As a business owner, you’ve probably already realized that starting and running a business is an operation filled with many challenges and risks. Making a profit isn’t enough; you also need to protect your business assets.
In order to do this, you first need to understand the risks you’re protecting your assets against. For instance, your physical and financial assets could be damaged by flood, fire, or other types of natural disasters, or could be subject to crime (become stolen or hacked). On the other hand, your intangible assets, sensitive data, and strategic information are also vulnerable to various threats. You should also protect yourself from lawsuits and claims, such as claims for damages caused by employees, product or professional liability, debts, and mortgage obligations to third parties and vendors, etc.
If not handled properly, these risks can seriously hurt your business. To help you out, we’re offering 8 tips and steps you can take to protect your commercial assets.
1. Document Your Assets and Identify Potential Threats
It’s a good idea to start by documenting your assets and identify potential vulnerabilities and threats against each of those assets. Here are some steps you could take to reduce the risks:
- Keep a record of all your assets;
- Conduct asset checks on a regular basis, including inventory and stock checks;
- Conduct a risk assessment for different types of assets;
- Set up risk management practices;
- Employ protective security measures;
- Restrict access to certain assets like cash and data where appropriate;
- Develop business continuity and contingency plans;
- Conduct reviews of your asset and management practices on a regular basis.
2. Separate Your Business and Personal Assets
One of the most common mistakes business owners make is tying their personal and business assets. This makes all your assets vulnerable and, if something goes wrong, you could end up losing everything.
Making a distinction between your personal and business assets is crucial and the best way to do this is by creating a business entity. Your options include a limited liability company (LLC), a limited partnership, or a corporation.
In addition, there’s a legal term that describes the protections that business owners have from the liabilities of their business – corporate veil. This separation might include putting the property in the name of the company instead of on your own, maintaining separate checkbooks and accounts for business, using your company name in all contracts and other business documents, maintaining corporate logs, maintaining minutes of all meetings, etc.
3. Purchase the Right Type of Insurance
A strong insurance plan is your first line of defense when it comes to asset protection. There are a few types of insurance business owners should take into consideration:
Commercial Property Insurance
Having insurance will allow you to take care of an incident in your business. It can protect almost all of the things you need to do business, including your business premises, property, inventory, equipment, stock, furniture, commercial vehicles, goods in transit, and other items.
Commercial property insurance can help you bounce back from unexpected issues and replace the cost of damaged, stolen, or lost property. The coverage also protects any upgrades or improvements you make to your workspace.
If you’re wondering about the commercial property insurance cost, it’s incredibly variable. For instance, a large manufacturing complex would clearly be more expensive to insure than a small shop. Typically, insurance premiums for commercial properties are set by multiplying the value of the building and its contents by a value that correlates to the level of risk. In general, higher-risk properties cost more to insure, whereas properties with low risk have lower property insurance rates.
In addition to insuring your commercial assets, you can also take out different types of liability insurance. The term liability insurance refers to an insurance policy that provides you with protection against claims resulting from injuries and damage to other people or property. Liability insurance will cover any legal costs and payouts you’d be responsible for if you’re found legally liable.
Umbrella insurance provides protection beyond coverages of other policies. It can provide coverage for property damage, injuries, personal liability situations, and certain lawsuits. It can be personal or business and it’s essential if you want to avoid seizure of assets or wage garnishment when your other policies can’t cover settlements.
This type of insurance costs between $300 and $500 annually for $1 million – $2 million in coverage. However, having this insurance has its own exceptions and won’t cover criminal, fraudulent, negligent, or reckless action.
4. Use Proper Procedures and Contracts
Ideally, you should ensure there are no frauds or loopholes in your procedures. Make sure your business is protected by having proper leasing agreements for your rentals and contracts for every project. Avoid relying on emails when it comes to important agreements and don’t ever pay your employees under the table.
Any discrepancies or gaps in your business history could make you legally liable in the future. So, even if working according to procedure might seem more expensive and time-consuming, it could save your business in the long run.
5. Protect Your Intellectual Property
Your intellectual property needs protection as well. Intellectual property can be a design, invention, brand, or another type of creation, and it can be legally owned. Your IP could include the products and services you provide, the name of your business, any artistic or written materials you create, etc.
Protecting your IP means that other people won’t be able to steal these. Patents, copyright, trademarks, registered designs, and design rights are all examples of IP protection.
6. Create an Asset Protection Trust
Creating an asset protection trust is one of the best things you can do to protect your business. With a carefully considered asset protection trust, any lawsuits and judgments will have hardly any effect on your assets. In addition, creditors won’t be able to touch your assets.
There are two kinds of asset protection trusts: revocable and irrevocable. With a revocable trust, you can keep full control over the assets in the trust and change the trust terms whenever you like. While a revocable trust comes with a number of benefits, it doesn’t offer full asset protection, which means that if there’s a lawsuit against you, you might still have to settle the claim with assets from the trust.
With irrevocable trusts, you don’t have full control over the trust assets and you can’t change the terms, but your assets are much better protected as they’re in the trustee’s name. This means that if there’s a lawsuit, these assets won’t be taken into consideration for settlement. There are two main categories of irrevocable trusts: domestic and foreign asset protection trusts.
Having a domestic trust can be a great way to protect your assets. The only downside is that the assets are still under the jurisdiction of the domestic legal system, i.e. they remain vulnerable in case of a claim or lawsuit. With a foreign asset protection trust, your assets would fall under foreign jurisdiction, which means they won’t be seized in case of a claim or lawsuit. On the flip side, these trusts are exposed to the economic and political risks of the jurisdiction you choose.
7. Hold Your Long-Term Assets in a Super
An SMSF (Self-Managed Superannuation Fund) is an important and effective strategy as part of a successful asset protection plan. It is a private super fund that you get to manage yourself. When you manage your own super fund, you put the money you would normally put in an industry or retail super into your own SMSF.
If you have any assets that you want to set aside and use in the future, holding them in SMSF might be an excellent idea. SMSFs are established for the purpose of building retirement savings, but they can protect your assets under the fund from bankruptcy or litigation.
8. Place Certain Assets in Your Spouse Name
If one of the spouses has a riskier lifestyle or occupation, it might be wise to place some of the assets in the other spouse’s name. In general, the creditors of one spouse can’t claim the assets of the other. The most valuable assets are considered separate property that belongs to the spouse and will be impossible to touch regardless of the situation. These include prenuptial and postnuptial marital property agreements.
A word of caution: by protecting your assets in this way, you could be seriously affecting the division of your assets in the event of a divorce.
Asset protection is about protecting your commercial assets from threats and risks such as claims of creditors, debt obligations, claims for damages, lawsuits, liabilities, etc. You can use legal strategies like partnerships, trusts, and corporations to deter potential claimants or prevent the seizure of assets after a judgment.
The strategies listed here are just a few examples of covers to protect you from asset loss. When your property is secured, you’ll have peace of mind and you’ll be able to focus on growing your business.
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