Are Your Business Assets Properly Separated?

In my last blog post I discussed the dangers of operating as a Sole Proprietor because there is no separation of your business and personal assets.  To operate in this manner exposes the business owner(s) to maximum risk and is completely unnecessary.  However, there are many business owners who have incorporated yet still face other risks that carry extreme consequences.

Today I want to focus on one of those other common, and unnecessary, practices that many business owners fall into that is equally dangerous.  I see many business owners who do not properly separate their business assets, which can lead to disaster.  Allow me to share a couple of examples of this, as well as the potential repercussions:

Example 1:  If you own the building that your business operates from, and you own the building under the same entity that your business operates out of, you are unnecessarily exposing the building asset.  If someone were to pursue legal action against your business, the building would be one of the assets within that entity that could be lost in the judgment.  All of this could be easily avoided if you took one very simple protective measure.  By setting up a separate LLC to own the building and thus lease it to your operating company, you have separated the asset from your operating business and limited your exposure.

Example 2:  If you own a business that requires the use of expensive equipment, you could be facing serious exposure if you own all of that equipment under the same entity that your business operates from.  Anyone pursuing legal action against your business could pursue the assets of the company, including your equipment, resulting in significant loss to you.  By setting up a separate Leasing Company that owns the equipment and leases it back to your operating company, you ultimately insulate the expensive assets from your operating company and minimize your potential loss.

While these are just 2 examples, there are countless others where business owners (yes, even those who have "properly" incorporated) unknowingly face similar, and significant, exposure within their business.  As you ponder this information, I will leave you with one question:  Does any of this risk apply to you?

As always, please contact Safe Shield with questions... 

Sole Proprietorship = Maximum Risk

I often write about the importance of Corporate Compliance and Corporate Formalities, specifically the risks that business owners face if they do not address these crucial areas regularly.  But what about the thousands upon thousands of Sole Proprietors out there in the business world?  What type of risks do they face?

The answer is simple: Sole Proprietors who operate without the liability protection of a Corporation or LLC face Maximum Risk!  While it's true that the Corporateve Veil provided by a Corporation or LLC requires ongoing maintenance and management in order to remain intact, at least the possibility of protection is there.  For those business owners who operate as Sole Proprietors, never having formed a Corporation or LLC, the possibility of protection is non-existent.

When a business owner operates as a Sole Proprietor, there is no separate entity from the individual business owner.  This means that the business, and its owner, operate as one and the business owner is ultimately liable should anything go wrong in the business.  This means that the business owner's private assets would be exposed in any lawsuits or judgments against the business.

Honestly there is no good reason for a business owner to operate this way and live under the cloud of exposure, day after day after day.  It is possible that some business owners believe that the cost of incorporating their business, or the requirements to maintain it are just too much for them.  I would contend that it is typically much more affordable than the business owner might think, and I can assure you that it is a very small fraction of the price that a business owner would pay should they ever face legal action against them as a Sole Proprietor.

I will be writing about this more frequently in the weeks to come as Safe Shield is kicking off a major Sole Propietor Conversion campaign.  We are committed to spreading the word and alerting business owners who are operating as Sole Proprietors of this unnecessary risk.

As always, if you would like additional information about this please contact Safe Shield.

Anything Can Happen...

We have been experiencing a strange spring here in Minnesota.  We dealt with heavy snowfall throughout April, including two blizzards late in the month.  Cooler temperatures continued well into May before we finally started to realize more typical spring weather, and temperatures.  We even had a couple of severe swings with some of those first nice days, going quickly from warm sunshine to cool and rainy and dropping 40+ degrees in a twenty-four hour time frame.

I bring all of this up because it served as a real reminder of how quickly things can change.  Whether it's related to weather, our health, or our businesses it just makes good sense to be aware of this and strive to be vigilant.  I know how easy it is to be focused on the busyness of life and we forget how quickly things can change and that just about anything can happen.

