When you start a new business, it is normal to feel overwhelmed by the process. There are business models and different names to consider, as well as different business forms that may offer advantages or challenges depending on how you intend to operate the company.
Many aspiring entrepreneurs will balance maintaining a full-time job with the early stages of developing their businesses. In fact, they may keep early operations rather informal as they test out their concept.
As soon as you start making payments or accepting funds on behalf of the business, there is a crucial step you need to take to protect yourself.
Entrepreneurs typically all need business checking accounts
Having a business bank account may not seem like a necessary step for a business until the company has grown to a stage where it needs its own facilities. However, you blur the legal distinction between the company and you as the individual who owns and operates the business when you choose to use your personal bank account for company expenses.
Even if you later start a limited liability corporation, creditors and others with grounds to take your business to civil court could point to the use of your personal resources as grounds for holding you individually responsible for the business’s financial obligations in the future.
The financial commingling that occurs when you use a personal account for business purposes endangers your personal assets and possibly also your future income.
The early stages of business development are fraught with risk
While you may think that the company won’t create any significant financial risk until it starts operating on a large scale, your liability begins as soon as you open a space to the public, provide professional services, sell a product or hire an employee.
You could face a premises liability claim if someone slips while visiting a store that you own. You can face a product defect claim if a bad batch of products that comes out of your new factory hurts someone or damages their property. The people that you hire to work at your company could also try to take you to court for claims ranging from discrimination to unpaid overtime.
Your personal assets typically have protection from such claims with the right business structure, but commingling could make your personal property vulnerable. Understanding the risks involved when starting a new business and protecting yourself against them will help you minimize the personal risk you take when starting your own company.