When you have a great business idea, that doesn’t always mean you can start a successful company. You may need to talk to a lawyer, crunch numbers with an accountant or investigate local competition in your business niche.
You may feel pressure to make purchases or financial commitments as you develop your business concept. It is common to explore logo design, invest in a prototype or hire a professional that will make you competitive.
Before you do anything that involves financial transactions, you should decide on a business form and start the company. You need to have separate financial accounts for your business and will likely need formal business paperwork to get an account. If you don’t separate your finances from the earliest stages, creating the business may give you very few protections at all.
Using personal resources for business purposes is commingling
Obviously, when you want to start a business as an individual, you have to invest your own resources in the company. However, that doesn’t mean you should use your personal bank account for those early transactions.
If you do, you commingle personal assets with business assets and leave your personal possessions and accounts vulnerable in the future. If your business fails and you file for bankruptcy, creditors might come after your personal property. The same could be true of a civil lawsuit against your business due to employment law claims or defective products.
If the company doesn’t have assets to pay claimants, they can come after your personal property. Avoiding commingling is crucial to having a degree of separation between yourself and the business in the future.
Do you know what form your business needs?
Partnerships, limited liability corporations (LLCs) and even multiple forms of corporations are options. To pick a business form, you need to think about your current needs and also your long-term goals for the company. The right form is much different for a single-person accountancy service than for a vehicle dealership.
You may have found the perfect talents or prototype designer well before you have thought about the technical details of your company. Exploring different business models and formats can help you start a company on the right foot so that you aren’t always worried about your personal risks.