When Should a Growing Business Prioritize Asset Protection?

The bigger your business grows, the more important asset protection becomes. However, if you’re a new entrepreneur or startup executive, you might not know when exactly you should start to prioritize asset defense, especially when you have to juggle a variety of other needs, like business growth, asset acquisition, and so much more. Let’s take a closer look.

Asset Protection in a Nutshell

Asset protection, put simply, is a focus or strategy that revolves around putting key assets – like property deeds, liquid capital, and market assets like stocks – into durable instruments, where they’ll be protected against creditors, lawsuit plaintiffs, and other potential legal hazards.

As an example, as a high-net-worth individual, you need to use an offshore asset protection trust to keep your money safe for years to come. If your trust is set up properly, a lawsuit – even if it's successful – won't result in you having to give up your money or property. After all, you won't own the property or money any longer!

Asset protection is a little different for businesses. It may rely on different strategies, instruments, or approaches. But the core focus is the same: safeguarding business assets like liquid capital, stocks, and equipment or property.

That way, if your business ever faces legal trouble – from a disgruntled employee or an ex-business partner, say – you’ll be able to continue operations and want to lose everything from a single adverse legal judgment.

Does Asset Protection Negate Business Growth?

That all said, many business owners are leery of focusing on asset protection, particularly in the earliest stages of a business’s lifespan. That’s because asset protection sometimes negates or slows down business growth.

When it comes to asset protection, any assets you defend by moving out of your reach can’t necessarily or easily be used for business growth. Imagine that you’re a high-net-worth startup executive and you’ve made $10 million from your business operations.

You could put that $10 million back into your company, or you could put it in an offshore asset protection trust. If you choose the latter option, the money, obviously, can’t simultaneously be used to pay for business equipment or labor, at least to the same capacity.

So, in many instances, you have to choose between asset protection or asset usage. Assets that you safeguard, especially in an offshore trust, are not permanently out of your reach, but they can’t be used as readily as other business resources.

It's best not to think of asset protection as having a negative impact on business growth. Instead, think of asset defense as a way of preserving your business and its resources for a long time to come. After all, it doesn't matter how quickly you grow your new startup brand if it's taken down by a single legal attack or creditor claim in the short to mid-term future.

So, When Should You Shift Your Focus to Asset Defense?

Generally, new business owners should shift their focus to asset defense when three different conditions are met. If you aren't sure whether the time is now to prioritize asset protection, get in touch with financial experts at the earliest opportunity.

When Your Income/Generation Far Exceeds Expenditures

First, if your income or product generation far exceeds the expenditures your business reports, it might be time to focus some of your energy and resources on asset protection.

Say that your startup is five years into its lifespan, and over those years, you’ve built up your business successfully so that it brings in $3 million in net income per year. Compared to expenditures, which total just $500,000 per year, you are practically rolling in cash.

Given this fact, it makes sense to start prioritizing asset protection. That’s because:

• You're bringing in plenty of money to continue to facilitate business growth and increased operations while keeping some money safe and tucking some resources away for a proverbial rainy day
• Focusing on asset defense won’t shortchange your asset growth opportunities

Put another way, if your business is booming, you can probably afford to put some of your money and mental energy toward asset protection, especially if you work with knowledgeable experts who can take most of the load off your shoulders.

When Your Profile is Rising Quickly

Second, if your profile as an entrepreneur, startup executive, or other high-net-worth individual is rising quickly, you might need to consider asset protection sooner rather than later.

As you become more famous, either overall or just in your local niche, you’ll become a bigger target for creditors, lawsuit plaintiffs, and others who want to take your hard-earned cash and dismantle your enterprise. 

This is doubly true since, as your business becomes more successful, you’ll get more customers, each of whom could pose a potential legal threat if they decide to sue.

Given these facts, you need to look into asset protection once you start to become more well-known in your industry. That way, even if someone doesn’t sue you and is successful, you won’t lose everything, either personally or professionally, from a single adverse legal judgment.

When You Run Into Potential Legal Trouble

Third, if you think you’ll run into legal trouble in the near future – say that an ex-business partner says he or she is going to sue you for whatever reason – it’s high time to look into asset protection. In fact, many asset protection specialists will tell you it’s past time!

You should look into setting up an offshore asset protection trust ASAP. If you get on the ball quickly, it’s possible to build and draft such a trust, transfer assets into the trust, and enjoy peace of mind, all before your future legal opponent files papers with the courts. This is absolutely vital because you can’t afford to wait any longer.

If you try to transfer money or other assets into a trust a few days or even weeks before a judgment, you could be accused of fraudulent conveyance. The judge will know that you moved the assets into the trust specifically to avoid paying legal bills; not only will you have to pay those legal bills, but you may also be saddled with other fees for breaking the law.

But if you set up your asset protection strategy sooner rather than later, no judge will be able to legally convict you of fraudulent conveyance. You might think that it's too late, but that's not necessarily the case, given just how long lawsuits and creditor claims take to go through the US court system.

You probably have several months if you are just now seeing signs of legal trouble on your horizon. That’s plenty of time to get an asset protection trust up and running, especially if you speak to experts who know which banking partners you should contact, what your trust should look like, and a variety of other key factors.

When Your Business is Inherently High-Risk

Finally, consider shifting your focus to asset protection if you are in a high-risk industry. Certain businesses, like those in the healthcare or construction sectors, are naturally prone to lawsuits due to the nature of their work.

If your business falls under this category, it is wise to be proactive. Remember, even the most careful business owners can face unforeseen circumstances.

Having a reliable asset protection plan in place can act as a safety net, ensuring that a single lawsuit or unexpected liability doesn’t wipe out everything you’ve built. It’s definitely worth your consideration.

Securing Effective Asset Defense for Your Business

In the end, your growing business should prioritize asset protection when you meet one or, preferably, all of the above conditions! But when the time comes, you need to know who you can trust to protect real estate, property deeds, liquid capital, and even market assets.

That’s where Dominion can be of help. As knowledgeable, experienced asset protection specialists, we’re well-equipped and ready to assist you in securing your business and personal assets. It all starts with setting up a durable, long-term asset protection trust in an offshore jurisdiction, so get in touch with one of our representatives today to learn more.