with simple habits and age-old strategies.
Pick the Right Business Entity
The first step in protecting your assets is choosing the right business entity. For example, an S corporation or limited liability company provides more protection and will safeguard your money more than a proprietorship.
“There will certainly be multiple tax-planning considerations, but operating as a sole proprietorship definitely isn’t your best choice for asset protection,” says Mark J. Kohler, author of The Tax and Legal Playbook. “As a sole proprietorship, your personal assets are completely exposed to a potential lawsuit.”
Abide by Corporate Principles
From maintaining a separate bank account and checkbook for your business to maintaining records and logging annual meeting minutes, you need to uphold corporate professionalism at all times.
Locking away the entity’s articles of incorporation in your drawer is all well and good, but it won’t save you if and when you’re subject to a lawsuit.
Use Correct Procedure
“One of the easiest ways for creditors to pierce the corporate veil and attack your personal assets is if you act negligently or fraudulently,” says Kohler. This can be avoided by:
-Having lease agreements for rentals
-Putting property and equipment titles in the company name
-Having subcontractor agreements in place
-Never hiring people under the table
-Only using licensed, bonded, and/or insured professionals
-Not relying on emails for terms
Define your Payment Terms
Getting paid and having a healthy cash flow is the lifeblood of every small business. Unfortunately, many invoices are paid late which can have an adverse effect on your business.
When defining your payment terms, make sure to include details like accepted forms of payment (e.g. yes to business checks, no to credit cards) and late-payment penalties. This will go a long way in protecting your assets and keeping money secure.
Purchase the Right Insurance
“Insurance is an important part of your business and should be included in your startup budget,” notes Kohler. “Insurance gives you the ability to take care of an incident in your business and gives plaintiffs another target.”
You should also look into umbrella insurance, which can be personal or business and provides $1-2 million in coverage for just $300-500 a year. Just bear in mind that it doesn’t protect you or your assets in every instance including fraudulent, criminal, reckless, or negligent action.