As a small business owner, there’s no end to the balls you have to juggle. With so many moving parts in play, it’s easy to get overwhelmed and let something as dull-sounding as asset protection take a back seat. You’ll get to it later. It’s not urgent…
Until it is. That’s the thing about protecting your business, you don’t see the benefits until there’s a very real and distinct threat.
Maybe you were lucky or planned exceedingly well and haven’t had to guarantee anything personally. Maybe you structured the separation of your assets from your finances into the make-up of your business from the start. If you did, great! But if you didn’t don’t panic! The first step to protecting your assets is recognising there are weakness (more on that in a moment). So here’s how to take a breath, strengthen your defenses, and make sure your assets stay ‘Your’ assets.
Asset protection can be complicated. It covers and interlinks with a huge range of legal systems including company law, the law of trusts and property, tax and estate planning laws, and bankruptcy and insolvency laws. So let’s preface this by saying that the number one thing you can do to protect your assets is talk to your accountant. When you’ve done that, you and your accountant will be able to get down to the real tough stuff, likely utilising the following three tactics.
In order to manage the risk to your assets, you need to plan for what might happen. You can’t start building walls whilst you’re under siege, it’s way too late. Besides which, legally it doesn’t work. When a claim is made, your complete financial timeline is taken into account and any asset transferred after that point is still taken as part of the claim and can be confiscated.
Planning with your accountant requires a lot of things, but the most important thing is transparency. Don’t try to hide things or squirrel them away. If your accountant doesn’t find them, it’s best to assume that someone else’s lawyer can and will. So not only is it not worth it, being anything less than transparent doesn’t actually help you.
Your accountant can’t help you build walls when they don’t know what they’re meant to be helping you protect.
Not sure if you’ve ever heard the saying about putting all your eggs in one basket, but if you have, you might remember it’s a good way to end up with a lot of broken eggs – ie: no eggs. The same goes for your assets. The thing about threats to your business is they wouldn’t be threats if you could always see them coming.
The truth is no amount of planning is foolproof so you need to plan for fools. If something does happen and it looks like you’re going to take a hit, don’t let it be a hit to everything you have. Smart distribution of your assets is one of the best defenses you have against threats to your business, and it’s well worth a conversation with your accountant to see what your options are.
Asset protection might exist at the intersection of many different parts of the law, but that doesn’t mean you need to create an obstacle course of protection. It’s not about manipulating the system, it’s about recognising that the system is designed to work for you. Don’t plan to mislead creditors, it’s waste of time and money. Plan to protect yourself instead.
But do I really need asset protection if…?
Let me stop you right there, yes. There are a lot of prevalent and frankly dangerous myths about who asset protection is for floating around in the business ether. Let’s run through what you might’ve heard (And why it’s wrong. Sorry!)
Asset protection is only for those who have lots of assets and valuables.
This is definitely not right. If anything, small businesses with fewer assets are far more in need of protection. Big businesses are less likely to be guaranteed personally, so there is less risk to the actual owners’ livelihoods. Plus, they can afford to fight claims for longer than small businesses giving their assets an extra layer of protection small businesses don’t have access to. For small business owners, one bad law suit can destroy both your business and your personal assets if you’re not properly protected.
Asset protection is only for business owners.
Nope, wrong again. Business owners are not the only ones who can get sued, if anything, as a private citizen you’re open to a range of threats that businesses don’t have to face. So whilst you won’t be in quite as complicated a situation, it’s still good to make sure your assets are safe and well protected. One of the best things you can do there, is to make sure your personal insurances are in good order. Think things like income protection, trauma insurance and life insurance. There are no guarantees in life, but knowing that when yours or your partner’s livelihood is taken away for a period of time, your ability to continue paying your mortgage and keep a roof over your head doesn’t go with it.
I have a propriety limited company, so I’m safe.
You know what, it’s not really a misconception. You are, to a degree, safe (er). But it’s only one side, the business, that’s covered – as the company is a legal entity in its own right and can only be sued for its assets. BUT… your personal assets, might not be as safe as you think – especially if you and your spouse are both company directors, have given director’s guarantees on loans to the bank or other lenders, or you owe tax to the ATO or money for employee entitlements. Then bank/ATO/etc parties will have access to whatever assets are required to meet your legal obligations.
Alright, tactics planned, misconceptions dispelled, time to tackle step one in protecting your assets, talking to your accountant. If you’d like to have a chat about how best to shore up your assets best defences, we’d love it if you got in touch. You can give us a call on 02 6023 1700 or drop us a note via the form below.
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If you've got financial or business questions, or you just want to run something by us, we'd be delighted to really talk to you – in person, over the phone - call us on 02 6023 1700 - or you can use the form below and we'll get back to you.