Entrepreneurs tend to put all their personal assets in their business, especially at the early stages of the startup. Risking much by starting your own business, there are certain things that you can do to protect your personal assets from unexpected situations. Here we talk about the possibility to lose personal assets like your mortgage, resp. home, or other personal policies like retirement plans or insurance.
Of course, the best way to protect your personal assets is the choice of your startup’s type of business entity. The legal responsibilities of the business will depend on the type of entity you have chosen for you company and you should take under consideration the legal system of the country you are situated in. As the rules are different from country to country, you need to make your choice wisely and decide your entity with the best possible way of protecting your personal assets.
Remember, that sole proprietorship is a type of entity in which there is no legal distinction between the personal assets of the owner and the business. This is the most common choice of entity for small businesses, but as you see, the risky one. Here the owner is responsible of all the debts and loss of the company and the profit he receives is a subject of taxation. Other types of suitable entities are Limited liability companies or Corporations, but again, it strictly depends on the country you are situated in.
If you are not sure with your choice of business entity, better consult an attorney.
As an entrepreneur, you have to think about everything in your company and you must be familiar with the financial statements, cash flows, taxation and profit/loss. To avoid any future confusions and unpleasant outcomes, try to maintain clear line between your personal and company spending.
Be careful with documentation. When you close deals or sign loan papers make sure that all the clauses are clear to you and that these documents will have the power to protect your personal assets from eventual harm. Keep all the important documentation organized and don’t avoid consulting an attorney when needed.
You are probably working with an accountant who is responsible of handling your taxes. Make sure that you communicate with your accountant regularly and that you receive from them important information concerning your business. Your accountant will give you all the valuable information about the taxes of income, social security contributions, taxes on workforce, taxes on goods and services and so on – basically everything that you need to know.
The financial culture of an entrepreneur is one of the most important aspects of the future success of the startup. Mostly the business financial culture of a person can be determined by the personal handling of assets and the ability to control the personal finance. If, as a person not as a businessman, you are unable to completely keep track on the important matter of finance, you need to find reliable person to advise you on that in order to protect your company and your personal assets.