Tackling financial decisions as a business owner can be stressful and, without appropriate advice, may lead to expensive mistakes.
Whether you’re working solo or managing a team, keeping on top of money matters is essential for long-term success.
Like many things in life, being prepared and planning for the unexpected could provide a valuable safety net for you and your business.
Read on to learn about three common money mistakes business owners make and find out how you could avoid them with the help of a financial planner.
1. Mixing personal and business finances
If you’re just starting out or there’s no one else involved in your company, it may feel simpler to use your personal bank account for business expenses.
However, mixing personal and business finances could make it difficult to accurately track important company metrics, such as cash flow and profitability. As such, you might find it hard to gauge how well your business is performing and how much money you have to fund operations.
If you need to access financing, lenders and investors may be less willing to provide the funds you need without seeing clean, accurate financial records.
What’s more, filing your tax return may be much more complicated than it needs to be. This could increase the risk of errors, which may lead to missed deductions, penalties, or even a tax audit.
It’s also important to note that limited companies are legally required to separate their business banking from their personal account.
If you want to avoid making this mistake, it might help you to:
- Open a dedicated business bank account as soon as you begin trading
- Consider registering your business as a separate legal entity, such as a limited company
- Consult a financial professional to ensure you’re meeting all legal and tax requirements
- Regularly review and reconcile your business statements to avoid accidental mixing of funds.
2. Failing to pay into a personal pension
Whether you’re an established business owner or you’re just getting started, you’re likely to have a long list of financial admin to keep up with. So, it may be easy to overlook pension planning.
While employers must offer their employees access to a workplace pension by law, research published by PensionsAge has found that 2 in 5 self-employed people don’t pay into a personal pension.
However, neglecting your pensions could push your desired retirement age and lifestyle out of reach.
Remember that even small contributions build up over time if you make them consistently. Moreover, the government offers tax relief on pension contributions, which could significantly boost the value of your retirement savings.
If you’re a director of a limited company, paying into a pension may also reduce your company’s taxable profits, which could result in a lower Corporation Tax bill.
If you want to avoid making this mistake, it might help you to:
- Explore the different types of pensions available
- Set up a pension and make regular contributions
- Learn about personal tax relief and allowances
- If you own a limited company, consider paying into your pension through the business
- Seek financial advice to ensure your chosen pension and contribution amount align with your retirement goals.
Read more: Business owner? 4 reasons to consider a small self-administered pension scheme (SSAS)
3. Neglecting business protection
No one can predict what the future holds. That’s why it’s crucial to protect your business against unexpected financial shocks.
If you fail to do so, events such as the loss of a key employee, legal claims, or property damage could have a devastating effect on your business.
On the other hand, putting the right financial protection in place could help you to weather any storms by:
- Ensuring business continuity – Protection could safeguard your company from financial loss caused by an unexpected event, and as such, prevent disruption to operations.
- Maintaining financial stability – Without cover such as key person insurance, your business finances may suffer if someone integral to the business becomes ill or dies.
- Protecting your business against legal risks – Liability insurance could shield your company from the potential financial consequences of legal disputes, such as employee lawsuits.
- Safeguarding ownership and control – Putting the right protection in place could ensure that you retain control of your business if a shareholder becomes seriously ill or dies.
- Ensuring business debts are repaid – Business loan protection may cover the cost of outstanding debts if a key individual dies or becomes critically ill.
- Improving access to finance – If your business has adequate protection in place, it may be more attractive to lenders and investors.
Yet despite these benefits, business owners often overlook this essential aspect of financial planning.
If you want to avoid making this mistake, it might help you to:
- Identify the main risks your business faces
- Highlight gaps in your current business cover
- Evaluate your business’s financial health and resilience
- Consider legal, regulatory, and stakeholder requirements
- Explore the different types of business protection available
- Work with a financial planner to regularly review and update your protection.
Working with a financial planner could reduce the risk of making such mistakes
At Sovereign, our financial planners have years of experience supporting business owners with all their financial planning needs.
We can review your business finances and identify any potential mistakes that could be limiting the financial health of your company or hampering growth.
Working with us could help you to:
- Manage risk effectively by putting appropriate protection in place
- Develop a financial plan that aligns with your business goals
- Reduce stress and free up time for running your business
- Navigate change and capitalise on growth opportunities
- Keep your business as tax-efficient as possible
- Plan for the retirement you desire.
Get in touch
We have years of experience supporting business owners to manage their finances and plan for the future.
If you’d like to learn more about working with us, please get in touch.
Email hello@sovereign-ifa.co.uk or call us on 01454 416653.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Workplace pensions are regulated by The Pension Regulator.
Note that financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.
Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.
Approved by Best Practice IFA Group Ltd on 19/05/2025