Question: I want to start a business when I get out of school, but I’m a little worried about what I read about new businesses. I hear that a lot of small businesses and startups fair early on, and I know that there are a ton of risks that come with starting a company–including liability that could expose me to lawsuits, financial risks that could bankrupt me, and so on.
Here’s what I’d like to ask the experts: assuming I’m going to start a business no matter what, and that I don’t want to hold back in that department, what sort of common-sense steps can I take to protect myself from business-related risks?
Answer: Starting a business can be very exciting, but you are absolutely correct to say that the going can be rough for new businesses, and that many of them don’t make it. Eight out of 10 businesses fail within the first 18 months. and those include plenty of businesses run by smart, dedicated, and passionate people. Unfortunately, starting a business is a pretty risky thing to do no matter how you slice it.
But while your business’ survival is impossible to guarantee, entrepreneurial writers say that there are some ways to insulate your personal finances from your business’ potential misfortunes. To be clear, there’s no legal or morally acceptable way to be sure to make money off of a failed business. But there are ways to minimize your personal losses, so while a failed business will still be a disappointment and poor source of income, it does not have to plunge you into personal debt.
The key is to to set up your business properly, so that it exists as a legal entity that is separate from you. It may make sense to create a limited liability partnership (LLP) or corporation (LLC), for instance, or there may be another type of business structure that makes more sense for your situation. The person to ask, of course, is an attorney. Lawyers tell us that good business attorneys will take into account your particular business along with relevant state and federal laws. They’ll tell you what sorts of insurance you’ll need, too: the insurance management software experts at SimpleSolve, who serve the insurance industry and know just how varied insurance needs can be, tell us that different types of businesses will need different types of coverage. With the help of your attorney and your insurance broker, you should be able to develop the strategy you need.
And remember, this isn’t just about insulating your personal finances and liability from those of your company in the event of failure. It’s also about protecting your accomplishments in the event of success! Every business should be organized well in a legal sense and have its bases covered in terms of insurance. The peace of mind you’ll gain will allow you to focus on the things your company does best.
“I’m convinced that about half of what separates the successful entrepreneurs from the non-successful ones is pure perseverance.” — Steve Jobs