There are many benefits of going into business as a partnership. However, there are also certain unique financial threats that come with business partnerships. Here are three of the most common of such threats, and how you can mitigate them.
Not Keeping Records
Lack of record keeping is very dangerous to a business, especially a new business. It is imperative that cost expenditures and earnings are properly recorded. If they are not recorded, you not only will have trouble maintaining your financial stability, but you may also get into trouble with the government for misfiling your taxes. While it may seem tedious, record keeping is the life blood of a company. As far as financial and legal technicalities go, the rule is that if it is not on paper, it never happened, so make sure things happen!
Personal Liability Exposure
The personal financial choices of your partners can threaten your business if one of them is reckless. Make sure that your partners manage their assets appropriately in order to avoid financial disaster. One of the best ways around personal liability exposure is to create an LLC. In an LLC, partners are only liable for what they put into the company. Establishing an LLC is worth the fees to register it to protect your company of liability exposure. LLCs require minimal fees to set up, but your personal assets are not at risk under an LLC.
You can also mitigate the personal risk your business partnership encounters by investing in business insurance and taking the steps to separate your personal finances from your business ones. Talking to a financial professional can help you do this, as well as take other important steps to limit your personal exposure to liability.
Lack of Planning
A business with no solid plan is set up to fail. Businesses cost time and money to maintain, and if there is no clear direction to what you are trying to accomplish, you are just wasting your resources. If business partners are not unified in financial decisions (including goals), you will also waste precious time and resources. Make sure to create a solid plan in the event of both unexpected success and failure of your business. If you don’t have a plan for where your money will be going and coming from, you will almost certainly experience financial disaster.
A lack of record keeping, dangerous personal liability exposure, and failure to plan are three common financial mistakes that threaten business partnerships. Make sure to take the necessary precautions to avoid these financial threats.
Read this now for more great tips: What Every Creative Startup Needs to Stand Out From the Competition