Choose the right business entity.
There are many considerations, but even if you are the sole owner, operating as a sole proprietor is not the best choice for asset protection. As a sole proprietor, your personal assets are completely exposed to any lawsuit that may be brought against the business. Setting up an entity, such as an S corporation or limited liability company (LLC), is an important first step in the creation of your business and protection of your personal assets.
Keep your corporate veil from being pierced.
Many business owners comingle their personal bank accounts with their business expenses and vice-versa. If the court sees you comingling, they can bring your personal assets into the mix of any creditors or any potential lawsuits against your business. You need to maintain a separate bank account for your business; use the company name on all documents; title any property in the name of the company.
Have good quality contracts.
Find a good business attorney immediately upon starting your business. Protect your assets by having lease agreements for your rentals, placing property and equipment titles in the company name, having subcontractor agreements and contracts on every project, not relying on emails or verbal agreements for terms, and never hiring people to work under the table by paying them in cash. Only use licensed, bonded, and/or insured professionals to help you in your business.
Purchase the right insurance.
Insurance is an important part of your business and should be included in your startup budget. Insurance gives you the ability to take care of an incident in your business. There are many types of insurance to consider depending on the type of business you have.
Build an emergency fund.
Keep at least 3 month’s worth of expenses set aside in a liquid account so you can manage unexpected bills such as medical costs or to repair your home or car. An emergency fund can also tide you over if you lose your job or experience an income cut. Even if you set up auto drafts from your checking account to a savings account. This way you don’t even see the money and you won’t spend it.
Set up retirement accounts.
Get yourself a good financial advisor. Federal law provides asset protection to ERISA-qualified retirement plans, and up to $1 million in assets in an IRA in the event of bankruptcy. This is a great way to sock away money that you will not need immediately. Some states provide even more protection to IRAs. Retirement accounts are excellent vehicles to protect long-term savings, and provide substantial tax benefits, but need to be understood and used with due care.
Create an estate plan.
Find a good estate lawyer. You don’t need a million dollars in your name to have an estate plan. This becomes most important when you become a parent and even more so when you own a business. Besides a will, there are many other important documents such as a living will (which lays out your wishes for things like life support) and health care proxy (which appoints someone to make decisions on your behalf if a medical issue leaves you unable to do so yourself).
Have an technology gameplan.
More and more viruses are hitting databases and the world wide web. Identity theft and confidential data are becoming easier to hack into. Make sure that your technology is protected with firewalls, anti-viral software, and disaster recovery backup. There are many companies that specialize in this.
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