Operating a business is very rewarding, but can also lead to financial disaster and the pitfalls are waiting just around the corner. I know you’re not thinking about bankruptcy when you first get excited about creating and building your business empire, but I think it should be foremost in your mind as it will guide you from the very beginning. What I mean by this is the decision to incorporate your business or remain a sole proprietor has a legal impact on the financials. Creating a corporation can shield you personally from any debt obligations of your business, but be sure to keep your business financial separate from your personal finances or you, as the owner, could be responsible.
Many small business owners find themselves in financial trouble when they take on business debts and then make a personal guarantee on that debt. This means that if the business has no money to pay for the debt, then the owner is personally responsible. This is hard to avoid when the business is a start up or has not established itself as credit worthy. Here’s a decent article on establishing business credit, which provides the steps a business owner can take to establish business credit. Having the right business structures and financial records in place with the systems to run your business efficiently and effectively can save you from calling my office down the road when times are tough.
Small business owners that are facing the decision to close their business and walk away, must do so properly or they could wind up facing more financial problems. Having a competent business lawyer and reputable accountant and CPA on your side to guide you through the pitfalls of running a business may seem expensive, but can save you time and money down the road and help you avoid bankruptcy.