At Reardon & Associates, we understand that a business owner's personal success and professional success are deeply intertwined. While that's good news when your business is performing well, it also leaves business owners exposed to unique threats.
Thriving financially as a business owner requires making the most of opportunity without incurring unnecessary risk. Unfortunately, many business owners make mistakes that increase risk exposure and threaten long-term financial security.
3 Financial Mistakes Business Owners Make
1. Being overly debt-averse
It's normal to fear debt. The more money you spend on debt, the less that's available for your business. Yet avoiding debt also hinders a business's ability to grow, or worse, leads entrepreneurs to drain personal finances for business expenses. Rather than avoiding debt entirely, recognize it for what it is: one more tool in an entrepreneur's toolbox.
As with other tools, not all types of debt are created equally. The best forms of business debt are government-backed business loans like SBA loans, traditional bank financing, business lines of credit, and business credit cards. Maintaining good business credit will help you qualify for business loans at competitive rates. Avoid using personal loans for business expenses. While qualification is often easier than business loans, it's not worth the risk to your personal credit.
2. Overlooking tax obligations
The average worker only has to worry about taxes once a year. As a business owner, however, your tax obligations are complex and varied. Failing to keep up with any one of them could lead to costly penalties.
Depending on a business's corporate structure and employer status, tax obligations may include:
- Quarterly estimated tax payments.
- Self-employment tax.
- Corporate income taxes.
- Payroll taxes.
- Sales tax.
- Excise tax.
- Property tax.
Most business owners outsource income tax compliance to an accountant. Yet many continue to process payroll in-house. But as state laws grow more complex and workforces more geographically dispersed, businesses are increasingly vulnerable to payroll tax penalties. Take California, for example. California enforces different minimum wages depending on a company's size, doesn't count tips toward minimum wage requirements, and mandates benefits not found in other states. In this business environment, administering California payroll service yourself is simply too complex. Payroll packages that guarantee compliance reduce labor, mitigate risk, and offer valuable peace of mind.
3. Failing to plan for retirement
Do you wince every time you pay a tax bill? Savvy business owners are already taking advantage of tax deductions on business expenses, but there's another valuable way to reduce your tax bill: saving for retirement.
Business owners have a variety of excellent retirement options available to them, including a SIMPLE IRA, SEP IRA, and traditional and Roth IRAs. Business owners with no employees other than a spouse may also invest via a Solo 401(k).
A business owner's retirement plans don't stop at saving. Plan for business succession after your retirement, working with a financial professional to navigate the potential tax liabilities that come with passing on your company.
In some cases, an entrepreneur outlives their business. Avoid the temptation to sink money into a struggling business. It's better to walk away with your personal finances intact than to risk your retirement on a failing business.
Life as a business owner is a constant balancing act. To succeed in business, you have to know when to spend and when to save, when to take risks and when to play it safe, and when to hold the line and when to walk away. Knowing which path to take isn't always easy and that's why Reardon & Associates brings their advanced expertise to help business owners make the best decisions for their financial foundation.
To learn how Reardon & Associates can help you achieve your personal and business financial goals, contact us today at (909) 543-0201.