Bad things can happen to good entrepreneurs with fantastic ideas. This statement is not meant to burst your bubble – it’s meant to nudge you in the direction of being realistic about your planning efforts long before you’re left with nothing but a soapy residue on the floor because you failed to implement the best practices for protecting your personal assets.
Take the Proper Steps
It’s all too easy to get carried away with the thrill of being your own boss and finally pushing the results of your hard work onto the marketplace. There isn’t any serious entrepreneur that at some time has not put their own money on the line, but the cold, hard fact is you can lose your investment if something goes wrong and your business fails. If you have not taken precautions, you could lose everything you own, destroy your personal credit and be left with no choice but to start over.
Form a corporation. Most people start out as sole proprietors and register with the state as such, but eventually you will need to form a corporation. You’ll need to form a C Corp, an S Corp or a limited liability company (LLC). If you don’t know the difference, do the research or consult with a business attorney. Consider the tax consequences for the various types in incorporations, and most of all your protection from personal liability. Remember this point – you and your business are not one and the same. Your business is a separate entity with its own life and should be managed as such.
Build business credit. The moment you submit your incorporation papers to the state, apply for a federal tax identification number. Once you have that, register with Dun amp; Bradstreet to start building a business credit score based on your business activity. Get your services and vendor accounts transferred into your name. Set up a bank account under your business name and Tax ID number. If you apply for credit cards or lines of credit for business use, put them in your name, not your personal name.
In the beginning you may be asked to provide a personal guarantee for some of your business needs but limit these to as few as possible. Taking these steps will help you remove the personal liability from your business affairs. It is also wise to consider getting a loan when you need financing rather than pulling the cash from your own pocket. If your business does fail, you have not lost all your money. You can learn from your mistakes and start over again – the most successful business people in the world have all experiences flops.
Use Business Credit to Get Financing
If you feel bad about losing someone else’s money, take heart. Business credit lenders are fully aware of the risks they take in lending money to small business start ups. You can use this to your advantage – they will insist on seeing a viable business plan before they fork over the cash you want and with a well.