The Biggest Financial Mistakes Business Owners Make: Advisors’ Advice

Portfolio

Economy & Markets

Portfolio Construction

Asset Managers

Investment VIPs

ETFs

Mutual Funds

Alternative Investments

Retirement Planning

Saving for Retirement

Retirement Investing

Spending in Retirement

Social Security

Financial Planning

Tax Planning

Trusts and Estates

College Planning

Charitable Giving

UHNW Client Services

Behavioral Finance

Practice Management

Building Your Business

Diversity and Inclusion

Marketing and Communications

Succession Planning

Compensation and Fees

Regulation and Compliance

Federal Regulation

State Regulation

Legislation

Litigation

Cybersecurity

Technology

Artificial Intelligence

Investment Platforms

Marketing Technology

RegTech

Life & Health Insurance

Life Insurance

Health Insurance

Annuities

Long Term Care Insurance

Running Your Business

LUMINARIES Awards

Event Coverage

Event Site

Newsletters

ThinkAdvisor

The Biggest Financial Mistakes Business Owners Make: Advisors’ Advice

X

Share with Email

sending now...

Thank you for sharing!

Your article was successfully shared with the contacts you provided.

Industry Spotlight > Advisors

The Biggest Financial Mistakes Business Owners Make: Advisors’ Advice

By Jeff Berman

Slideshow November 10, 2021 at 11:01 AM Share & Print

X

Share with Email

sending now...

Thank you for sharing!

Your article was successfully shared with the contacts you provided.

Related: The Biggest Financial Planning Mistakes Clients Make: Advisors’ Advice

Business owners make all kinds of mistakes when they handle their own financial planning or let somebody unqualified do it for them.

Advisors polled by ThinkAdvisor told us that the biggest financial planning mistakes their business-owning clients made ran the gamut from overpaying taxes to not having the right insurance and not thinking of themselves as employees of their firms.

The advisors also discussed how they had fixed the financial planning mistakes made by their clients. Check out what advisors said in the gallery above.

Jeff Berman

Up Next

10 New Findings on How Investors Pick an Advisor

View Story

More on this topic

Suze Orman: ‘People Are So Scared Right Now’

Financial Stress Hits These Households Hardest: Study

Jamie Hopkins: 3 Techniques to Help Retirees Spend More (Yes, More!)

Clients Hate This Popular Investing Strategy, Vanguard Researcher Says

The Biggest Financial Mistakes Business Owners Make: Advisors’ Advice

Exit

Exit

1. If the business owner is a sole proprietor: Not opening and funding a SEP IRA. Not only is it an effective way to save for retirement, but contributions have the added benefit of being considered a business expense, thus driving down gross income. SEPs have higher income limits than regular IRAs, and are far less burdensome to open and operate than an individual 401(k) plan.

— Karen E. Van Voorhis, director of financial planning, Daniel J. Galli & Associates, Norwell, Massachusetts

Advertisement

Exit

2. A major mistake I see overlooked regularly is having proper insurance coverage. Many times business owners are looking at cash flow and taxes and don't consider or want to pay for insurances.

Many have basic business liability insurance. They do not, however, look into other policies like personal disability insurance for themselves to replace their income in case they cannot work, business income insurance which covers overhead if the business is unable to operate, or commercial umbrella insurance in case there is a claim above and beyond the basic business liability insurance.

There is a wide variety of different small-business insurance solutions such as cybersecurity insurance, key employee life insurance, errors and omissions insurance, directors and officers insurance, etc. The list goes on. Not every business needs every policy.

— Leland Gross, CEO and founder, PeaceLink Financial Planning, Virginia Beach, Virginia

Exit

3. One of the biggest mistakes with business owners is when they want to start a new business. They don’t gather market research to determine if there is a demand for their goods or service. I make sure that they do their due diligence and test their product/service out in order to see if this is a sustainable concept. If it isn’t, that could potentially save you a lot of capital that could be deployed elsewhere.

— Dan Herron, principal, Elemental Wealth Advisors, San Luis Obispo, California

Exit

4. Small-business owners and entrepreneurs are notorious for struggling with delegation. Their business is their baby and only they know how to care for it. And often, their personal finances are tossed to the side as they focus on growing their business. Three of my biggest value builds have been helping business owners get organized, providing a general roadmap, and sitting in meetings with their accountant and attorney.

