As a small business owner, you put your blood, sweat, and tears into bringing your dreams to life. You’re passionate about what you’ve built, and it’s that same passion that drives your business’ success. However, as wonderful as it is to be invested in your business, you need financial boundaries to protect your family’s assets.
Sole proprietorship of a business comes with unlimited liability, meaning that there is no distinction between your personal assets and those of your business. Without the appropriate financial boundaries in place, that business you love could set you up for financial ruin if something were to go wrong.
Here are a few ways that small business owners can protect themselves financially.
1. Have Liability Insurance
Though it can be a considerable expense, liability insurance will protect your business from an event, such as a lawsuit, that could drain the business’ assets as well as your own. Depending on the type of business, you may need different types of liability insurance. Here are a few of the most common types:
General Liability Insurance: This type of insurance protects you from paying damages or injuries to third parties as well as lawsuits.
Product Liability Insurance: In the event that your product causes harm or injury, this insurance protects your business.
Cyber Liability Insurance: If you collect, store, or transfer customer data digitally, your business is financially vulnerable to a data breach. This insurance protects you from the devastating effects of your systems being hacked.
2. Form an LLC
Under a sole proprietorship, you and your business assets are one, without distinction. So, as we mentioned, if you found yourself in a situation where your business’ assets were in jeopardy, the same would go for your personal assets. You can form a boundary between your personal assets and those of your business by forming a Limited Liability Corporation (LLC). This is an effective way to protect yourself and your business without much extra expense.
3. Hire Independent Contractors
When appropriate, working with independent contractors instead of employees can reduce your business’ liability. The laws surrounding this vary state by state and by the nature of your business. However, in most states and for most businesses, your business is not liable for acts of negligence or damages caused by a contractor.
4. Title Your Home as “Tenancy by Entirety”
Like most business and legal matters, this varies by state, but if you are married, you can change your home’s title to “tenancy by entirety.” This change is inexpensive and protects the home from being included in the proceedings of a lawsuit, should you or your spouse be sued.
5. Consult Your Financial Advisor
As a small business owner, trying to manage your personal and business finances at the same time is a great deal of work and the lines can easily become blurred. To protect your assets, consider reaching out to your financial advisor. They can design a plan that not only protects both your personal finances and business, but they can also help you reach your financial goals for each.
Ready to reach your highest goals and work toward the life of your dreams? Contact us today to schedule your first appointment.
