From a full-scale e-commerce fulfillment company operated out of your basement to a little cottage bakery you do as a side hustle in your free time, there is no shortage of ways people can engage in a home business these days.
With such exciting possibilities, it can be easy for the entrepreneurially-minded to fail to consider the legal and financial exposure engaging in home business can create.
To stay ahead of these types of threats, keep reading as we explore the reasons why your home business needs an asset protection strategy starting today.
Shields Personal Assets from Business Liability
This is about as basic as it comes for home business owners.
Without proper safeguards, debts and claims that the business can’t satisfy through its operations become the responsibility of the business owner themselves. Garnished wages. Frozen bank accounts. Seized real estate.
The proper asset protection strategy–from correct business structure to trust formation–can create a barrier between your business and personal wealth.
Helps You Recover More Quickly From a Setback
No business is too small to avoid an unfortunate twist of fate.
Without the proper asset protection, any major debt, legal claim, or economic downturn may be a financial death knell from which the business cannot recover.
However, with the proper planning, these types of blemishes can be taken in stride, helping the business stay on track in times of turbulence.
Prepares Your Business During Growth
It is a bit ironic. Growth tends to be one of the most significant stressors on a business’s ongoing success.
Surviving growth isn’t just about scaling production effectively. It’s also about handling the increased attention the business will receive as it gains prominence. With an elite asset protection strategy from day one, the business will be better positioned to handle the unique challenges growth brings with it.
Improves Tax Planning
The best asset protection strategies go hand in hand with top-notch legal and tax planning. A good asset protection attorney will help you find ways to shield your wealth from creditors and claims while also putting it in the most favorable tax scenario. This not only helps you keep as much of your business revenue as possible, but it keeps you compliant and audit-ready, avoiding any unnecessary fines or penalties.
Asset Protection for Home Businesses in Action
Now that you understand more about the importance of asset protection for home businesses, let’s take a look at some real-world inspired scenarios. From both sides of the spectrum.
Consider Sarah. She has a home business selling hand-crafted candles. She pedals her wares on Facebook, Etsy, and other online marketplaces. It’s just a small little side hustle. There’s no need for any asset protection, right?
Think again.
A customer claimed that a manufacturing defect in one of Sarah’s candles caused a fire in her house. The customer files a suit against Sarah. They are seeking $75,000 in property damage and emotional distress.
$75,000! Sarah hasn’t even made half that amount in total sales. How is she going to come up with that kind of cash in the event of an unfavorable verdict?
Unfortunately, as a sole proprietorship with no business insurance, all of Sarah’s personal assets are completely exposed. If necessary, her bank accounts may be frozen and her home may get labeled a business-related asset to help satisfy the judgment.
Now let’s take a look at the flip side.
Mark has a home coffee roasting business. He operates a subscription-based model that sends out premium small batch roasts to a select number of customers on a recurring basis.
From day one, Mark handled asset protection with the utmost diligence. He created an LLC to keep business and personal assets separate. He formed an irrevocable trust to shield his home from aggressive creditors. He obtained comprehensive liability insurance for his roasting business, as well as followed strict compliance with all health and safety regulations.
The result?
Two years into his enterprise, a class-action lawsuit was filed when several customers got sick after drinking Mark’s coffee. The issue stemmed from a supplier accidentally delivering improperly stored beans, which led to a batch of coffee getting contaminated with mold.
While unfortunate from all ends, Mark was able to weather the debacle in stride. The plaintiffs could only go after the LLC’s assets, leaving Mark’s personal finances out of their reach. Even though he used his home as headquarters for his business, the DAPT trust made it untouchable by the court. And because he had the right business insurance, the nearly $250,000 in product liability and medical bills of affected customers were almost completely covered, with the business paying a mere pittance from its revenues.
As you can see from the aforementioned scenarios, the correct asset protection strategy for a home business can be the difference between indefinite financial and emotional distress or a mere bump in the road along the company’s journey.
Don’t Wait: Start Building an Asset Protection Plan for Your Home Business Today
As a home business owner, it can be easy to assume that you are “under the radar.” Unfortunately, it takes just one incident before your entrepreneurial dreams can turn into an ongoing financial nightmare. If you run a home business in the Southwest and are looking for additional ways to fortify possible vulnerabilities, contact an Arizona asset protection attorney for a consultation today!
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