Running a business can be stressful. The day-to-day operations of a small business may be different from industry to industry, but one thing that won’t change is how you manage your financial security. For small sole proprietorships, the line between personal and business finances may tend to be gray. This can pose several problems, especially at tax time. Knowing how to protect the financial security of your business will help you keep it operating successfully and prevent you from being in situations like the one involving Silicon Valley Bank.
Decide on the Appropriate Business Structure
The right business structure is important. If you aren’t sure which one is right for you, talking to a financial advisor or tax professional will help. A sole proprietorship may work well for some, but others may need the added protection that an LLC offers. A limited liability corporation keeps your personal assets from being seized if your business goes under or is found liable in a lawsuit and forced to pay damages.
Know the Process and Play By the Rules
Different business structures have different rules you need to follow when it comes to protecting the financial security of your business. Using a business account to purchase personal items or taking money from the business without going through the proper channels can have serious consequences. The “corporate veil” that would normally offer protection would no longer be in place. Part of the reason Silicon Valley Bank got into so much trouble was that it didn’t always play by the rules.
Have Sufficient Insurance
Insurance is your primary line of defense against financial loss. Without it, your business will pay for any damages or liability charges. If you don’t have sufficient property damage, liability, or business owners’ insurance, you may have to sell part of the assets of the business or the business itself to cover the financial losses. A quality business owner’s policy will give you peace of mind and provide your business with the protection it needs to be financially secure.
Multiple Revenue Streams
Having more than one way to make money is essential if you are an entrepreneur. Small business owners who only rely on one revenue streams will lose their financial security if things get slow. Diversifying your revenue streams ensures that you have money coming in from different areas. If one or two of them get slow, you still have revenue options to fall back on. Managing your revenue streams is a great way to add layers to your financial security.
Establish an Emergency Fund
Establishing an emergency fund ensures that you will have working capital close at hand if you ever need it. It’s best to start thinking about an emergency fund when you don’t really need it. Applying for a working capital loan when your money is rolling in will allow you to build a cushion in case things slow down or you face a business interruption. It’s better to have a working capital loan in place before you actually need the money.
Keep Personal and Business Assets Separate
When it comes to financial bookkeeping, you need to make sure that all of your personal assets and business assets are kept separate. This includes physical assets, cash, and any financial holdings you may have for yourself or your business. Keeping them separate is the best way to keep the corporate veil of protection in place for both your business and yourself. Financial security is what everyone strives for. If you own a business, maintaining that financial security can be a challenge when times get difficult and your revenue streams slow down. Knowing how to protect your business with a working capital loan, as well as a few other security measures will ensure your small business is able to weather any type of financial storm, including financial disasters like the one that was caused by Silicon Valley Bank.