Asset Protection Planning: Protecting Your Finances as a Business Owner

The entrepreneurial spirit and motivation have seen small startups grow into multibillion-dollar companies like Uber and Airbnb, among many others, but as businesses become immensely successful, they tend to become more vulnerable to a host of issues – financial losses, damaging lawsuits, personal liability claims, and intellectual property theft.

In this article, CS&P asset protection consultants share their insights regarding the best preventive and asset protection strategies that businesses can implement to promote stability, safety, and security.

Give Some Thought to How You Structure Your Business Entity

In a sole proprietorship business, there may not be any separation of personal and business assets, and almost every activity is undertaken in the owner’s name. The flip side is that the company’s debts and liabilities also land in the owner’s lap. So start a business as a limited liability company (LLC) or an S Corp that limits personal liability, provides better legal protection, and bestows tax advantages. Down the road, it becomes easier for you to aim higher and become a C Corp that’ll bring in more investors, many securities and investments options, and attract venture capital funding.

Merely incorporating the company isn’t the ultimate panacea for all issues. Ensure you follow preventive and protective best business practices.

  • Never sign a document, agreement, or contract in your personal capacity but sign only on behalf of the company using your title and mentioning the full name of the company ending with an “Inc.” or “Corp.”
  • All corporate activities and meetings should meticulously follow company bylaws because you can’t afford to give the opposition even the slightest opportunity to target you.
  • As the owner or promoter or primary investor, you have to separate your personal banking accounts and assets from business investments, assets, properties.
  • Open a separate checking account and make arrangements to channel your income (salary and allowances) through the account to make it easier to prepare and file your tax return separately.
  • Never blur the line separating personal transactions from corporate decisions that are business oriented. If you break this rule, you invite lawsuits that pierce the corporate veil, holding you personally liable for corporate debts.

Explore Legal and Insurance Options to Protect Yourself From the Liability Lawsuits

A liability suit, a damage compensation claim, or a personal injury lawsuit can severely compromise businesses and business owners, and it should be the insurance company that foots the bill, not you.

One way out is to incorporate the company, fixing individual responsibility on hired employees conducting various company operations. The next step is to move all high-value assets in the name of the company so that as an owner you hold minimum personal property.

Preferably, your furnished residential accommodation should be one that is leased to you by the company. Do not personalize customer contacts, vendor agreements, and service contracts so that every activity is accounted for by the company, and nothing should land at your doorstep.

Explore insurance options that cover all possible liability suits – both internal (employee injury) liability and external claims. Take insurance cover that is very specific regarding the kind of risk that is insured, and avoid umbrella policies that short-change you when it comes to settling claims. Ensure that the insurance cover reflects the correct valuation of the commercial property that is insured.

Bring Your Information Governance Protocols in Line With GDPR Standards

As an industry, a business, or as a service provider, you’re maintaining a vast database of information that is changing dynamically and propelling business operations. This data is an asset that is more valuable than any physical property. You can’t afford to lose sensitive information to malicious third parties like hackers. This makes data management and data security your top priority. The whole gamut of employee information, customer data, client mailing lists, corporate emails, and intellectual property need substantial shielding.  

The General Data Protection Regulation or GDPR is the new legislation effective in EU countries that makes it mandatory for businesses to initiate steps to protect data security and ensure customer privacy. American companies having exposure to EU markets are now racing to comply with the regulation. With cyber threats ever on the increase, compliance with international data protection protocols like the GDPR is the only way forward.

Frame a Disaster Recovery Protocol That Restores Assets and Retrieves Information

If a hurricane, fire or any man-made catastrophe wipes out the business, and you haven’t backed up your data or kept an inventory of assets, your losses increase manifold. You become powerless in recouping asset and income losses. Decide the insurance cover that is most appropriate to your business venture, and maintain your inventory and data backups on the cloud or offsite so you can retrieve information and file insurance claims faster.

Frame a Disaster Recovery Plan (DRP) in consultation with employees, making sure that each person knows how to handle and survive a crisis scenario. Ideally, a technology solution should be in place to restore company operations in the event of server downtime. The telecommunications backup infrastructure should reactivate customer contact based on archived information. The whole aim of DRP is to lay down actionable strategies to ensure business continuity following a catastrophic disruption in operations. Contingency planning is an excellent way of protecting your data, your customers, and your business.  

Creatively Explore How You Handle Company Funding and Inbound Cash

As your operations scale, you’ll need loads of money to fuel each operating cycle, and borrowing frequently using banks and credit cards could expose you to mounting debt risk. Try unlocking the equity in all those invoices where you haven’t received payment – the accounts receivables.

A factoring service will lend you 60 to 80 percent (of the amount due to you) on handing over your receivables. You repay the factoring service as and when the dues are realized, paying 2 to 3 percent commission on the invoice value. Effectively, you’re leveraging your own resource and increasing your operating capital without taking on fresh debt.

Most companies report that around 40 percent of inward bound money flows as cash from customers that haven’t taken to plastic. When you’re handling and managing cash, the risks are much higher compared to cloud-based net banking services.

Cash management demands a multilayered security blanket. Employees have to be screened to weed out undesirables. Employee and vendor access to finances must be thoroughly vetted. A full-fledged financial audit must be an annual affair. You’ll need an expert financial advisor and a knowledgeable tax consultant to ensure you’re operating in full compliance with company bylaws, government regulations, and tax rules.    

Conclusion

As a successful entrepreneur, you’re devoting considerable time to improving the quality of your product and services, and you’ll be working hard on building the image of your brand in the eyes of your clients. As your business grows, your financial stability will depend a lot on how effectively you leverage liability protection, how you secure data, and how smartly you fund operations as you safeguard cash reserves. Consider these tips as a 5-pronged strategy that’ll go a long way in fortifying your citadel when you go all out to win the bigger business battles that you’ll be fighting.  

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