The words “asset protection” may not excite you, but they certainly should interest you.
No SME owner wants to start their new business enterprise believing they may fail. However, things can and do sometimes go wrong and by not having protections in place you risk compounding a business failure into catastrophic personal losses.
Asset protection doesn’t have to be complicated. It can take as little as a 15-minute chat with your accountant or asset protection specialist to establish systems which best suit your business and personal circumstances to keep you and your family’s assets safe.
This can best be demonstrated by the stories of two small-business owners I know; one had some asset protection in place while the other didn’t. Both business owners went through the same stress and heartache of losing their business and going bankrupt, but one walked away from the disappointment still owning a house while the other didn’t.
Bob and Mary were both directors in their small business which was established as a company with both acting as directors and therefore both giving personal guarantees for debts. All assets and trading were done in one entity, no security was taken over the business and the house was in joint names.
Tom and Jane owned a similar business and had also established it as a company entity. Only Tom was a director and the house was held in Jane’s name.
When both businesses sadly failed, Bob and Mary lost everything because the business, house, and assets were all in both names and they both had offered Directors guarantees. Tom and Jane lost their business but kept their house because it had been in one name with one spouse’s ownership shielding the house from creditors.
The two small differences between the two – the house being in one name and only one acting as a director – was enough to have an enormous impact on the final outcome.
Now let’s be honest, SME owners have enough on their hands without trying to become specialists in asset protection. That’s what accountants are for. All accountants will have some basic knowledge on asset protection and can offer guidance on what works best for you as an individual.
Going broke is devastating, but asset protection is a vehicle to ensure you don’t lose the lot. It can be as simple as establishing a Trust, removing yourself or spouse as a company director or taking security over the business.
I call this setting yourself up to go broke; it’s not a preferred outcome but it does mitigate against such an event.
So how covered are you in the horrible case you go broke?
Michael Renton, CEO, Xact Accounting