No business enterprise is risk-free, however many business owners expose their businesses and sometimes their personal assets to unnecessary risks.  Business risks can be reduced – and in some cases eliminated – by careful planning and structuring of business and personal affairs.

Some of the key planning steps that can be taken to reduce risk are as follows:

The right legal entity:  Business risk can be isolated by putting the business into a separate legal entity (e.g. a limited liability company or a limited partnership).  The nature of the business will dictate which is the best structure to use, but the principle is the same: a separate legal entity significantly reduces the likelihood of business debts or losses affecting personal assets.

Trading and non-trading entities:  Risk can be further reduced by holding valuable business assets like plant, intellectual property, land and buildings in a separate legal entity such as a holding company.  The entity owing the assets then leases them to the trading entity so that they can be used in the business.  In this way, valuable assets are not exposed to any debts or losses from the operation of the trading entity.

Written contracts:  Relationships with key suppliers and customers should always be underpinned by a written contract.  A written contract can clearly define the relative rights and obligations of the parties to a transaction or series of transactions, thus providing certainty and reducing risk.  It often comes as a surprise that a binding legal contract can exist as a result of a conversation or an exchange of emails.  In such cases, it is usually far from clear what the terms and conditions are, and many such arrangements end up in dispute as a result.  Written contracts need not be lengthy, complex, or expensive to prepare.

Protect intellectual property:  Brands, logos, specialised know-how or trade secrets, designs, software, images or written documents produced in-house, and so on – most businesses own or produce intellectual property of one kind or another.  Being intangible, these are not assets that business owners physically walk past every day, so they are often overlooked - yet they can often be some of the most valuable assets in a business.  There are number of simple steps that can be taken to identify and protect intellectual property, including registering brands or logos as trade marks, claiming copyright over images or written material, and having appropriate clauses drafted into contracts with suppliers, contractors and employees.

Financing:  Not all businesses are successful, and in the event of an insolvency one thing is certain – not everyone is going to get back all the money they are owed or have invested.  For business owners, there are loan and security funding structures which will improve the prospects of extracting all or at least some of the owner’s investment in the event of insolvency – possibly ahead of other creditors.

Trusts for personal assets:  In some situations claims will be made against the owners or directors of a business entity.  It is therefore prudent to place personal assets in safe harbours such as family trusts, so that these are less likely to be lost as a result of a successful claim against a business owner or director.

These are just a few examples of some of the key planning steps that should be taken to manage business risk and to protect business and personal assets.  Which of these measures are the right ones will vary from one business to the next.  The key though is to plan ahead, rather than to be picking up the pieces after something unexpected or untoward has happened.