Let’s get this out of the way upfront …
I could entertain you with personal stories and anecdotes from start-ups who did not protect their personal assets from their business assets but this would simply detract from what you really need to do… because there are no DIY shortcuts:
Get the best lawyer you can afford.
Your lawyer will help you identify your personal risk and advise you how to ring-fence and protect your personal assets.
One caveat though. Find a lawyer who is really interested in you and your business (and who has worked with start-ups and small business). Despite what you may have heard, lawyers will merely treat your business as a quick and not so profitable consultation. You need a lawyer who respects you as a business person and does not see you as a once-off transaction.
Why is protecting your assets so important right now? Well, it’s always important. But right now we are heading into the fifth year of economic hard times. Bankruptcies have increased. The business climate is more uncertain going into 2013. Overall, business risk is higher than it’s ever been.
Now, why should you separate your business assets from your personal assets? Because you stand to lose your personal assets unless they are totally separate from your small business.
Many business owners operate their business as a sole proprietorship. To raise money they stand surety which is simply to allow their personal assets to be confiscated if they cannot pay back the money they owe. Self-employed individuals, small business owners, or professionals such as doctors, dentists, accountants, should take necessary steps to ensure that their personal assets and savings are not at risk.
Business owners form limited liability companies to protect their personal assets from creditors if their business venture fails or they are sued. And this separation of personal and business assets must include separate bank accounts. Even so, it is difficult to not sign sureties. You may avoid taking out a bank loan but what about equipment payments and trade credit? These creditors also want sureties that you will have to avoid (and come up with alternative) unless you want to jeopardise yourself and your family.
Refuse to sign personal guarantees to establish a line of business credit. There are other ways to obtain trade credit.
When you speak to a lawyer discuss other forms of personal and company risk apart from non-payment of loans: product liability, business liability for accidents or fatalities at your shop or office, legal action by employees, malpractice, negligent acts, liabilities from environmental damage and non-payment of suppliers.
If you haven’t got the point by now there’s a strong chance that you will end up worse than a plucked chicken. By all means, dabble in seminars, books and courses on protecting and separating your personal and business assets. But that’s just foreplay. Book an appointment with a lawyer. It might seem like a date with the ugly sister but it could prevent not only having your feathers plucked but being skinned alive and landing up on the dinner plate.