5 ways your small business accountant can help with asset protection

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Business Structures
Partner & Consultant
January 28, 2023
minute read

We discuss the best strategies a business owner can implement to protect their personal assets

Separating your personal assets from business assets is a crucial step when building your business.

But often, it can be easy to put it to the back of your mind. You may think that nothing’s going to happen to you—or worse, forget about it altogether.

However, when it comes to business there’s always an element of risk.

Protecting your personal assets against liability created through your business is more than simply taking out insurance, or putting your valuables under lock and key. In this article, we take a look at the best asset protection strategies that your small business accountant can help you implement.

Asset protection isn’t a once-and-done affair—it’s a long term commitment. Get in touch with Liston Newton Advisory today to discuss the best asset protection strategies that suit your business, and personal, needs.

Even in the best of times, running a business is faced with a measure of risk. While your business may be prospering, the harsh truth is that you can’t control what happens in the future.

As we’ve discussed before, that risk is often out of your control. Clients may finish using your services, an investment may experience a drop in value, or a global pandemic may impact businesses all over the world. In turn, these risks can result in businesses seeing a reduction in revenue, and eventually struggle to pay creditors.

Alternatively, an unforeseen accident may occur which sees your business facing a long, drawn-out lawsuit.

In these circumstances, if your personal assets aren’t separated and protected from your business assets, then they can be used to cover any business liability. This means that if your business is in trouble, you’re in trouble too.

Asset protection strategies help to keep your personal assets sheltered from business risk. They’re not overly complicated, either; it’s just a matter of getting the right advice and support in deploying them. Here are five strategies that your small business accountant can help you implement, to provide the best possible protection for your assets.

1. Get your small business accountant to clarify your assets

The first step to protecting your assets is knowing exactly what assets you actually have to protect. Your small business accountant can help you identify all your assets. This includes those held by your business, and your personal ones.

This is more than just your family home, vehicles, or an art collection. It includes things like land, any business property, and even your business name.

2. Establish a family trust to protect your assets

Setting up a family trust is a common strategy to protect your personal assets.

When a family trust holds assets, these assets are owned by the trustee, who is then liable for any action taken against the trust. To limit liability for your personal assets, you can make the trustee your company. This means that should any financial issues occur within your business, only the assets held within the trust and the business can be used as a way to pay creditors.

The beneficiaries of the trust, likely yourself and your family, don’t have ownership of any of the assets held within. Therefore you’re notionally removed from some risk, and the flow-on effect is that your personal assets can’t be accessed to pay off any debt incurred by the trust. Your personal assets are effectively screened from liability.

However, be aware that while this may screen you from liability, the risk can never be 100% removed.

On a positive note though, holding assets within a family trust means that you can distribute the income they generate in a more tax-effective manner.

3. Restructure your business under a company structure

Many small businesses are started by a single person, as a sole trader, and they grow from there. But as a sole trader, your personal and business assets are all effectively mixed together. There’s no separation, and you shoulder the full level of liability.

Another way to protect your personal assets from business risk is to create a company structure for your business.

A company is its own independent legal entity, run by company directors, and owned by its shareholders. This means that if any financial difficulties occur within the business, all liability is borne by the company entity and its directors. So as a company director, you may be liable for unpaid debt or company loss.

Company directors can face issues, such as debts incurred by the company under certain circumstances.

Shareholders are only liable for debts up to the amount of any unpaid shares—which is usually zero.

So by restructuring your business under a company structure, your small business accountant can then ensure that your personal and business assets are kept separate. This way only assets held by the company face any level of risk.

4. Ensure you have the right insurances in place

Insurance is there for a reason: to cover yourself and your family should anything happen to any one of you, your belongings, or any assets.

It sounds obvious, but taking out insurance can go a big way towards protecting your assets. These types of insurances exist to ensure any outstanding asset debt is taken care of, if something happens that means you’re no longer able to pay them.

They include:

  • Income protection insurance;
  • Life insurance;
  • Trauma insurance; and
  • Total and permanent disablement insurance.

These all work to ensure you’ll still receive income if you’re no longer able to work, and can provide for your family if you’re out of the picture.

Having the right insurance cover can be an investment in your peace of mind, so speak with your small business accountant to ensure you have the right insurances in place. Both for yourself, and your business.

Your accountant can also review your insurances regularly, to ensure they continue to match your needs. They can advise on how best to pay your insurance, too. They may be able to help you access discounts for things like setting up online payments, or paying an annual lump sum rather than quarterly payments.

5. Create a clear and legally-binding will

Creating a will can be seen as the ultimate form of asset protection. When undertaken correctly, it puts plans in place for the eventuality that you’re no longer around. It helps to clearly identify which of your personal and business assets go to which beneficiary, and how you want your wealth distributed.

Your small business accountant can help you set up a testamentary trust within your will

This is a form of trust that comes into effect when you pass on. Similar to a family trust, under a testamentary trust, any assets held within the trust are owned by the trust. They’re not owned by you, your family, or your business.

This means that should any personal or business liability occur then any debt or payments cannot be chased through the trust’s assets.

It also protects your assets in the event of inter-family conflict, such as when dealing with divorce, or with family members who are known to be bad with money.

The final word

As you can see, there are a number of clear strategies your accountant can implement for you to ensure optimal protection for your assets.

They’re not elaborate, either. It just takes the right knowledge and expertise to undertake them correctly, and a thorough understanding of your business needs and requirements.

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