How to Protect your Family, from your Business

Are you a business owner (or the significant other of a business owner)?

Most business owners are optimistic folks who look forward to a bright future, even under adversity. I suppose they need to have this remarkable ability given the risks they take and the challenges they face.

That said, we have found there are 5 Key risks that all business owners need to be aware of and take action on to protect themselves and their families, from their business.

This simple concept, is often quickly dismissed with the question, 'Why would I ever need to protect myself from my business?"

If you don't know the answer to this question, you definitely need to read this article.

Read in this article

The Sapience Rules for Small Business Owners on how to protect yourself and your family, from your business.

As a business owner, there are plenty of things you need to manage and two of the most important of these are;

• liabilities,and
• the risk to your assets.

Rule #1 Always Protect Your Family, from your business

Business owners are liable for the actions of the business – how far that liability extends is different for each business structure.

Rule #2 Understand different levels of personal liability come with different business structures.

As a business owner, there are plenty of things you need to manage, and two of the most important of these are liabilities and the risk to your assets, individual and jointly owned. Different business structures all have different levels of owner risk, so understanding your liability and how that affects your family is key to knowing what you are protecting and why.

Sole Traders and their businesses are seen as the one entity with no separation between business and personal responsibility.

• As a result, Sole Traders carry unlimited personal liability.
• This means if you are sued, your personal liability is unlimited and this puts at risk all your personal assets, including any assets jointly owned with another person, such as a family home.

Partnerships usually have unlimited personal liability, and joint and several unlimited liability for all the actions (and inactions) of their Business Partner too.

• As a result, Partnerships that do not have a documented Partnership Agreement in place, are seen as doubled-high-risk ventures with all business and personal\assets of every partner at risk and joint liability for all criminal, fraudulent and negligent actions too.
• Without a Partnership Agreement in place, all an individual Partner's assets are at risk from the business.

Company structures are separate legal entities, where directors and shareholders are generally protected from being personally liable for the company's debts. As a result, there is often said to be a ‘firewall’ between the personal assets and liability of the directors and the company’s actions.

• This protection lifts as soon as Directors give a personal guarantee in favour of a company creditor and becomes personally liable.
• Additionally, insolvent trading, Director's Penalty Notices (DPN) and outstanding tax obligations are considered personal liabilities regardless.

Rule #3 Protect your Assets, from your business (including jointly-owned assets).

A family business has unique risks which are dangerous when the majority of a family’s wealth and assets are tied up in that business. Knowing your own level of risk exposure is key to better managing them.

Pro Tip: This video will help explain how to best categorise the risks you face.

Rule #4: Understand why it’s important to have some savings/investments outside your business and liability reach.

Have some savings outside your business structure

• superannuation is an investment usually bankruptcy-shielded
• insurance saving and investment bonds are non-estate assets and equally shielded from the reach of bankruptcy trustees.

You can learn more about non-estate assets here.

Rule #5 Understand which mixed assets are in use and the effect upon your business and family of losing them.

Many families rely on a family business as their main source of income. When this is the case, and the family business endures a difficult month, family income decreases. Many may also share business assets as mixed-use assets (a car to pick the kids up from school, mobile phone plans and related shared-use items.) It’s fair to say family life and business life are more and more intertwined and core risks to a business can be significant risks to the family of the business owner too.

Where to Now?

It's time to develop a way of Family First Business Thinking and protect your family from the structural risks of your particular business.

Drew Browne is a specialty Financial Risk Advisor working with Small Business Owners & their Families, Dual Income Professional Couples, and diverse families. He's an award-winning writer, speaker, financial adviser and business strategy mentor. His business Sapience Financial Group is committed to using business solutions for good in the community. In 2015 he was certified as a B Corp., and in 2017 was recognised in the inaugural Australian National Businesses of Tomorrow Awards. Today he advises Small Business Owners and their families, on how to protect themselves, from their businesses.  He writes for successful Small Business Owners and Industry publications. You can read his Modern Small Business Leadership Blog here. You can connect with him on LinkedIn.  Any information provided is general advice only and we have not considered your personal circumstances. Before making any decision on the basis of this advice you should consider if the advice is appropriate for you based on your particular circumstance.