One lawsuit away from your house?

Hey there, Ben here. Last week was about pulling profit out of the company. This week is about the wall between the company and your family.

Say a job goes sideways. A subcontractor's mistake turns into a big claim, and the claim lands on your company. Most owners figure that's what the LLC or corporation is for: the company takes the hit, the house stays safe. But that wall only holds up as well as you've kept it up. Paying the boat note from the operating account, running groceries through the company card, moving cash back and forth with no paperwork. Each one is a small crack. On a normal day nobody notices. On the worst day of your business, somebody's going to look very hard at every crack.

Are you treating your company like a separate business, or like your second wallet?

An entity is a tool, not a force field. The habits below are the basic maintenance that helps it do its job. How strong your protection really is depends on your state and your facts, so review your setup with your own attorney and CPA.

1. Separate every dollar. Business money lives in business accounts. Personal money lives in personal accounts. No exceptions for "just this once." Say you've been running $2,000 a month of personal bills through the company. That's $24,000 a year of mixed records that someone could point to later. Move those bills to a personal account fed by a documented distribution.

2. Document money moving between you and the company. When cash goes from the company to you, record it as pay, a distribution, or a loan, with a date and a note. Say you lend the company $50,000 during a slow winter. Put it in writing, with terms, and record the repayments. A handshake with yourself isn't a record.

3. Keep the company acting like a company. Sign contracts in the company's name with your title, not just your name. Keep the annual filings and any required records current. Say your state filing costs a few hundred dollars a year. Letting it lapse to save that is a bad trade against what it protects.

4. Check insurance against your real exposure. The entity and the insurance work together. Say your biggest job this year is $2 million and your general liability limit hasn't changed since you were doing $500,000 jobs. That gap is worth a call with your agent about limits, umbrella coverage, and whether your subs' certificates are actually on file.

5. Make the fix a habit, not a project. Cleanup only sticks if it becomes routine. Once a month, when you review the bank statements, look for anything personal that slipped through and move it back with a note. Say it takes 15 minutes. Twelve short reviews a year keep your records clean, and clean records are exactly what you want if anyone ever comes looking. Your bookkeeper can help, but you should still be the one who looks.

Pull last month's company card statement. Highlight every personal charge. Count them and total them. That number is your starting point, and getting it to zero is this month's goal.

The Protect section of the free Contractor Wealth Scorecard checks the basics: separation, records, insurance, and more. It shows you where your wall is thin and what to fix first.

Take the free Scorecard →

Hit reply with one word: how many personal charges were on last month's company card? No judgment. I want to know how common this is.

Talk soon, Ben

P.S. If you took the Scorecard last week, retake the Protect section after you clean up the card. If you haven't yet, start here. It's free and takes about 8 minutes.

Contractors Digest is for general educational purposes only and is not legal, tax, accounting, or investment advice. Talk with your own qualified advisors before making decisions for your business or family. Dollar examples are illustrative only.