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Common Financial Mistakes Business Owners Make

By Bryan Lee, CFP®, MBA

If you are a business owner, you are likely well-acquainted with the highs and lows of the responsibilities that come with the role. Being a business owner gives you the freedom to pursue your passions, be your own boss, and impact your community. But like any venture, acting as CEO of your own enterprise comes with its fair share of risks. In a world with no guarantees, it’s important to take the necessary steps to increase your chances of success. Here are some common financial mistakes business owners make and solutions to avoid them. 

1. Neglecting to Plan for Your Family

No matter how much you love your business, at the end of the day, it’s your family that you go home to. You work hard because you want to provide for your family, and proper financial planning can ensure that you provide for them even if something happens to you.

In many cases, the business owner’s spouse isn’t involved in the day-to-day running of the business. If something happened to you, would your spouse or partner have the knowledge, skills, time, energy, and desire to take over? Perhaps, but perhaps not. Because of this, it’s important to prepare another way to support your family financially. Having disability insurance and life insurance can give you peace of mind, knowing that your loved ones will have the financial support they need no matter what happens to you. It is also important to have an estate plan in place that preserves everything you’ve built in a tax-efficient manner.

2. Neglecting to Plan for Employees

Approximately 47% of America’s private workforce is employed by small businesses. (1) Even if you start your company with no employees, your growth and expansion plans may require hiring others in the future. Successful companies are made up of quality people who are passionate about what they do, so you want to ensure that you have the right people on your team and that they are taken care of well. Between insurance options, benefits packages, and retirement plans, there’s a lot to consider. Which plan works best for you and your employees? How much will it cost you? Instead of coming up with solutions on the fly, work with a financial professional to map out a strategy to attract, retain, and provide key benefits for your employees.

Insurance brokers or other commissioned salespeople may be able to provide some of the necessary products included in your benefits package, but they may provide conflicted advice. While ultimately you may need to work with some insurance brokers to actually implement your insurance options, a fee-only CERTIFIED FINANCIAL PLANNER™ professional can help you evaluate various options without a commission hanging in the balance. It’s important to understand how the professionals you work with are compensated so that you can have peace of mind that they are placing your interests above their own. As fiduciaries, Strategic Financial Planning always places your interests first.

3. Procrastinating on Your Retirement Planning

When you start a new venture and invest a significant amount of your personal assets, retirement probably seems like a long way off. But one day you will want to slow down and enjoy the fruits of your labor. If you don’t plan for retirement now, will you be able to afford to retire down the road? Even if your business is profitable and you plan to retire off the proceeds when you sell it, you still need to save and plan. 

Additionally, the pace of change in many industries is increasing rapidly, and technology makes many products and services available directly to consumers in more cost-efficient and convenient ways than some traditional businesses can provide. While companies in particular industries may have residual value today, in the coming decades any potential sales proceeds could be reduced or eliminated as industries evolve. As a result, it is becoming more important for business owners to not put all their eggs in one basket – an eventual sale of their business – and to make sure they have diversified investments in retirement accounts and a taxable investment account to provide for themselves and their families in retirement.

Planning early and adjusting as needed is the best strategy, especially for business owners who have a lot of their net worth tied up in their companies. Don’t put retirement planning off until it’s too late. Work with a financial professional to create a sound retirement plan and diversify your net worth so it isn’t all tied up in one place. 

4. Failing to Create a Succession Plan or Exit Strategy

Every business owner needs a succession strategy or exit plan. Whether you want to sell or pass your business on to family members or key employees, a well-thought-out plan is necessary if you want top dollar and a smooth transition. A knowledgeable financial advisor can provide an unbiased perspective that is vital to strategizing the optimal plan and weighing the different options that are available.

It’s critical that you start thinking about how and when you may want to leave your business, and make necessary preparations and process improvements so that you receive the highest price possible. Having a strategic transition plan will make your company more appealing to buyers who want assurance that it will continue to thrive without you. Even if you’re passing the business on to family members, you need a plan in place to ensure that it continues to prosper and all family members are treated equitably (which may not necessarily be equally).

5. Forgetting to Account for Taxes

Even the most basic tax filing can seem overly complicated; add a business to the mix, and the headaches could come fast and furious. You are an expert in your field and passionate about the company you started, but chances are you aren’t as passionate about the nuances of tax law or how to best leverage certain tax strategies to minimize what you owe each year. That lack of knowledge could cost you more than you know. 

In order to keep as much of your hard-earned money in your pockets as possible, you’ll need to maximize tax deductions, minimize your taxes now and in retirement, and have a tax-efficient estate plan in place. If you are planning to sell your business, you’ll need to consider the effects of capital gains taxes, depreciation recapture, and whether to sell the stock or the assets of the company. Since you want to focus your time and efforts on running your business, an experienced financial professional can help you carry the burden of tax planning and create strategies to legitimately save on income taxes.

Don’t Be Vulnerable to These Mistakes

Starting and maintaining a successful business isn’t easy. The issues that keep you up at night are valid concerns that need to be addressed. Rather than shouldering the burden on your own, why not invest in a team of people that can help speak to some of the specific challenges you face? At Strategic Financial Planning, we offer experience, advice, and professional referrals to address a range of our clients’ most complex business and planning issues. If you are ready to take the next steps to avoid these common mistakes business owners make, call (972) 403-1234 or contact us online to set up a complimentary get-acquainted meeting so we can see if we are a good fit! 

About Bryan

Bryan Lee is founder and President of Strategic Financial Planning, Inc., an independent, fee-only financial advisory firm. With over 27 years of industry experience, Bryan uses a unique client-first financial life planning approach and process to help his clients get the most out of life. Bryan earned his Bachelor of Business Administration in finance and MBA in international finance from the University of North Texas and is a Certified Financial Planner (CFP®) practitioner. Bryan is actively involved in his community and industry and has served on the boards of several associations and charities, including serving as President and Chairman of the Dallas/Fort Worth Chapter of the Financial Planning Association, the National Association of Personal Financial Advisors, the CITY House Board of Directors President and Chairman, Editorial Review Board of the Journal of Financial Planning, Family Services of Plano, as well as a Junior Achievement Volunteer Teacher. Bryan has been featured in local and national magazines, newspapers, and journals, including The Wall Street Journal, Investors Business Daily, CNNfn, USA Today, SmartMoney, Kiplinger’s Personal Finance, Financial Planning Magazine, The Dallas Morning News, Dow Jones Newswires, and has been recognized as a Five Star Wealth Manager and one of Dallas’s Best Financial Planners in D Magazine every year since its inception. To learn more about Bryan, connect with him on LinkedIn.


(1) https://cdn.advocacy.sba.gov/wp-content/uploads/2019/04/23142719/2019-Small-Business-Profiles-US.pdf