Unexpected Capabilities. Unmatched Service.

How Business Owners Can Keep Their Personal Finances Safe

A small business owner is responsible for protecting a great many things – employees, trade secrets and the company itself. But business owners also have to keep an eye out for themselves.

Last week, we talked about protecting your small business’ finances, which is important to the success and sustainability of your company. However, as a small business owner, you also need to take special precautions to protect your personal finances.

The following are a few tips that will help you keep any business risks from bleeding into your personal finances.

3 Tips for Protecting Your Personal Finances

1. Start at the Beginning: How you actually structure your company has a big say in how protected you’ll be should a worst-case scenario unfold and your business starts to crumble.

Certain business structures – including sole proprietorships and general partners – can leave you liable to things such as lawsuits and repaying corporate debts. However, starting out as certain entities can offer you a little protection.

Shareholders in S corporations, for instance, don’t have to fear for their personal assets should the company suffer some sort of major loss – they’re only liable for their own investment in the company. C corporations, while taxed differently, offer similar protection. Limited liability companies – which differ from corporations in a few ways, including a more flexible management structure – also keep owners’ personal assets safe in the event of a lawsuit and other events.

2. Personal Finances Should Be Separate From, Ahead Of, Business Finances: In a vacuum, this is an easy rule to follow … but one that becomes much more tempting to break in the event of some sort of hardship.

Establish business-specific financial accounts, such as checking accounts and credit cards. Never pay your personal bills with the corporate card, because you could open yourself up to IRS scrutiny. Documentation should be rigid, down to the regular use of your corporate name on corporate documents, and your personal name on personal documents. Don’t mix the two.

You also want to avoid keeping the business afloat using your own personal funds. This kind of behavior might seem noble, but if you can’t keep a roof over your head, your business isn’t doing you much good.

One way to avoid this scenario is by not overstretching when it comes time to expand. Yes, you have to spend money to make money, but you can go too far by overleveraging yourself personally on what ultimately is not a guaranteed return.

3. Get Insured: Even if you’ve put your company within a corporate structure that will protect your assets, a catastrophic event can still put your business at risk, which ultimately puts your paycheck, and thus your financial solvency, at risk. So one of the keys to protecting your business is also one of the keys to protecting yourself: insurance.

Businesses face risk from a number of fronts. Property insurance can protect you from things such as fires, floods and even theft. However, that won’t cover lost income while you’re recovering from those kinds of calamity; business interruption insurance will. And while manufacturers spend months, even years, safety-testing products, product liability insurance is a must in the rare event a defective product results in damages.

If you’re a business owner and think you’re exposed to personal risk, or even if you’re simply not sure where you stand, McManamon & Co. offers a number of business consulting services that includes determining your risks and finding ways to defray them.

Protect your business, and protect yourself. Call McManamon & Co. at 440.892.9088 or contact us online to set up the safeguards that will shield your finances from the worst.

Tags:  , , , | Posted in McManamon & Co., small business