5 ways to protect your personal finances when your business fails

Ask any entrepreneur what it is like to own a business, and they might answer that it’s a bit like taking a sea voyage. When you start a business, it’s usually with the same optimism as setting off on a long-awaited trip.

You’ve charted the route, stocked provisions, and prepared for the worst by installing your life raft. If you’re lucky, you have times of smooth sailing, and others where the water is choppy. But then sometimes, the business takes more battering than it can handle, and it starts to sink. Sales dry up, cash flow becomes strained, and the numbers stop making sense, no matter how many times you run them.

For many South African entrepreneurs, this isn’t a personal failing – it’s a reality of the waters we’re navigating. Recent data shows that between 60% and 80% of SMMEs fail within their first two years; a number that climbs when the economic tide is particularly rough. So if it feels like your ship is taking on water, you’re not alone.

As entrepreneurs, we pour so much of our heart and soul into our companies – to the extent that our identities often become tied up with what we do, and it becomes hard to separate emotions from our business decisions.

But, while starting a business takes guts and courage, equally so is recognising when it just doesn’t make financial sense anymore to keep the business going. And once this has been decided, the next most important step is to get on that life raft; protect your personal finances, so that you do not go under along with your business.”

With November being National Entrepreneurship Month, here are practical steps to protect your personal finances when your business is under pressure:

1. Prepare for the storm before you start your business

Before starting a business, the first, most important safety measure is creating a clear distance between your personal finances and the company. Meintjes says a non-negotiable is to formalise the separation of accounts and legal identity:

-              Open a dedicated business bank account.

-              Choose the right legal structure (a Pty Ltd offers the strongest personal-liability protection).

-              Put proper governance in place: clean books, defined director responsibilities, no reckless trading.

-              Ensure you have the right insurance and risk cover.

-              Avoid signing personal surety unless necessary.

Many entrepreneurs expose themselves without realising it. The moment you sign surety for a lease, overdraft, supplier account, or vehicle financing, you’ve effectively tied your personal wealth to the business’s performance.

2. At the first signs of a storm, batten down the hatches

When things start feeling tight, most entrepreneurs react emotionally: they throw more of their own money at the problem, quietly settle bills from personal accounts, or take out expensive short-term loans. This is how personal financial ruin starts. Business owners should act fast and decisively:

-              Stop using personal funds to keep the business afloat.

-              Review and try to reduce personal guarantees.

-              Ring-fence personal assets like your home, investments, and retirement savings.

-              Stay up to date with Sars – penalties can follow you long after a business collapses.

-              Assess solvency immediately. Trading while insolvent can result in directors being held personally liable.

This is the point where you should ask your financial adviser to step in, as it’s where you look at preserving long-term personal wealth instead of sacrificing it for short-term business survival.

3. Know when it’s time to jump ship

When it comes to saving their business, many entrepreneurs will drain their savings, borrow from friends, access retirement funds, take on high-interest debt – whatever it takes to keep the ship afloat. However, the line must be drawn when:

-              There is no evidence-based turnaround in the business within 3-6 months.

-              Your personal emergency fund drops below three months’ expenses.

-              You need to dip into retirement savings or use unsecured debt to cover business costs.

-              Your personal injections no longer translate into measurable performance improvements.

Your personal balance sheet needs to survive whatever happens next. A failed business is painful. A failed personal financial future is devastating.

4. Your business is officially sinking – look to mitigate

When your business is taking on water faster than you can bail it out, look to mitigate. Owners should get accurate financials immediately, negotiate early with creditors, and consider business rescue if a turnaround is still realistic.

Avoiding reckless trading once insolvency is clear, and protect personal assets by cancelling unnecessary sureties and moving investments into more secure vehicles. This is also when emotional bias peaks, which is why it is important to work with your financial adviser to establish objective checks and clear stop-loss rules to prevent catastrophic personal loss.

5. Getting back on dry land

When the business has closed, it can feel like you’ve failed. This is just the beginning of a new financial chapter. The smartest moves now include:

-              Stabilise immediately: Cut unnecessary expenses, rebuild your 3–6 month emergency fund, and keep essential insurance (medical aid, income protection, life cover).

-              Protect long-term wealth: Restart retirement contributions, reopen your TFSA if paused, and prioritise paying off high-interest debt.

-              Rebuild sustainably: Create a realistic personal budget aligned with your new income, work to repair your credit score, and only re-enter entrepreneurship if you have ring-fenced your capital and have a personal financial buffer.

A business can fail, but you don’t have to. With the right structure and the right advice, your long-term financial well-being can remain intact.

The bottom line

Entrepreneurship is brave work. It demands resilience, optimism, and sacrifice – sometimes more than feels fair. But always remember that building a business shouldn’t cost you your future. Having an adviser in your corner can be the difference between starting over with stability and starting over from nothing, giving you the right advice that will help you build and protect your financial dreams.

* Meintjes is the franchise principal and financial adviser at Consult by Momentum.

PERSONAL FINANCE