Even with an excellent business idea and a well-defined business plan, you may face significant hurdles getting your new company off the ground. Often, new business owners are looking for funding. They need money upfront to invest in the business, knowing that it will eventually begin generating income, and they can pay back those loans.
But one thing holding you back could be your fear of the ramifications if you can’t pay off the loans. Say that the business isn’t as lucrative as you hoped, and you default on the loans. You know that this puts the business in jeopardy, but would you also be risking your personal assets? Would you be in danger of losing retirement accounts or investments, for example, or should you worry about losing your family home or vehicle?
Choosing the right business structure
This can be a risk in some situations. For example, many people decide to start a side business in their own name, but they simply start a sole proprietorship. This means that the loans are still in their name, and they are personally responsible for the money that they’ve borrowed.
But an alternative could be to set up a limited liability company (LLC). With this business structure, only the company is responsible for the loans that it takes out in its name. If the business folds, you may have to use the company’s assets— including financial assets or tangible assets that need to be liquidated—to pay back as much of the loan as possible. But since you are not personally responsible, you don’t have to worry about things like personal financial accounts, real estate and the like.
As such, officially structuring your business correctly at the beginning can massively reduce your risk. Be sure you know what legal options you have and what steps to take.