Good Insurance Is Just the Beginning

For many contractors, any discussion about asset protection revolves primarily around various types of insurance. While insurance is a critical component of an asset protection program, it’s only part of a larger, more comprehensive effort.

If you haven’t reviewed your company’s asset protection strategy lately, here are steps you can take to get started.

Identify Assets and Risks

The first step is to inventory all assets – both business and personal – and identify the risks associated with each. While the list could get overwhelming, it helps to begin by organizing and prioritizing them. For example, give the highest priority to protecting your most valuable assets, such as your building or home.

It’s also a good practice to prioritize the risks to which your various assets are exposed. Rank risks according to both the likelihood that they will occur and the potential damage they could cause.

Structure Your Business Properly

Your highest priorities are likely to include protecting your personal assets – like your home, savings and personal property – from business creditors or litigants. As your business grows and strategies may change, make sure your current business legal structure matches your needs.

The choice of business structure involves other factors in addition to asset protection, though. Work closely with your legal and accounting professionals when considering how to structure or restructure your business.

In some cases, you might be advised to form multiple business entities for various aspects of your operations. The goal is to see that risks from one business activity do not imperil your other businesses.

Multiple layers of holding companies and operating companies can make it more difficult for litigants to attach assets. Establishing a separate LLC to lease real estate or equipment to the operating company is another proven strategy to mitigate certain risks.

Maintain Boundaries

Once you have erected barriers to shield your assets, it’s important to maintain and respect those boundaries. Understand the risk and exposure of personal guarantees for lines of credit, personal indemnification of surety program, or other obligations if possible. Take care not to mix personal and corporate funds, and be careful about using your business to provide yourself with unusual personal perks or extravagant purchases.

You should also be scrupulous about maintaining complete and accurate corporate records and documentation.

Reduce Risks and Minimize Exposure

Effective quality and safety programs are important on their own merits – they’re just good business. But they also can be valuable tools for protecting your assets against losses due to injuries, accidents or other types of damages.

Your asset protection effort should also include proactive financial management strategies that reduce your company’s risk exposure by minimizing unencumbered assets. For example, leasing equipment and vehicles rather than purchasing them outright can reduce the assets at risk in your company. A company that owns significant assets free and clear can be a more tempting target for potential litigants.

Reviewing Asset Protection

To fully protect both your business and personal assets, you should also maintain adequate and appropriate insurance coverage. Develop a relationship with an experienced and trusted agent who can advise you on the most cost-effective strategies that match your particular risk profile.

In addition to maintaining required workers compensation coverage, you should also regularly review your general liability and property and casualty policies, as well as any umbrella coverage you carry over and above these policies. In some cases, more specialized policies offering business interruption or cybersecurity coverage also might be warranted.

Remember that your assets and risk profile are always changing. Schedule regular policy reviews with your insurance agent to be sure your coverage is still adequate and appropriate to meet your current circumstances.

For more information on Sansiveri’s Construction and Related Services Group and how we can help assess your asset protection strategies, please contact Jason DaPonte at 401-752-0558.