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What are the major risks in running a business?

Monday, July 4th, 2011

There is no such thing as a business venture without risk. The risks involved can come in many forms, all of which translate into the possibility that you could end up going out of business and lose all of your investment (and possibly much more).

Businesses are always going to be subject to market risks from competition and the economy in general. From a legal perspective, though, the problems that most often seem to bring down a business would include:

* A failure to comply with licensing requirements or other regulations
* Lax internal procedures and accounting standards
* Not staying on top of payables and receivables
* Labor and employment issues, including sexual harassment or discrimination claims
* Underestimating and failing to pay tax liabilities, which notably include payroll taxes
* Disputes among partners
* Getting sued, with the risks of being buried in costs of litigation as well as being liable for any judgment that may be entered against you or the business
* Possible criminal liability exposure for violating the laws regulating your business

When you are going into business, you usually don’t think about the risks of going out of business if the enterprise fails. Once a business is in trouble, though, many of these risks come back to the forefront in terms of whether you will ultimately be able to avoid bankruptcy. The risks include the possibility of personal liability exposure for the following:

* Personal guarantees on bank loans and other obligations of the business
* Unpaid taxes assessed against the business, including interest and penalties
* Other continuing or long term obligations of the company, which notably include office and equipment leases
* Pending lawsuits in which you are named personally as a plaintiff or defendant
* Investigations by governmental agencies

All of these risks only underscore the need for proper planning before you go into business. This planning should include using the right business entity to shield you from the potential liabilities of operating a business.