Many entrepreneurs take a risk when they start a business. Entrepreneurship requires long hours, as well as money. It’s fairly common for entrepreneurs to tap their own assets in order to make their business dreams come true.
As an entrepreneur, though, it’s important not to tie your personal assets too closely to your business. It’s better to set up a separate business, since that can provide you with a measure of protection in the event that you are sued. One of the best examples, straight from the headlines, is the recent bankruptcy of Robert Kiyosaki’s company Rich Global LLC.
One of Robert Kiyosaki’s Companies is Bankrupt, but He Isn’t
Realize that Kiyosaki himself hasn’t declared bankruptcy. In fact, his personal wealth won’t even be dented by the current judgment. Mainly because he was savvy enough to set up several different businesses that are separate from his personal wealth.
The business that he declared bankruptcy for, Rich Global LLC, had relatively few assets. It’s a company that he used to do business with a promoter, and when the promoter sued to recover unpaid fees (and won), Rich Global declared bankruptcy. There was just enough money in the business to keep the plaintiff from going after Kiyosaki’s personal assets, or deciding to go after a different business. However, the promoter probably won’t get the total amount of the judgment because of the bankruptcy. But it will get something.
And most of Kiyosaki’s actual assets will remain safe.
What Entrepreneurs Can Learn from Kiyosaki
The main lesson, of course, is pay people for the services they provide for you. But another lesson is just as important: Keep your business assets separate from your personal assets. That way, if someone sues your company, you are more likely to keep your personal assets. While a disgruntled partner or customer can still go after your personal assets in some cases, you have greater protection.
Kiyosaki was even smart enough to set up various businesses for different purposes. That way, problems with one business are less likely to affect the rest of the businesses. While you might not need to set up several businesses, at the very least you should make sure that you set up a business entity that you can use in your dealings.
Remember to keep things completely separate as you proceed. That line between personal and business is very important if you don’t want to end up with your personal wealth easily subject to lawsuits and other judgments. This is one of the reasons that many entrepreneurs decide to set up a LLC, or some sort of corporation. Leaving your business as a sole proprietorship could possibly leave you open to situations in which your personal assets could be considered in judgments against your business activities.
It’s worth it to get a little help from a professional who can help you determine the best way to protect your personal assets as you start a new business. Part of entrepreneurship is making sure that you limit your risks where you can, especially when it comes to reducing the risk to your personal assets.
Tom Drake writes for Financial Highway and MapleMoney. Whenever he’s not working on his online endeavors, he’s either doing his “real job” as a financial analyst or spending time with his two boys.