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What can a business owner do to reduce personal liability?

Starting a new business is monumental. You have dedicated enormous amounts of time and energy into your work; it took dedication to get to where you are today.

There are many decisions to be made when starting a company. One crucial aspect an entrepreneur should ensure they understand is liability.

Companies face risk in product development, manufacturing, distribution and operations. All aspects of a business pose some level of risk. If the business owner is a sole proprietor, they face personal liability risk.

Five risk-management strategies

There are actions business owners can take to reduce personal liability. Some liability-reducing strategies include:

  1. Structure your business as a corporation or a limited liability company, not a sole proprietorship.
  2. Purchase insurance coverage. You may want to insure the building, equipment, product liability, workers' compensation, or more.
  3. Do not participate in risky business ventures; conduct a risk analysis. Analyze the business risk and the reward.
  4. Retain accurate records. Implement a reporting system and quality assurance measures.
  5. Keep personal and business finances separate.

Business owners may want to take extra precautionary steps beyond those listed above. For example, a company could face a cybersecurity breach. To best protect their company, an owner may run a cybersecurity risk assessment to identify vulnerability.

Cybersecurity precautionary measures

Cyber attacks are incredibly expensive for small businesses. Last year, the cost of cybercrime hit $2.7 billion. Not only will a cybersecurity breach cost money, it may dissuade customers from conducting business with your company.

Customers may terminate your business relationship if your company had a cybersecurity attack and their data was compromised. Small business owners commonly overlook the possibility of a data breach, but cyber-attacks are a growing threat.

Business owners can reach out to an experienced attorney with questions regarding business formation, liability, security, best practices, contract disputes and more. You do not want to be personally liable in the event of an unfortunate business conundrum.

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