Shaun Meintjes, Franchise Principal & Financial Adviser at Consult by Momentum, shares steps that you can take to protect your personal finances if you find that your business is failing.

Ask any entrepreneur what it’s 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 other times when the water is choppy but manageable.

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.

Starting a business takes guts and courage, but so does recognising when it just doesn’t make financial sense anymore to keep the business going.

Getting on that life raft

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 don’t go under along with your business.

So here are some 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 clear distance between your personal finances and the company. 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 absolutely 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. Rather do the following:

• 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 trying to save 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

It’s essential that your personal balance sheet survives 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. Get accurate financials immediately, negotiate early with creditors, and consider business rescue if a turnaround is still realistic.

Avoid reckless trading once insolvency is clear, and protect your personal assets by cancelling unnecessary sureties and moving investments into more secure vehicles. This is also when emotional bias peaks, which is why it’s so 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, but this is just the beginning of a new financial chapter.

At this point, the smartest moves are to:

• 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 wellbeing can remain intact.

Don’t sacrifice your own future

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.

This post was based on a press release issued on behalf of Consult by Momentum.