As an entrepreneur, you might already be aware that owning a business comes with a lot of risks, such as:
- Addressing red tape
- Inconsistent cash flow
- Market expansion
- Security issues
- Fraudulent business partner
- Deceitful employees
All of these threats could lead to financial loss or even business closure. And if this happens, your company isn’t the only one affected. Legal authorities can take action against your personal assets as well. These instances are possible, which is why you have to protect both your business and personal assets.
Importance Of Asset Protection
Asset protection is more than just protecting your business assets from lawsuits. It also involves securing your company from creditors and other entities. They may want to claim a piece of the pie after a judgment is made against you.
The main goal is to protect your personal assets from creditors, lawsuits, and other liabilities. This ensures that all your hard work doesn’t go down the drain due to a business concern. But how do you do it anyway? Read on to find out!
5 Effective Strategies For Asset Protection
The following includes a list of asset protection tactics:
- Reconsider Your Corporate Structure
If you’re the sole proprietor, you may wonder whether you can change your corporate structure. You might have heard about a limited liability company (LLC) or an S corporation. But what are these exactly?
An LLC is a form of business that protects the personal assets of its owners from the liabilities of the company itself. For instance, if your business is sued, institutions aren’t legally allowed to go after your personal property. If you plan to register your business, you may ask yourself, ‘Should I be my own registered agent for an LLC?’ The answer is yes.
On the other hand, an S corporation is a structure wherein shareholders share all profits and losses. Just like the LLC, it provides the owners with limited liability protection. However, this is only available for small businesses with few shareholders.
These options both have pros and cons, so make sure to do your research.
- Invest In Insurance
Asset Protection Insurance covers your personal assets if you become a defendant in a lawsuit. This applies if your vehicle gets involved in a car crash or a robber steals it. The amount of coverage is calculated based on the price you paid for it and its current worth in the market.
Another insurance you can consider getting is Property Insurance. It acts as your safety net if your house gets damaged due to a natural disaster like a fire, earthquake, or flood. This type of insurance policy would cover the cost of repair. This way, you won’t have to borrow money from your pocket to fix it again.
- Create An Estate Plan
Estate planning is organizing your assets, debts, and other property for future distribution at death. This includes the creation of wills and the implementation of powers of attorney and living wills. In addition, it may consist of trusts and other techniques to reduce taxes.
The goal is to minimize conflict among heirs while maximizing control over assets. If you die, this protects your beneficiaries from seizure of property or probate court proceedings. In short, they won’t have to pay out-of-pocket expenses to take what they rightfully own. Most importantly, this eliminates any family disputes due to inheritance.
- Keep Accurate Records Of Financial Transactions
Bookkeeping is essential in both your business and personal finances. It records every transaction, including your expenses and receivables. However, accurate records lead to better operational decisions or hefty fines. In worse cases, it results in bad debt and reputational damage, making your assets vulnerable to seizure.
Thus, ensuring the accuracy of your financial transactions is a must. Consider hiring an accountant if you don’t have one yet. They know how to monitor all your expenditures and collectibles to prepare for tax season. This ensures you all have the necessary Internal Revenue Service (IRS) documentation.
- Be Careful With Phishing Scams
Assets aren’t only limited to cars and real estate properties. They may also be in digital documents, photos, written content, and social media and e-mail accounts. Did you know that they’re also vulnerable to security issues? A single cyber threat could erase your information, or worse; cybercriminals might use it for financial gain. If you’re not careful enough, you’ll ruin your credibility.
A way to combat this is by refraining from giving out confidential information. This includes your mother’s maiden name, bank account number, and passwords. If possible, take cybersecurity measures like using encryption on all sensitive files. This protects your files from unauthorized access since users need a decryption key.
If you can, consider enabling multi-factor authentication (MFA). If hackers try to access your accounts, they must input a one-time PIN that the system sends to your phone or e-mail. The cybercriminal must also guess the answer to your secret question to gain access. Lastly, they’ll have to verify your identity through biometrics. And since they don’t have these, they wouldn’t get into your accounts. This way, your digital assets won’t get compromised.
Summing It Up
Asset protection is essential as it helps you safeguard your assets from creditors, predators, and litigants. It’s about preserving your family’s future in case of your death and investing in insurance coverage for umbrella protection. Most importantly, it involves modifying your business structure into an LLC or S corporation. This ensures that the authorities can’t go after your business if anything goes wrong with your personal assets.