Management

All investors, including business owners, should use diversification as a defense against random and unforeseen events. You’ve placed your money in what is called “private equity,” i.e., your business. You must work to achieve meaningful financial diversification by investing outside of your business, but you should also use the law of diversification within your business to fortify and protect the business:

The rigor and complexity of business today leave most owner-managers unsure where to focus their limited energies and resources. It’s as if blues guitar prodigy Joe Bonamassa were singing about business ownership when he growls, “So many roads, so many trains to ride.” But every once in a while, out of the confusion, a clear and compelling pathway comes into focus. Albert Einstein spoke of these moments of clarity. He said, “When the solution is simple, God is answering.”

Business owners should arm themselves with knowledge about how to minimize legal and financial exposure, then fully exercise their right to limit and manage liability. Before you sign a legal agreement, ask yourself: How can I minimize my financial exposure by the way I execute this agreement? Who is the actual counterparty to this agreement? To what extent do I rely on this counterparty to perform in the future —financially or operationally?