I never advocate going all-in on a business, but at the very least it should be something that crosses your mind before taking the road less traveled. However, if you choose to take the road less traveled and find yourself in the unfortunate circumstance that is bankruptcy, then the following are mistakes you should avoid and important things you should know.
Your business is your business and, likely, an important part of your life. That includes your personal financial life, too. When the liabilities of your business become your personal liabilities, then your business and personal lives can get pretty complicated.
Small business owners know more than anyone about the realities of bankruptcy, either in the form or near-misses or through personal experience. Consequently, no one needs to protect their assets quite as thoroughly or understand bankruptcy like a small business owner.
If you cannot imagine and bear the consequences of a personal bankruptcy then perhaps you should not start a business. Such was the advice in a recent Forbes article titled "How To Bounce Back From Bankruptcy & The Loss Of Your Home."
There original article offers some practical steps to help understand the mechanics of bankruptcy - such as who, what, where, why, when and how - but the most important things to understand are the exemptions.
Certain aspects of your personal financial life are legally protected under state laws, even in the face of so many liabilities and debts. You should plan accordingly.
For example, most states offer a homestead exemption from bankruptcy that will save your home from liquidation to creditors, unless of course you have mortgaged the home. There are other ways to lose the homestead protection that are less obvious, too.
Knowing your protections can enable you to structure your business and operations to protect your interests, and indeed there is much that can be done. At the most basic level, even the choice of form for your business (Limited Liability Company, Corporation, etc.) can have important ramifications to understand.
Regardless, the time to make plans to protect your personal assets from your business liabilities is now, rather than later.