Anyone who enters the business world knows that there are always risks. It is necessary for business owners to take risks to build their business and succeed. However, sometimes unexpected risks pose a threat to everything that you have built.
The good news is that business owners can plan for those risks. It is essential for business owners to limit their personal liability to thrive in the business world. Here are some tips for business owners to protect their investments as well as themselves.
Form a limited liability company (LLC)
This type of business formation explains how it protects business owners right in its name. LLCs are separate from the business owner for tax purposes, so business owners who choose to form LLCs limit their financial liability. It also allows business owners to:
- Make tax deductions for business expenses
- Avoid an IRS audit of your finances
- Let your business grow its own credit and finances
Even if your business is already established, it is possible to change the formation. Things constantly change in the business world. And business owners can put that to their advantage and change along with it.
Always keep your assets separate
Most business owners know how important it is to keep their personal finances separate from their business, but it bears repeating. It is natural for business owners to feel like their business is a part of them.
However, separating personal and business finances helps limit liability in both worlds. You make a significant personal investment in your business but separating those finances once the business takes off helps you protect yourself—and vice versa.
Making two separate checking accounts can help distinguish business finances from personal matters.
Keep detailed records of all business matters
It may sound tedious, but it is critical for business owners to maintain organized records. Essentially, business owners should keep all:
- Financial records, including transactions and tax returns
- Employee contracts and agreements
- Records of inspections and maintenance
Dutifully maintaining these records can help limit your financial and legal liability. If there is a dispute with an employee or customer, having these records on hand can be a safeguard.
Consider general liability insurance
Business owners are usually very careful about the money they spend. However, the expense of general liability insurance might be worth it. Liability insurance can help protect both business and personal finances if your business is damaged, or if you face a legal claim.
Small businesses are a significant part of Tennessee's economy. And limiting your liability can help secure your role in building that economy and achieving success in the business world.