Tips for Entrepreneurs to Protect Their Business and Assets

Building any kind of business is risky, but having the right systems in place can protect your money and ideas before a dispute arises. Don’t wait until it’s too late. Below are some of the easiest ways to reduce your exposure to risk.

1. Keep business and personal finances separate

Maintaining boundaries between your business and personal finances is essential. It makes accounting easier and it eliminates the risk of losing out on tax deductions that can’t be tied to business activity. If you’re ever audited by the IRS or another agency, you’ll want clean financial boundaries.

Keeping separate accounts is easy. When you’re first getting started, you can use two separate checking accounts. Once you get your business license you can get a business checking account. Once this is set up, pay yourself through official avenues like distributions or payroll instead of just moving money between your accounts.

2. Form the right business structure

The business structure you operate with matters more than you might think. For example, a sole proprietorship is considered a business but isn’t a separate legal entity from the owner. If you operate as a sole proprietor, your personal assets are at risk.

Consider at least forming an LLC, but talk to an attorney first before making your decision. Every business entity has pros and cons regarding protection and taxes, and those details can change when you take on more investors or employees.

3. Consider using trusts

When you grow your company, it can become a huge part of your personal estate. You’ll want to protect your wealth as part of your long-term business plan. Talk to an estate lawyer to learn what options you have. For instance, revocable and irrevocable trusts differ in terms of control and asset protection. Whatever you choose, make sure your other documents, like wills and powers of attorney, are all in alignment.

Trusts are especially important if you plan to transfer any of your assets or ownership interests to another party. Estate planning is the only way to ensure your wealth will be transferred to the right person.

4. Get the right insurance policies

There are plenty of insurance policies you can get, but it’s critical to ensure you get the right policies. Most businesses need general liability coverage, but depending on your industry you might need a specialized policy as well. If you operate in a physical location with equipment or have physical inventory, commercial coverage can protect your assets. In any case, it’s worth looking into cyber coverage for protection when losses involve data breaches, ransomware, or digital fraud.

5. Protect your intellectual property

Your intellectual property is your most valuable asset. Intellectual property can include names, logos, content, software, designs, inventions, and proprietary formulas and processes. Always register your IP. Trademarks and patents need documented protection. Although copyrights are automatic upon creation, you’ll need official registration to pursue or defend yourself against claims in court.

Keep an eye out for anyone using your intellectual property without permission. On most platforms you can report the violation and it will be removed.

6. Have strong contracts

Clear, solid, enforceable contracts are essential for protecting your business. Every contract should clearly define all expected deliverables, timelines, and payment requirements. This should cover everything from prices and deposits to refunds and late payments.

Every contract should include a clause that explicitly outlines the rights to your intellectual property, data, confidential information, and any completed materials you may provide the other party with. Never assume the other party will automatically know what they can and can’t do.

Avoid downloading free or paid templates online. The best way to get a strong, enforceable contract is to hire a lawyer to create one for you.

7. Create a business continuity plan

Many entrepreneurs go to great lengths to build their business and then forget to create a business continuity plan. Don’t let this slip through the cracks. You need a way to keep your business running during a disruption. It’s just a matter of time before it happens.

Start by documenting all critical processes and procedures in print so that everything is available offline. Then delegate authority to key people you want to make decisions when you’re not available. Most importantly, determine how you want leadership and ownership to transfer after you retire, become disabled, pass away, or sell the business.

Protect the business you’ve worked hard to build

Entrepreneurship will always involve risk. However, you can limit your exposure by taking the steps outlined in this article to protect your business and the assets you produce.