The 4 Most Important Ways for Entrepreneurs to Mitigate Personal Financial Risk - Deepstash
The 4 Most Important Ways for Entrepreneurs to Mitigate Personal Financial Risk

The 4 Most Important Ways for Entrepreneurs to Mitigate Personal Financial Risk

Curated from: inc.com

Ideas, facts & insights covering these topics:

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Establish an LLC (limited liability company) or a Corporation

Establish an LLC (limited liability company) or a Corporation

If you start a sole proprietorship or a partnership, you could be held personally liable for almost anything related to the business; that means you will be responsible for paying any business-related debts you incur and you could be sued by your clients, employees, etc.

If you start an LLC, you'll have some degree of liability protection. These business structures allow your business to be treated as if it were an individual of its own. The business itself can take out a loan, incurred debt, and be the target of costly lawsuits - reducing your personal exposure to these financial risks.

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Never Take Out Personal Loans

New business owners are tempted to fund the business themselves, even if they don't have the savings to cover those expenses. They take out personal loans, max out their credit cards, or incur debt in other ways to get the money they need.

A few minor expenses here and there won't hurt you, but for the most part, you should never take out personal loans. Instead, work with investors, tap into your savings, or rely on your business credit to take out loans in the business's name.

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Focus On Independent Saving Strategies

  • Budgeting and frugality: Be smart with your budgeting and try to remain as frugal as possible.
  • An emergency fund: Set aside at least enough money to cover a few months of personal expenses.
  • Tax-advantaged investment vehicles: With any extra money, use tax advantage investment vehicles to maximize your savings and plan for retirement. 

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Diversify Your Income Streams

Try to diversify your income streams, both inside the business and on a personal level.

  • Within the business, that could mean selling multiple different types of products and services, monetizing your content or applications in different ways, or even targeting different audiences.
  • The same principle applies to you as an individual. You can diversify your income streams by investing in dividend-paying stocks, investing in real estate, starting independent blogs or websites, or even picking up side gigs.

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