I received another reminder of this a couple of weeks ago, when I received a call from a client who is currently being sued.  Not only has his business come under fire, but the lawsuit also names him personally as well.  The general contention of the lawsuit is that he has not preserved corporate formalities and he and his business are basically one identity because proper documentation of separateness hasn't been followed.  It is a common move in lawsuits to name both the business, and its shareholders/owners personally so that the opposition can "shake the money tree" and see what falls out.

Fortunately, Safe Shield has been working with this particular business owner for several years and we do indeed have detailed documentation that demonstrates personal and corporate separateness.  At the end of the day, the personal attack against him will end up going out the window.  Unfortunately, too many of these situations have a much different outcome.  Too many business owners do very little to preserve corporate formalities within their business and find out the hard way that they are not properly protected against the risks facing every business owner.

My challenge to you today is to remember that anything can happen at any time.  It makes sense to be mindful of this and plan accordingly...

Spring Cleaning (For Your Corporate Record Book)

It is April 7th and according to the calendar, Spring arrived 2 1/2 weeks ago.  However, here in Central MN we are still waiting for sunshine and 50 degrees and the snow to go away.  While it can be frustrating to wait for mother nature to cooperate, we do know that sooner or later the weather will comply with our wishes.

So with Spring just around the corner, the annual rite of passage known as "Spring Cleaning" is a fairly common theme.  Those of us embracing this idea are most likely preparing to clean the house thoroughly, put away winter clothing, sweep out the garage, and open windows to allow fresh air in. 

While this can be a wonderful way to embrace Spring, I would suggest a slightly different approach for business owners... How about Spring Cleaning for your Corporate Record Book?  While this is a good idea for several reasons, I will focus on just one.  You see, properly maintaining your Corporate Record Book is paramount to observing corporate formalities and keeping your Corporate Veil intact.

Unfortunately, most business owners rarely give their Corporate Record Book a second thought.  In fact, in many cases they don't even know where it is.  To put all of this in perspective, I would like to encourage each of you to answer the following questions:

1)  Do you have a Corporate Record Book?
2)  Do you know where it is?
3)  Does it reside at your registered business address?
4)  Do you hold meetings and properly document business activities?
5)  Do you updated it reguarlary and are you confidant it is complete?

If you are unsure or answered "No" to any of these questions, your business is operating outside of  basic compliance requirements and you could be facing significant risk.  I would recommend that you seek out an assessment by a professional advisor so that these issues can be addressed head on.  If you would like additional information about this process, please contact Safe Shield.

In closing let me say that Spring Cleaning is a wonderful tradition, one that should be expanded to include your business and your Corporate Record Book...

Are You Really Prepared?

As I sit in my nice warm house and watch the snow storm continue to rage on, I am thankful that we had plenty of advance notice that this storm was coming.  We made sure that we stocked up on all of the "necessities" and watched the weather closely.  When we got up this morning, we checked the weather closely once again before making the decision to play it safe and stay home from church.  Because we had advance warning, we took the appropriate measures to be as prepared as possible.

The security that I am feeling during the storm has me pondering a question: What happens when we don't have "advance notice" of a pending storm... are we still prepared?  Over the years I have come into contact with many business owners who faced substantial hardship within their business because they were not prepared for the storms that hit them.  In many cases, the hardships brought significant financial loss and in almost every case the problems could have been avoided had the business owner simply been prepared. 

The Corporate or LLC structure is meant to provide security and protection from the threat of storms, much like my house has provided protection for me from the elements of this storm.  However, there are a number of things that I must do on a regular basis to maintain my home so that it remains sturdy and all of its protective features remain intact.  I think it is fair to assume that most homeowners understand this concept and take the appropriate actions, but how many business owners view their business in the same light?

I wrote an article that was recently published by New Business Minnesota and I went to great lengths within the article to demonstrate that the LLC or Corporate Veil can be well maintained and sturdy, or it can be rendered flimsy and worthless due to neglect.  You see most business owners rarely invest the time and effort to address ongoing Corporate and LLC Formalities within their business and are ultimately facing serious exposure whenever the storm does come their way (and it most likely will come at some point).

