4 Tips to Minimize the Risk of Small Business Failure
Whether you are thinking of opening your own business, in the process of opening your own business, or have a business in place; there are a few things that you should know regarding small business management.
Small businesses have many advantages, some of which include; independence, challenge, and more personal connections with your employees as well as customers. On the other hand, small businesses have some disadvantages as well. One of the most well known disadvantages is the risk of business failure. Statistically, approximately 50-70% of small businesses fail within the first 18 months. However, there are things that you can do to minimize the risk of small business failure:
- Title your business correctly: Choosing a business entity can seem daunting, as there are many options. For instance, a limited liability company offers creditor protection as far as having limited personal liability. A C-Corporation allows you to raise corporate revenue on the public market through the selling of corporate shares. A S-Corporation allows for a pass through taxation scheme, that is – taxation more like a partnership (only once). A partnership or a limited liability partnership is great when you have more than one business partner and each want to have equal access to the business. In any case, it is good to have an Attorney review your business’s purpose and business model to establish which entity is most appropriate for you. If you have already incorporated, it’s still not too late! You can incorporate a new company and move all of your business assets to that company.
- Policies and procedures: Once incorporated, your business should have proper policies and procedures set up for common day-to-day business. That will ensure your business runs much smoother with fewer complications.
- Know the laws: Research all relevant laws pertaining to your business and follow them! That may save you fees and penalties down the line for permit and/or other legal discrepancies.
- Closing or merging a failing business: While it is very disheartening to close a business you have worked so hard to establish, you must be prepared to do it, if necessary. One sign is when there is more business burden than benefit. If closing your business completely isn’t an option, you may search for similar businesses in the area and extend an offer to merge. This oftentimes revives a dying business.
Finally, it is very important to make sure all of your assets are protected in the event of a business failure. Asset Protection encompasses using business entities to protect everything you own from liquid cash to real estate property and even cars.
The following are just a few of the different protective strategies:
- Transfer all of your assets that are currently in your personal name into protective entities: The key to asset protection is to own nothing while controlling everything. Transfer any non-exempt assets out of your name to protective entities such as trusts, limited liability companies, limited partnerships and others.
- Pair Asset Protection with financial planning strategies such as asset exemptions and insurance: State laws protect some personal assets from lawsuits and creditors. Those assets typically include your primary residence; personal items such as furniture and clothing; pensions and retirement funds; and life insurance. Find out the exemptions for your state and convert non-exempt assets, such as cash, into exempt assets, such as life insurance.
- Encumber your assets with liens: What is a $100,000 car worth if you owe $95,000? What is a $1 million house worth if you owe $950,000? Take out lines of credit. Record mortgages against your property. Make all of your assets valueless. Become an unattractive candidate for a lawsuit.
- Utilize International Asset Protection for a heightened level of protection and privacy: Enjoy an even greater degree of privacy and debtor protection with the many additional legal and procedural obstacles that creditors have to face in International jurisdictions.
There are many more strategies that you can utilize aside or in conjunction with the above mentioned. Please visit my website or contact me directly if you would like any more information regarding Asset Protection, Estate Planning, or Small Business Management. Also, I am offering my complimentary books on Asset Protection to anyone who contacts our offices and mentions this article.