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Separating your personal assets from your business assets is a critical step when establishing your business. Often, this can be an overlooked aspect, with the belief that nothing adverse will happen. However, in the world of business, risk is always present and being prepared for whatever may come is one of the keys to success.
Protecting your personal assets from liabilities created through your business involves more than just insurance or securing your valuables. Here, we explore the best asset protection strategies that a small business accountant can help you implement.
Asset protection is not a one-time task but a long-term commitment. Understanding the necessity of these strategies and implementing them consistently is crucial for safeguarding your personal and business assets.
Running a business involves inherent risks. Even when business is booming, uncontrollable factors can impact your future. Market changes, economic downturns, or unforeseen global events can reduce revenue and lead to financial struggles. Additionally, accidents or legal issues can pose significant threats.
If personal assets are not separated from business assets, they may be used to cover business liabilities. This means personal financial trouble can follow business difficulties. Implementing asset protection strategies helps shield your personal assets from business risks, so let’s dive in to what they are …
1. Identify Your Assets Clearly
The first step in asset protection is knowing what assets you have. A small business accountant can help identify both business and personal assets, including property, investments, and even your business name.
2. Establish a Family Trust
Setting up a family trust is a common strategy for protecting personal assets. Assets in a trust are owned by the trustee, limiting liability. If your company is the trustee, business and personal assets are separated, protecting personal assets from business debts. However, it's important to note that this does not completely eliminate risk.
When looking at setting this kind of structure up, it’s important you chat to the Attune team – we’re experts in structuring your business to work for your specific situation.
3. Restructure Your Business
Many small businesses start as sole traders, where personal and business assets are intertwined. Transitioning to a company structure creates a separate legal entity for your business. This structure means that liability is borne by the company, not you personally. Directors and shareholders have different levels of liability, which helps protect personal assets.
Once again, for clarity on where liability lies for each party in this scenario, we’re here to help.
4. Ensure Adequate Insurance Coverage
Insurance is essential for protecting assets. Types of insurance to consider include income protection, life insurance, trauma insurance, and total and permanent disablement insurance. These policies can provide financial stability in case of personal or business setbacks. Regular reviews with your Attune Advisory team members can ensure your coverage remains appropriate and cost-effective.
5. Create a Legally-Binding Will
A will is a fundamental form of asset protection. It ensures that your assets are distributed according to your wishes. A testamentary trust within your will can protect assets from personal or business liabilities after your death. This also safeguards against family conflicts and financial mismanagement.
Although we can’t help directly with the set up of your Will, we can work directly with your lawyer or refer you to one of our partners, with whom we work often.
To conclude, implementing these strategies can provide robust protection for your personal assets. They are relatively straightforward and require the right expertise and understanding of your business needs to execute in the most appropriate way for you.
Your first stop should be a call to the Attune Advisory team for advice and help with your structure at each step. If you’d like to discuss the best strategy for you and your business, call Attune on 1300 866 113 or send us an email to start the conversation.
