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How Small Business Owners Can Protect Personal Savings While Navigating Difficult Times

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As a small business owner, it’s essential to separate your personal and business finances. Otherwise, the wealth you’ve worked so hard to accumulate could be at risk.

Yet it’s easy to allow personal assets to become vulnerable when your business faces difficult times. According to the most recent U.S. Census Bureau’s Annual Survey of Entrepreneurs, 65% of entrepreneurs in the United States use personal or family savings to fund small businesses.[i]

Over the years, your business might face many challenges from inflation and supply chain issues to economic downturns and weather-related disasters. Therefore, it’s important to have a plan that allows your business the best opportunity to weather such storms without putting your personal savings or assets at risk.

Treat your business like a separate entity

One way to avoid putting your personal savings on the line when your business faces uncertain times is to resolve early on to treat your business like a separate entity. Even if you have everything separated on paper, you may need to go a step further and create two different personas in your mind—your business self and your personal self.

Your business persona will need to resolve to use a business bank account and business credit card for company expenses. The business can then pay you a salary that you deposit into your personal bank account. This process may feel like extra work, but when small business owners blur the boundary between business and personal finances, problems can arise. A good solution is to work with a bank that understands your full financial picture and can help manage both aspects of your financial future.

Furthermore, it’s wise to resolve not to take risks with your personal finances—at least not without discussing the situation with a trusted advisor first. There might be alternative solutions that you haven’t considered before, such as seeking additional business funding or perhaps selling a portion of your business to outside investors. Protecting your business certainly matters, but you don’t want to allow that objective to derail personal financial goals like saving for a prosperous retirement or generational wealth building.

Avoid sole proprietorship and general partnerships

When you choose a business entity, it’s critical to make a selection that protects personal assets. Otherwise, your personal wealth could be vulnerable if business disputes and lawsuits arise in the future.

There are several types of entities to choose from when you establish a business—each with its own set of pros and cons. With sole proprietorships and general partnerships in particular, there’s no distinction between the business and its owners. Therefore, you could leave personal finances exposed in the event of a business lawsuit.

A limited partner, by comparison, typically provides protection from personal liability (such as the need to pay off business debts with personal assets). Instead, you might risk losing your investment in the business in certain scenarios.

Note: Every situation is different. Consider speaking with an attorney for individual advice.

Consider business entities with limited liability protections

When you choose a business entity with limited liability protection, it may offer you more personal protection (depending on the situation). A limited partnership, for example, limits the personal liability of some partners, but not necessarily all of them. Becoming an S corporation, C corporation, or a limited liability company (LLC), by comparison, should provide you with limited liability protections.

Take an LLC, for example. An LLC should protect one partner from a lawsuit that an outside party brings against another partner in the business. And if your LLC has to file for bankruptcy due to financial difficulties, you shouldn’t have to worry about losing your personal home, vehicles, savings, and other personal assets.

According to the U.S. Small Business Administration, corporations offer the most robust personal liability protections.[ii]If you opt to go the route of establishing your business as a corporation, you have two choices—S corporation or C corporation. The most meaningful difference between these two options is how the business pays its taxes.

  • S Corporations: Partners in S corporations report revenue as personal income. Yet your business will need to meet IRS criteria to file as an S corp in the first place.
  • C Corporations: With a C corporation, the business pays taxes on income and partners pay taxes when they receive dividends.

There are key benefits and drawbacks to each type of structure above. Consult with a tax professional to figure out the best fit for your business.

Get the right kind of insurance for your business

Another way to protect your personal savings as a small business owner is to ensure that you have the right type of business insurance in place. Businesses sometimes face unfortunate circumstances, such as lawsuits, natural disasters, third-party claims, and more. In such scenarios, adequate business insurance could help to absorb costs so that you don’t have to put up personal funds to protect your company.

Of course, different businesses will require different types of insurance. Your state may have its own insurance requirements that your company needs to satisfy as well.

Here are some examples of the types of business insurance coverage you might need:

  • General liability
  • Professional liability
  • Workers' compensation
  • Employment practices liability
  • Commercial property
  • Business income
  • Commercial umbrella

Worker’s compensation insurance, for example, may be something that your state requires you to carry if your business has employees. If your business has equipment or vehicles, you may need separate liability and perhaps comprehensive policies to cover those assets and their operators. Finally, if your small business collects personal identifiable information (aka P.I.I.) like addresses, Social Security numbers, and dates of birth from customers, you may want to consider data breach insurance for added protection.

Maintain distinct business records

Setting up an LLC or corporation can be a good place to start when it comes to safeguarding your savings. But this effort alone is not enough to protect your personal wealth from lawsuits or other penalties as a small business owner. Proper business record keeping is also essential.

As a small business owner, you need to develop the habit of tracking your company’s financial actions. These record keeping exercises can serve to protect you if you ever need to prove that your personal and business entities are separate.

Here are a few record keeping tips that may help you get started:

  • Open a separate business bank account
  • Avoid using personal bank accounts or credit cards for business transactions (and vice versa)
  • Use the company name with formal letterhead on business documents
  • Save receipts associated with business transactions.

If you fail to maintain proper records, especially in instances where business and personal finances merge, you could open yourself up to potential liability issues. A court might decide to "pierce the corporate veil" in certain situations if it believes you have intermingled business and personal finances. Should this occur, you could lose limited liability protection, and stakeholders in the business might be personally accountable for the company’s debts and payments.

Ask for help

For more advice about how to protect your personal wealth as a small business owner, consider talking to a professional. As a Santander Private Client, you can talk to a financial advisor at Santander Investment Services who is dedicated to helping you plan financial strategies that work best for you.

[i] United States® Census Bureau: Annual Survey of Entrepreneurs (ASE) — Characteristics of Business: 2016 Tables,

[ii]]“U.S. Small Business Administration: Choose a business structure,”

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