For many small business owners, their personal finances and business finances are completely intertwined. Although this may not seem like a problem when you are first starting out, , in the long run, there can be negative repercussions for keeping your finances combined in this way. In the event that something goes wrong, you can lose everything if your personal assets aren't separated from your business. The following tips can help you avoid this problem.
Choose the Right Business Entity
All too often, new business owners legally set up their business as a sole proprietorship, often because this seems like the easiest option. Unfortunately, this leaves your personal assets open to loss through the business. For most newer small businesses, a limited liability corporation (LLC) is a better choice simply because it legally separates your personal assets from your business assets. In the event that your business is sued or goes bankrupt, personal assets like your home or retirement savings will be safe from these legal proceedings. There are several other entity options that are also available to small business owners, so it makes sense to speak with a lawyer before deciding between them.
Protect Against Liability
Lawsuits and settlements can be a normal cost of doing business, but they can also drive your business under if you aren't prepared for them. First and foremost, you need to keep in contact with a lawyer who can help you when the need arises, perhaps even keeping someone on retainer if possible. This way you have legal advice at your fingertips if a lawsuit is threatened. Second, you need appropriate insurance to help offset the costs of any lawsuits. At a bare minimum, most small business owners need worker's compensation, product liability, and property coverage for their business. Every business has differing liability concerns, so speaking with an accountant and a lawyer is necessary to ensure that you have all your bases covered.
Don't Mingle Assets
Mixing your personal life in with your business is a bad idea when it comes to money. For example, don't treat the business as a bank account -- instead, pay yourself a regular salary so that the business assets are legally transferred to your personal assets. Also, don't float business expenses from your personal account unless you have formally transferred personal assets into the business. Keeping things separate not only protects you on a personal level, but it also helps guard against any legal or tax implications later.
For more help with setting up your business or making sure you are protected, contact a small business lawyer in your area.