While every entrepreneur strives to make their business a success, there are sometimes circumstances out of your control that limit your abilities. Many businesses opened before the COVID-19 pandemic and never had a chance to grow before the costs of operation became too overwhelming. In the event that your business fails, you can take steps to protect yourself. While you never want to use these steps, it never hurts to have a parachute on your back just in case you need help. Follow these steps to stay protected.
Secure a good debt collection attorney.
If you don’t have any income because your business is closed, then you won’t be able to pay off your creditors who supported your business, to begin with. The debts you may owe range from small business loans to banks to credit card debt from various business accounts. If you miss several payments, debt collectors may start to call, threatening your credit and possibly even your home.
The first thing to do is call a debt collection attorney. They can give you advice for working with the collection agency, consolidating your debt, and finding ways to pay off the people you owe. With their guidance and expertise, you can make a payment plan that won’t feel overwhelming.
Check your insurance policies.
As a business owner, you may have certain insurance policies that can cover you when your venture fails. These forms of insurance are particularly valuable for self-employed individuals who are on their own when it comes to health insurance, retirement savings, and other emergency funds.
For example, income protection insurance is used in the event that you are injured or become too sick to work. While this insurance can be used for fully-employed individuals, contractors also use it in the event that they can’t run their business. Check to see if your insurance can help you at all, as even a few thousand dollars can help keep your bills away from the collection agency.
Separate your personal and professional accounts.
One way to protect yourself if your business fails is to keep a barrier between your professional and personal accounts. For example, a self-employed person might set up a limited liability corporation (LLC) and open a business bank account for their funds. With an LLC, collectors and clients can only go after what the business is worth, not the personal funds you have. As a result, your house, personal savings, and assets related to your family will be protected even if your business debts are sent to the collector.
Liquidate Your Assets
Your business has two types of assets: liquid (meaning cash) and non-liquid, which refers to items that have value like your fleet of vehicles, equipment, and office supplies. If you have already given your liquid assets to your creditors, you may need to start liquidating (selling) the other items you own. Consider working with a professional asset manager to determine the best time to do this.
For example, selling your fleet of vehicles is a timely process. Over time, the value of cars and trucks depreciates, even if these vehicles aren’t used. By selling your company cars sooner rather than later, you may be able to get more for them, making it easy to pay off your creditors.
Liquidating your assets can also reduce your financial burdens. You won’t have to pay your mortgage/rent, car payments, or other monthly costs anymore.
It took you several months (and possibly years) to get your business up and running. It is going to take time to close it down as well. Take steps to make sure you are financially fit through this time and able to pay off creditors to avoid legal action.