Getting into financial troubles is inevitable no matter what you do. Whenever a small business owner faces such a situation either due to a family business go down or spending more than earning, it feels like the end of the world as you’re drowned by debt. In such situation, key is to face it and manage it by avoiding personal liability. There are things you can do to avoid financial troubles before closing your small business:

  1. Making your taxes current will help at the start. If you don’t, IRS can hold you personally liable for unpaid taxes. You also need to ensure your withheld taxes from employees’ salaries are paid timely. Also, IRS has policies of reducing or eliminating penalties if your tax payments are delayed. To take advantage of such policies, you need to have detailed business expenses records which show that you exclude all redundant expenses and take tax payments as your utmost priority.
  2. Always keep updated financial statements and business records. This way you can easily set priorities and get you better idea about your business performance and financial standings.
  3. Don’t mix your business and personal finances. Small business owners usually make utilize personal finances charge cards or assets when facing financial trouble and to keep business afloat. Mixing the personal and business finances can make you personally liable for the business debts. Piercing the veil is used with respect to corporations. It’s basically used by creditors for accumulating debts from LLCs and other business structures that guard them from personal liability.
  4. If you are about to get financing into business to earn, you shouldn’t veil your debts and stay honest about the business’s situation. Veiling your business debts or other financial situations is considered deception. This can make you not only personally liable but also costs you criminal charges.
  5. Stop making favored payments to creditors. After filing for bankruptcy, all your prior year payments will be examined. If certain favored payments are found, the court can order those payments be returned. Such payments that include business rent, payroll, insurance premiums, retirement plan contributions, utilities, and merchant payments etc.
  6. Use vigilance in transferring assets of your small business. Your creditors are acquainted with how to look out for your property. Your business assets should remain your business assets and selling them below their current value to someone is a falsified deal. Keep in mind that you shouldn’t hide your business assets or income from a court.
  7. You also need to make plans to maintain or get hold of insurance coverage. This can includes your life, health, auto, commercial, workers, rent and any other insurance type that you may have through the business.
  8. The next big thing to care for your bank account. You need to make sure your outstanding business loans shouldn’t allow lenders to get the money out of your account without notice when you fail to repay. Moving your business bank account to another bank account can help especially in case of your tax payments. Making tax payment should be your first goal and if your IRS check bounce, you will be in a lot of trouble.
  9. Make a priority list of your payments to creditors until business closure. A sale of asset and settling business undertakings will take time.
  10. Take bankruptcy into account right away. Don’t just spend money if nothing can be gained. Instant insolvency and restructuring are serious acts that will have negative effect on your credit rating for years.