When you decide to take the leap and state working for yourself, it can be pretty daunting, as well as very exciting. One of the biggest worries that many new entrepreneurs have, apart from whether their business will be successful or not, is the fact that they are potentially putting themselves in a precarious financial state.

It’s true that there are more risks associated with starting your own business than there typically are when working for an employer, but there is also more freedom and the potential for greater financial reward too, and anyway, there are lots of things you can do to protect yourself as an entrepreneur...

Make sure you and your business are legally separate

If you don’t want to end up with any potential business debts benign your personal liability, then you absolutely need to look into setting up a Limited Liability Partnership or similar which will legally separate you and your company. If you trade as a sole proprietor, any debts your company accrued will be yours too and that could be tough if your business gets into difficulty. 

Don’t be a guarantor for your business

In the same vein, it probably isn’t a good idea for you to personally vouch for any business debts either because, although it may make it easier for you to access the funds you’re fledgling business needs, if things don’t work out, it will be on you to pay those debts back whether you can afford it or not!

Do checks on your customers

Using customer identification software is a good way to protect yourself from clients who may have nefarious reasons for using your services. Although most clients are an honest bunch, there is always going to be the odd bad apple, and by identifying them before you do business, you can lower the odds that they’ll refuse to pay or lie and defraud you in some other way.

Use accounting software

If you want to avoid owing the tax man a lot of money, you need to ensure that you are keeping extremely accurate records from the minute your new business starts trading. If you don’t have experience of doing the books, one of the easiest ways to do this is by using accounting software like QuickBooks, which will take care of most of the difficult equations for you to ensure you don’t accidentally get yourself into trouble.

Keep friends and family separate

In most cases, it is not a good idea to have friends and family be a part of your business, such as undertaking a directorship, unless they are actively working in your business and/or have their own stake in it. Although it often seems like the simplest solution, it could cause a strain because directors are often just as liable for any debts as you, the main business owner are, and that is not a good position for you or them to be in.

Although we’ve discusses some tricky stuff in this post, it’s worth noting that these are tips to prevent the worst-case scenarios from harming you too much - you should not let it put you off, and actually, if you take the above onboard, you should be absolutely fine.