Do you risk all that you have when starting a new business?

One simple way to protect your personal assets is to form a corporation or limited liability company through which you will conduct your daily business. That’s a clear way to separate your personal assets from your business assets, especially once you open and use a separate bank account for the company’s financial affairs.

However, you may run into transactions where the other side would want you to provide a personal guaranty. Landlords and banks are often queasy about working with brand-new companies. Therefore, they will want you to "guarantee" that you personally will make good on the debt if the company goes out of business. In those limited situations, your personal assets would be at risk.

Another way to ensure that you don’t "risk the farm" is to put together a careful business plan and have sufficient funds set aside to get started, so you don’t have to ask others to loan you money.