Things to Think About When You Start a Small Business
Many businesses are born from a single brilliant idea. As that idea is put into motion, a company grows — and in some situations that growth is rapid. Along with this expansion, however, comes the reality of risk. There are approximately 30 million small businesses in the United States, according to the Small Business Administration. The owners of those businesses face many risks. Would you be prepared if a disaster struck? You may initially think you are, but there’s a good chance that additional considerations need to be made to fully protect your business against loss. Regularly assessing potential risks and modifying plans can help you safeguard your business and stay nimble in the face of evolving threats.
Select a business entity carefully
Maybe you started your business with a specific business entity in mind — for example, as a sole proprietorship. But as your business expands, this structure may no longer fit your needs. Ask yourself regularly if your current business entity setup is still relevant, and whether you need to evolve. Thinking through this question will help minimize future risk. Many business structure options exist, such as limited liability corporations, limited liability partnerships, general partnerships, S-corporations and C-corporations. Every option has its unique pros and cons, and whether an option is relevant for your business will depend largely on individual business circumstances. Selecting the right structure allows you to create a wall between your personal assets and your business — something that’s critical when considering potential exposure. Speak with an attorney to discuss the details of your business and which business entity is the best fit.
Hold personal assets carefully
Hold your personal assets strategically to keep them safe. Most business owners hope they’ll never face a lawsuit or other situation that could threaten their assets, but it’s important to consider this potential risk. For example, you might decide to put investments into a trust or keep some assets in the name of a spouse or child. For smaller businesses, it’s often advised to keep separate bank accounts for business and personal expenses.
Keep diligent track of credit
Your personal credit may intersect with your business credit, depending on the selected business structure. This is a good reason to spend time carefully considering the various entity structures and which one is right for your situation. For example, operating your business through a specific type of entity may help keep losses and liabilities away from your personal balance sheet and off your credit report. At times, business loans, including business credit cards, may require a personal guarantee, which means that you’re personally liable for any debt incurred on the account.
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