Financial hurdles are common when starting a business. You may know that your business will be successful in the long run—you have a great business plan and have identified your target audience. However, you still need a certain amount of financial investment to establish the business and get it off the ground.
That said, you may be wary about working with investors or taking out business loans. After all, this means accumulating a substantial amount of debt. If the business does not succeed as well as you hoped, are you personally responsible for that debt? Small business owners sometimes worry about losing their retirement savings or family home. Is this a risk you should consider?
Structuring your business properly
This can be a risk, especially if you start a sole proprietorship and take out personal loans to fund the business. It is something to be cautious about.
However, you can structure your business properly to avoid this type of financial obligation. One way to do so is by forming a limited liability company (LLC).
With an LLC, your business itself becomes a separate entity that can take out loans. The business is then responsible for repaying those loans. If the company is unable to pay and must declare bankruptcy, you may need to liquidate business assets to cover the debts.
However, you do not carry personal liability for the business’s debt. Even if the company folds, creditors cannot come after your personal assets, such as your home or retirement savings. They can only seek compensation from the business itself, not from you directly.
Setting up your business
Debt is just one factor to consider when deciding how to structure your new company. Be sure to understand the legal steps necessary to set everything up correctly.