I learned [to have get-organized meetings] from XYPN and now do it with every financial planning client. We sit down and organize their financial life into a file folder organizer as well as a shareable client folder tree on my secure online file system, Box.com.

— Mike Turi, founder and financial planner, Upbeat Wealth, New Orleans, Louisiana

Advertisement

Exit

5. For business owners, it is not thinking of themselves as an EMPLOYEE of the firm, which includes a set salary and personal savings. They keep thinking that it will come over time and put themselves last in line after paying bills and other employees. From the start, they need to GET PAID a reasonable wage, and build in savings, increasing that over time. The wages help establish Social Security and Medicare accounts, and grow those over time. They need to consider the case where the business fails — then where are they?

— Nadine Burns, CEO and investment advisor representative, A New Path Financial, Ann Arbor, Michigan

Exit

6. First, making sure they had an adequate amount of cash reserves to keep the business going in a downturn.

Second, seeing that they established lines of credit, if possible.

Third, making sure they had the proper retirement account established.

I have seen and helped clients in each of these areas.

— Jeremy Finger, founder and CEO, Riverbend Wealth Management, Myrtle Beach, South Carolina

Exit

7. First and foremost they all get set up as an LLC but don’t take it a step further to figure out if they should be an S corp, partnership, etc., which can have a huge impact on taxes and tax planning.

From day one, business owners need to have separate bank accounts, credit cards, and they need P&L statements to track everything.

Another big mistake is not setting up retirement accounts right away and not hiring someone or doing the research to figure out the best account for their situation. Each have different contribution limits, advantages such as Roth, etc.

Lastly, many business owners focus way too heavily on lowering their taxes this year when tax planning is all about limiting taxes over your lifetime.

— Thomas Kopelman, co-founder and lead financial planner, AllStreet Wealth, Indianapolis, Indiana

Advertisement

Exit

8. There are two major financial mistakes I see small-business owners make:

1. For many small businesses, they don't have a strong system in place to track deductible business expenses. Whether it's a lunch that they put on their personal card, or not tracking mileage, there are often expenses that can be deducted to help reduce their tax liability. To address this I usually book a few hours with them to comb through their statements and see if we can substantiate expenses. We'll use that information to file their return or amended return.

2. Business owners really believe in their business and are often looking for ways to reinvest their profits back into the business to spur further growth. It does often make sense for them to reinvest into their business, but only after they've allocated a portion to their personal balance sheet.

— Curtis Bailey, founder and financial advisor, Quiet Wealth Management, Cincinnati, Ohio

Exit

9. I had a client, who their previous advisor told them to take out distributions from their 401(k) in 2020 since they would not have to pay the 10% penalty. The dental practice was shut down for a couple months due to Covid so he thought this was a good idea for the 401(k) plan participants. I have been working with them now to increase their savings rates and contribute to a Roth IRA outside of the plan.

— John Bovard, owner and wealth advisor, Incline Wealth Advisors, Cincinnati, Ohio

Exit

10. My niche is working with tattoo artists. I’d say some common mistakes are:

Not operating like a business whether they’re 1099 or a shop owner. Not separating business and personal funds. And not preparing for taxes.

— Colton Etherton, founder and financial planner, Out of the Office Planning, Beaverton, Oregon

Choose your next slideshow ...

Exit

Slideshow

8 Reasons Advisors Are Worth Their Fees: Russell

Slideshow

12 Most Affordable Big Cities to Buy a Home: 2023

Slideshow

9 Weird Facts About Social Security’s Retirement Earnings Test

Slideshow

10 Best Stocks to Buy Now: Morningstar

Dark Mode

Featured Resources
View All

From Orion Advisor Tech
How to Overcome Your Biggest Tech Pain Points

Download Now ›

From Commonwealth Financial Network
Why Hiring a Next-Gen Advisor Can Be Good for Your Business

Download Now ›

From Modern Life
How Advisors Can Deliver Unexpected Value for SMB Owners

Download Now ›

From Charles Schwab Independent Branch Services
Find the Right Fit for Your Business

Download Now ›

Connect with ThinkAdvisor

About ThinkAdvisor Contact Us Advertise With Us Asset & Logo Licensing

Sitemap Terms of Service Privacy Policy

Copyright © 2023 ALM Global, LLC. All Rights Reserved.