When it comes to owning and operating a business, there are a lot of financial factors to consider. Most people spend 11 hours weekly searching for the perfect job, so creating your own might feel freeing. That being said, it can also feel like your personal finances don’t exist now that you own a small business. If you’re worried about your personal finances as a small business owner, here are a few things you can do to protect yourself.
Choose the Right Structure for Your Business
While taxes should absolutely be a deciding factor in which business structure you choose, it’s also important to consider which business structure will offer sufficient protection for your personal finances. The most common business structures to choose from include:
- Sole Proprietorship
- Partnership
- LLC
- Corporation
A sole proprietorship is the default structure when you start a small business. And while it might seem easier to stick with it, there’s no separation between personal and business finances in this type of business. That means you’re personally liable for any financial penalties your business incurs. A partnership is more stable and is preferable if you’re running your business with more than one other person. For LLCs and corporations, there’s more of a limit on personal liability, which means more protection for you and your personal finances. Depending on how financially secure you are and how much you’re willing to risk, you can determine which of these business structures will offer the kind of protection you need for your personal finances.
Follow Financial Rules
Let’s say you decide to run with an LLC structure to provide separation between your business and personal finances. This is a great financial choice if you want to protect yourself, but you have to remember to follow the rules that come with it. For instance, if you make a personal transaction with a business credit card, your protection could disappear and leave you vulnerable to lawsuits and other financial penalties. It’s the same principle as trading stocks — you need to follow the rules or you’re going to have to accept the consequences. The stock index futures close 15 minutes after the stock market closes. Then you’re done for the day. Following the rules and laws set for your business is incredibly important when it comes to protecting your personal and business finances. If you’re not sure what “following the rules” entails, it’s a good idea to speak with a business accountant or a business lawyer who can help.
Invest in the Right Business Insurance
There are a number of insurance policies that you need to have in place depending on what kind of business you’re running. In most cases, it’s important to have general liability coverage and workers’ compensation coverage if you employ more people than yourself. Commercial property insurance is also a good idea if you’re running a brick and mortar location. This allows you to protect your inventory, physical space, and furniture in the event of a natural disaster or fire damage. And if your business involves the use of any kind of commercial vehicles, investing in a good commercial auto insurance plan is a good idea, too. Insurance is critical for protecting your personal finances. If your business is damaged in some way, then your insurance policy will likely cover the expenses so you don’t have to.
Good Security Is a Must
When you want to protect your personal finances, it’s important that you take your business’s physical security into account. Investing in a good security system to protect any physical inventory or expensive equipment is a key step in protecting yourself. A good security system adds another layer of protection on top of your insurance policies that can help you safeguard your finances. Of course, there are other ways you can protect your equipment, as well. Considering that almost 82% of professionals believe surge protection is important to protect expensive equipment, it’s also worth checking on your electrical systems to make sure there’s nothing that could damage the expensive equipment you’re using to conduct your business.
Keeping your personal finances safe while you’re running a business is an important step you need to take if you’re starting a new venture. Make sure you take these steps to protect yourself!