Recession-Proof Your Business and Manage Your Personal Liability & Risks
Recessions are often portrayed to be all doom and gloom. For businesses, it often means dismal income statements and profit margins. This prompts many business owners to succumb to knee-jerk reactions. One of which is to implement aggressive pricing incentives and cost cutting measures in the hopes of riding it out.
As ominous as it might seem, recessions are not just about business threats. Amid poor market sentiments, they are also times for business opportunities. While being conservative is sometimes the best approach, business owners can also take the road less travelled by pursuing growth more aggressively than before.
Purse Revenue Growth and Strategic Investments
Cost cutting to protect a company’s core business is one way to ride out a recession. Another would be seeking strategic expansion through organic growth and acquisitions. This two-pronged approach could help a business better position itself to beat a recession, and even thrive in it.
In such times, business owners can leverage on poor market outlooks to acquire struggling businesses at lower prices. Doing so allows them to target a new market segment, gain a greater market share, or expand its expertise in the supply chain.
However, an expansion of any kind involves risks. Often, the most profitable route is also the riskiest, but the returns can be manifold if you play your cards right. Pursuing growth via a vertical or horizontal expansion is a big move that requires an even bigger capital outlay to carry out. When a business does not have resources to take over a distressed company, for instance, obtaining a bank loan would then become an option.
Debt Cancellation Insurance and Asset Protection Trusts to Separate Personal and Business Risks
The decision to grow your business when everyone else is lying low must be a calculated one that involves careful planning and constant monitoring. Do the benefits outweigh the risks? Is the expansion plan operationally feasible and fiscally sound? Will it implicate your personal life? And how?
After the 2008 financial crisis, banks clamp up during recessionary times. Borrowing from banks to fund your next acquisition can then be a big challenge.
Suppose you have a promising business plan and a good financial track record to back up. The bank is agreeable to a loan, but not without a personal guarantor. As a business owner, you naturally step forward to pledge your personal assets and property as collaterals.
While the loan provides the capital you need, it adds to your personal liability. This means that getting a loan for your business is no longer just about your business. It has everything to do with you from the moment you sign off the loan. Now that you have placed your finances on the line, your personal assets are at stake. As a result of a business decision you have made, you and your family are now vulnerable to business perils.
Should your business dissolve, you will be responsible for paying the debts owed by the business. Creditors can make a claim on your personal wealth. This could mean depleting the assets you have accumulated all these years. It could mean exhausting money meant for your children’s education or personal retirement.
So do you forgo your business expansion plans altogether?
No. It just means that you have to better manage your finances. Doing so would allow you to seize opportunities in bad times to bring your business to the next level, while safeguarding what you have built up for your family and yourself.
In such situations, your family can be assured of financial security through debt cancellation insurance. It serves to protect the guarantor’s assets as a means to shield his or her family’s financial future. In the event of the guarantor’s premature death or total permanent disability, business debts do not get transferred to family members. With proper coverage, insurance proceeds can be set off against the collaterals pledged. This ensures that the brute of business liabilities do not befall on family members during a time of distress.
An asset protection trust is another vehicle that helps safeguard a guarantor’s personal assets from creditors. It is a wealth management structure among three parties: a grantor (the one who sets up the trust), a trustee (the one who manages the trust), and a beneficiary (the one who receives the benefits of the trust). In this context, an irrevocable trust acts as a safety net. It allows the grantor to assign assets to a beneficiary to protect them from claims from creditors.
The end goal of both products is similar – to secure a better financial future for your family. As if recessions are not harsh enough on most businesses, do not let your decisions during a recession implicate your family members. Safeguarding the assets you have painstakingly accumulated is essential in proper wealth management. Separating your business and personal risks would ensure peace of mind as you pit yourself against market odds.
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