It’s important to consider the way you treat your personal assets when you’re starting a new business. If you do things right, you should be able to separate your personal and business assets, protecting yourself, even if your business goes broke.
It’s always a good idea to speak with a decent commercial lawyer or account before taking any drastic financial management steps, but it’s also a good idea to know what options are available to you before you speak to anyone.
With this in mind, we’ve put together a short list of the top 5 things you can do to protect your personal assets when you’re starting a new business. They include:
- Structure yourself as a company
Structuring your business as a company, rather than as a small business or sole trader, can help protect your personal assets. Companies are seen as separate entities, and only the company’s assets will be at risk if something goes wrong.
A business planner or commercial lawyer will be able to help you decide what the best business structure for your needs is.
- Consider insurance
Most businesses will be able to get some form of public or product liability insurance to reduce the risk of financial ruin if they are sued. Make sure that you do your research to find out if there’s a plan that suits your needs. Sure, insurance might seem expensive at first, but it’s usually worth it.
- Consider placing your assets in someone else’s name
If you do decide to operate as a sole trader or small business then there are still options for you to protect your assets. One of the best things to do is to transfer your major assets – including the family vehicle and home – into someone else’s name.
For many people, this person will be a spouse or long-term partner. Make sure that you’re aware of the legal implications of doing this before you do it though.
- Use a discretionary family trust
You could also set up a family trust to hold your personal assets. Since trusts are seen as individual entities, they can’t be touched even if your business fails.
However, setting up a trust can be hard – you will need professional advice. Speak to someone like a commercial lawyer or a financial manager to work out the best options for your circumstances.
- Consider keeping wealth in superannuation
Like trusts, superannuation accounts cannot be accessed if your business fails. Any wealth held in superannuation accounts are usually untouchable by litigants and creditors, which means that they will be safe under most circumstances.
As you’ve probably realised by now, it’s extremely important to separate your personal assets from your business assets. Failing to do so places you at risk of losing everything if your business fails.
Luckily, there are plenty of things you can do to protect your assets. Speak to your local commercial lawyer or financial planner to find out more about your best options.