I will be presenting at a New Business Minnesota workshop later this week and will talk about this in greater detail.  If you would like a copy of the article, please contact Safe Shield and we will provide you with an electronic copy.  In the meantime, please give this matter some additional thought and make the commitment to be prepared for future storms.  I am confident that you will be glad you did.

Beware Of Scams

In a recent meeting with a new client prospect, the business owner mentioned an "official notice" that he had received from the State of Minnesota.  The notice was a call to action and required that he fill out a form and submit it by mail, along with a check for services.  He was all set to do just that when he was referred to me by a friend of his who just happens to be a Safe Shield client.  Fortunately, he contacted us before taking any action and I believe that he is extremely glad he did.

You see, he was very surprised to learn that the State of Minnesota does not provide the services in question, nor do they send out solicitations.  The company that had sent him the notice is merely one of many companies who use less than ethical tactics to try to make money.  They realize that if they make their soliciations appear official, many people will just assume that it is a legitimate notification from the government.

We have a number of clients who report receiving these types of notices each year and I am always appreciative when they contact us to verify whether or not they are legitimate, prior to taking any action.  Typically these notices will imply that they are from the Secretary of State's office, or in some extreme cases even the Federal Government.  As I always tell people, the Secretary of State's office does not send out solicitations.

While this may not be new information to some of you, it is still a good reminder.  As many of you already know, unethical business practices including credit fraud and identity theft have never posed a greater threat to business owners than they do today.  There are many people out there who would gladly take the money or business that you have worked hard for.

As 2012 comes to an end and we all gear up for 2013, I want to encourage you to be vigilant in operating your businesses.  Look to your trusted advisors to provide you with proper guidance and, as always, please feel free to contact Safe Shield if you receive suspicious notifications or other questions arise.  We would love to hear from you!

Are You Trusting Good Information?

I was visiting with a client recently and she shared some very useful information with me, based on her own experiences.  The issue that we discussed involved our children and it was such a blessing for me to have the opportunity to gather relevant information from someone who had been through similar situations, particularly since it was someone whom I trust and respect.

This conversation got me thinking about all of the resources that we have available to us today as business people.  With the advancement of technology and social media, there is litterally an endless supply of information that a person can access with very little effort.  For example, LinkedIn is a great tool to connect with other business professionals and also provides a wonderful forum for information sharing.  However, is there any kind of guarantee that the information we are receiving is good information?

Several months ago I happened to be on LinkedIn and saw that a prospective entrepreneur was searching for resources regarding starting a business and entity formation.  One of the first responses that I read was from someone who had been in that same position a few months prior.  This person went on to say that there were not a lot of good resources available so she had "figured it out on her own and found that the process was really rather simple".  She went on to lay out the steps that needed to be taken to complete the process.  However, not only was her list grossly inadequate, but it was completely inaccurate as well.

My guess is that the person asking the question probably liked the response initially, because it was "simple" and that is usually the path of least resistance.  You see, the person sharing the bad information had obviously received bad information and simply passed it on to others.  The problem is that she made herself sound like an expert and to someone possessing less knowledge than she did (and looking for an easy answer), it became pretty obvious to see the matter going in the wrong direction.

Fortunately I have expertise in that area and I responded by citing MN statutory requirements that directly contradicted the "expert steps" that the first responder had laid out.  Because everything I had stated was 100% verifiable, it didn't take long for the person asking the question to recognize that there is a lot of information out there and not all of it is good.  She realized the importance of sifting through the information and that establishing a proper vetting process was paramount to the success of her future business.

The point that I would like to make is that we have never had greater access to information than we do today, and that can be a wonderful thing.  However, it is just as easy to share bad information as it is to share good information so it is crucial for us to make sure that the informatinon we gather is the right information.

I hope this article will be useful to you as you continue to operate your business.  As always, please contact me with any questions that you might have.