How business owners should ringfence their personal wealth to avoid market downturns and unforeseen setbacks

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Subscribe to enjoy similar stories. Rajiv, an entrepreneur who runs a mid-sized manufacturing unit in Pune, enjoyed the rewards of his hard work—expanding operations, lucrative contracts, and a growing personal wealth portfolio. Yet, a market downturn and an unforeseen lawsuit exposed cracks in his financial foundation.

Rajiv faced simultaneous challenges – dipping cash flows in his business and the legal claim that threatened his personal savings. His story underlines a critical lesson for Indian business owners: the importance of ring-fencing personal and business assets. Even after his diligence in expanding his business, Rajiv’s financial strategies were reactive.

His personal savings were tied to the company’s working capital and his assets – properties, fixed deposits, and investments – were intertwined with business liabilities. Rajiv’s lack of asset segregation left him vulnerable, a common scenario for entrepreneurs who rely on short-term fixes instead of building long-term financial defences. How can business owners like Rajiv safeguard their wealth from risks associated with entrepreneurship? To secure their personal and business finances, Indian entrepreneurs must adopt structured strategies related to segregation, legal safeguards, insurance and contingency funds.

The first step in asset protection is to ensure that personal wealth and business finances remain separate: Set up separate accounts – Maintain distinct accounts for business transactions and personal expenses. Register your business appropriately – Choose a private limited company or LLP over a sole proprietorship to limit personal liability. Document loans clearly – Avoid informal loans between personal and business entities.