• Serendipity Team

5 money mistakes every business owner needs to avoid

Updated: May 9

Being self-employed and running your own business although often rewarding, isn’t without its challenges. While many of us step into the world of business ownership because we want greater financial freedom and control over our income potential, we can often fall into the trap of being constrained by our business and financial habits.

Here are a few common mistakes business owners make, and tips for simple ways to avoid them so that you can make the most of your business and create the lifestyle you desire.

Mistake #1 Investing only in your business

Becoming all-consumed in our business or craft is a common mistake amongst entrepreneurs. We are psychologically wired to stay within our comfort zone and focus on what we know. While this can be a great strategy for growing our business revenue, it is not without its risks – the biggest being concentration risk. Concentration risk means that you risk incurring a financial loss purely because all your income is derived from one source. If anything affects that income source (market forces, regulation, consumer sentiment, staffing problems, the list goes on), your financial wellbeing will be directly impacted. Not only that but deriving all your income from one source can also force you to work harder than you need to grow your wealth.

Solution: By making sure that as part of your strategic decision-making you also weigh up other options that sit outside of your business – such as investing in different sectors and other asset classes – you can reduce your concentration risk and increase your growth potential.

Mistake #2 Using the wrong tax structure

Getting the tax structure right is crucial not only from a tax perspective but also from a legal and estate planning perspective. It is a topic that often gets overlooked by most small businesses, particularly from a strategic planning perspective. While you may have received tax advice when you first started your business, remember that this is not a set and forget business decision. As your business expands, new investors and business partners come on board, and as you begin to grow your personal wealth and investments, your financial risks and needs will change and should be catered for.

Solution: Seek legal and financial advice before making any investment or change to your business activities. Doing so will mean that your and your family’s legacy is well protected and that you aren’t losing money unnecessarily by paying more tax than you need to.

Mistake #3 Lacking personal goals

Business can quickly become all-consuming, to the point that we forget to take a strategic view of our personal finances and our goals outside of the business. However, what happens if our business goals contradict our personal goals? What if we don’t need to work nearly as hard to achieve our personal goals? Taking a bird’s eye view of our business and personal finances and setting lifestyle goals is an important step to making sure that your hard work and investments pay off.

Solution: Manage your personal finances as strategically as you manage your business. By setting aside time each year to review your personal finances and lifestyle goals you can ensure that your business plans are aligned with your lifestyle goals and that both are being achieved in the most effective way possible.

Mistake #4 Getting a late start on retirement planning

Whether you are a business owner or not, most people struggle to think about retirement. Typically, this is because it can seem like something that is far off in the distant future and because we don’t know yet what it is that we want our retirement to look like. While this is a common challenge, don’t let it be the reason that you don’t tackle retirement planning early – if for no other reason than you can miss out on tax benefits along the way.

Solution: Incorporate your superannuation into your annual business and tax planning. Doing so will enable you to achieve a more enjoyable retirement and offer significant tax, legal, and estate planning benefits.

Mistake #5 Trying to do it all yourself

Many business owners often struggle with delegating. But in the world of money where so many advice areas collide, it is crucial not to fall into the trap of trying to do everything yourself. Just the seemingly simple act of obtaining a mortgage or business loan can require accounting advice, credit advice, legal advice, and financial advice – all of which can feel expensive, confusing, and time-consuming, especially when you aren’t sure what questions you should be asking. However, failing to engage the right expert at the right time can not only cost you financially in terms of missed opportunities but it can also cost you your time and your sanity as you spend hours on hold chasing up banks and feeling as though you are repeating the same information over again.

Solution: Appointing a finance expert such as your financial advisor to act as your CFO can mean that you are receiving professional guidance from someone who understands your needs and can effectively oversee and communicate these on your behalf. Best of all, you will have one point of contact instead of five!

When it comes to business and money, no one is immune to making mistakes. Having professional support can help you avoid those foreseeable mistakes and enable you to grow your business and wealth quicker and with ease. Book a complimentary phone call and have a chat with us about where your business is up to and how we can help you to make your money work as hard as you do.

What you need to know

This information is provided and produced by Serendipity Wealth Advisors. The advice provided is general advice only. In preparing this article we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.