Protecting Yourself from Risk

What can you do to protect yourself and your family from the risks of your business?

Do you need to have everything you own on the line?
Do you understand the risks of your business?

An important issue for business owners is to protect yourself, as far as possible, from the risks inherent in being in business. Business, by its very nature, is risky. Some of the more important factors you have exposure to include:

  • Creditors/suppliers
  • Banks/financiers
  • Guarantees
  • Employees
  • Economic, market and financial risk
  • Regulations (like Occupational Health and Safety, Resource Management etc)
  • Directors exposure
  • Customers/warranties
What are you doing to manage your exposure to these risks?

Most business owners rely on the principle of limited liability; the corner stone of company law. However, most of the risks listed above cannot be fully protected by simply relying on limited liability or a company structure. A lot of risk attracts back to the individual, being the manager, director, guarantor or other.

There are things that can be done, but the first step in protecting yourself from business risk is clearly understanding what those risks are. The process of assessing business risk is a detailed exercise and requires a review of all areas of the business and their exposures.

Risks can be isolated by the use of legal entities such as companies, trusts, good governance, following defined processes, or having equity levels appropriate to the business, etc. There are numerous options available and no one size fits all!

Implementing your risk management strategy before risks occur is of critical importance. It is not possible to alienate assets which potentially give rise to defrauding creditors as actions of this nature will be voidable. It is therefore very important that the correct structures and management processes are put in place prior to the risk occuring.

We recommend that clever companies assess their business risk on a regular basis and ensure that their ownership structures provide the maximum protection.