As a small business owner, you have a wide array of responsibilities. You must make decisions each and every day that have an impact on your business. These decisions you make to grow your business can also impact your personal life through the natural risks of owning a small business. If you’re not careful, you may be held personally accountable for your business’s debts and other obligations.
If your small business is located in or near Cincinnati, let Orcutt & Co. handle your financials. We have the experience and expertise to work with a variety of business structures. We can help you with your monthly accounting, bookkeeping, payroll, and tax planning needs.
Tips to Reduce Personal Risks of Owning a Small Business
Below, we will explain the top tips to reduce your personal liability as a small business owner.
Pay attention to your business structure
The first way to reduce your personal liability is with your business structure. When starting a small business, consider structuring it as an LLC or an S-corp.
An LLC is a structure that protects the owners and the business itself from various liabilities. The requirements of an LLC are less stringent than a corporation. However, it is important to note that an LLC does not protect you from all types of liability, but does offer a lot of security. This business structure removes the fear of being held personally liable for legal issues arising in the operation of your business.
An S-corporation protects shareholders from personal responsibility with a few exceptions. There are certain requirements that must be met and guidelines that must be followed. This is an ideal structure for small business owners that don’t wish to form an LLC.
Obtain general liability insurance
Another way that you can limit personal liability is to purchase general liability insurance for your business. This will protect you financially if your employees or products/services cause property damage or bodily injury. The cost of general liability insurance varies depending on the policy and coverage limits you choose. You may also want to ask your insurance provider about a personal liability umbrella policy. This will offer additional coverage in case the liability issue exceeds your general liability coverage.
Keep personal and business assets separate
As a business owner, you may feel like it’s easier to combine everything and just use one account for all personal and business expenses. However, if you do this, you are at risk of facing personal liability for issues and debts associated with your business. Therefore, make sure to keep everything completely separate.
Keep track of business activities
You can show that your small business is a completely separate legal entity by keeping track of all of your business activities. This includes any transactions that your business is involved in, minutes from business meetings, signed business contracts, and more. If you have paperwork, it can significantly reduce your personal liability.
You Can Limit Your Personal Liability
There are lots of reasons that you may be held personally liable for injuries and other legal issues associated with your business. However, if you establish and operate your business as a completely separate legal entity, you can significantly reduce your personal liability. If you have questions regarding your financials, let Orcutt and Co. help. We work with a variety of business structures and can keep track of your monthly accounting and bookkeeping needs, as well as payroll and tax planning.