Protect Your Business: 4 Key Areas to Consider

Whether you close one deal per month or one deal per year, if you don’t protect it, your business could be in jeopardy. One bad deal can be financially devastating. Putting safeguards in place to protect your investments is crucial to your success. Seasoned and new investors alike will do well to consider these four tips to protect current and future investments.

Only Use Licensed Contractors

While you may be tempted to go with the cheapest bid, if that contractor is not properly licensed and bonded, you are opening yourself up to potential issues down the road. Ultimately the responsibility lies with you. Cutting corners will not seem like it was worth the risk if something catastrophic happens and you are left holding the bag.

Verbal Agreements Will Not Protect You

There is a fine line between being trusting and naïve. As much as we wish we could take everyone at their word, unfortunately that is just not realistic. Every agreement made, every deal struck, requires proper written documentation. You do not want to end up in a situation where it’s your word against someone else’s with no proof to support you. Even if everyone involved has the best intentions, miscommunications and misinterpretations happen. Guard against these with a solid paper trail to support all your communications.

Choose the Right Legal Business Entity

Most property investors set up their businesses as sole proprietorships. As such, they are working as an individual and have no legal asset protection. The same is largely true for general partnerships. Horror stories of partnerships gone wrong are everywhere. The better option is to form an LLC (limited liability company). Under an LLC, you have asset protection as well as better options at tax time. Talk with an attorney who can give you advice pertaining to your specific situation. The wrong decision can cost you in the event of a major issue.

Leases and Insurance

Lease agreements and insurance are the two principal areas of protection for rental properties. Once a tenant occupies a property, it is too late to make stipulations in the lease agreement, so make sure that agreement covers all your bases before he or she moves in. While generic lease agreements are easy to find online, they are likely not specific enough to offer you protection. The expense of having an attorney draft a professional lease is worth the comfort that comes with knowing you are covered.

The same can be said for your homeowner’s insurance. If you have not reviewed the specifics of your policy recently, do so. Are you covered if a storm brings down a tree onto the roof? What about water and fire damage? Is the property in a flood plain? Many things can happen; the more you prepare for in advance, the greater your peace of mind.

The more of these processes you can get in place before your first deal, the better. But even if you have been investing for years, it is never too late to review and revise any existing policies that may not currently offer proper security. You work hard for your business. You should do everything you can to protect it.