Why Every Business Owner Needs a Barrier Between Business Risk and Personal Wealth
Running a business takes courage. You are out there building something valuable, taking risks, and putting your reputation on the line every day. But here is the question too many business owners overlook. What is protecting your personal wealth if something goes wrong?
It is not uncommon to see a business owner with a thriving business operation all owned in their personal name. On paper, they are doing well. But in reality, they are one legal claim away from losing everything.
The Danger of Owning Everything Personally
Imagine a sole trader who runs a profitable business and invests surplus earnings into shares, property or other assets. If a client dispute turns ugly or if a costly mistake is made, that business owner’s personal assets are at risk. There is no separation. There is no safety net. If someone comes after the business, they are also coming after the house, the investments, the savings and everything else.
This risk is even higher for certain types of sole traders.
For example:
Trades and construction, where accidents, property damage and contractual disputes are common. An engineering business might misquote on a project by hundreds of thousands of dollars or deliver work that later needs expensive remediation.
Consultants and advisors, where negligence or breach of contract claims can arise. This could include providing incorrect specifications that lead to project delays and losses.
Hospitality and food businesses, where public safety, hygiene and injury claims are a constant threat. For example, a severe food-borne illness outbreak traced back to the kitchen.
Personal services such as hairdressers, personal trainers and beauticians, who can face injury or treatment disputes. A common example is a client suffering burns from a chemical treatment.
Transport operators, where accidents, damaged goods or delivery disputes are possible. Imagine a high-value shipment being lost or destroyed in transit.
If you are in one of these industries and operating as a sole trader, you are carrying business risk directly on your personal back and potentially putting your wealth in the firing line.
Building the Barrier: Entity Structures That Protect You
Operating Through a Company
A company is its own legal entity. It earns income, incurs expenses and carries its own risks. While directors can still be liable for certain matters, shareholders, especially if they are not actively running the business, are generally protected.
A common approach is to separate the operational role from the ownership role. The person actively running the business takes on the director position, while the shareholding is held by another trusted person. Some people refer to this as the “man of straw, woman of steel” strategy if the man holds the business interest and the woman holds the ownership interest. The reverse also applies if the woman is the business owner and the man holds the ownership interest. The key point is that the person carrying the business risk is different from the person holding the ownership interest, which reduces exposure of personal wealth.
Holding Assets in a Family Trust
A family trust does not belong to you personally. It is controlled by a trustee for the benefit of chosen beneficiaries. This means creditors cannot simply reach in and take what is inside. Trusts also offer flexibility in distributing income which can help with tax planning and long-term wealth building. Think of it like a reverse funnel. Income flows into the top but can be distributed strategically to different beneficiaries at the bottom, often along the path of least resistance from a tax perspective.
More Than Just Protection
Structuring your business and assets correctly protects you if the worst happens. It can also optimise your tax position, control how and when money flows to you or your family and ensure your wealth can be transferred efficiently to the next generation.
Why You Should Act Now
If you are operating as a sole trader, particularly in a high-risk industry, and holding all your assets personally, you are exposed. Unfortunately, once something goes wrong, it is too late to move the assets. The right structure needs to be in place before trouble strikes.
We have seen the relief business owners feel when they know their wealth is shielded. That peace of mind lets them focus on growing their business without lying awake at night worrying about losing everything they have worked for.
Your business is your livelihood. Your personal wealth is your legacy. Let us make sure you keep both.
Ready to protect your personal wealth from business risk?