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Common financial mistakes costing self-employed dearly

Adam Zuchetti
Adam Zuchetti
12 April 2018 1 minute readShare
Money, cash, Australian dollars

Many business owners are risking their long-term financial security by overlooking some of the most simple aspects of working life, a financial adviser has warned.

James Trethewie, who has a number of years’ experience working with SMEs, said there are a couple of common problems business owners find themselves in.

Chief among them, he said, are not paying themselves a regular wage or superannuation just like they do for any other employee.

“Sometimes starting out, people don’t set themselves a regular wage – they’ll just pull money out of the business when they need it,” Mr Trethewie told My Business.

“You’ve got to pay yourself just as if you’re an employee, to help you plan ahead by factoring everything in and helps [sic] you stay afloat.”

Doing so not only delivers a consistent earnings pattern personally, which is important for general living expenses and obtaining personal loans and mortgages, but is also a key component of managing the business cash flows.

Meanwhile, superannuation should not be overlooked either, Mr Trethewie cautioned.

“A lot of business owners view their business as their super, but what that means as they approach retirement is that everything is hinged on them getting a good sale price for their business. It could be amazing, but it’s risky and doesn’t present a lot of diversification,” he said.

“There’s a lot of risk in business, and that’s why super makes a sound strategy for building wealth… in a tax-effective way.”

Finally, Mr Trethewie said that another financial mistake of the self-employed is to be under-insured.

He said many businesspeople avoid many insurance protections in a bid to save costs, but this can prove counter-productive.

“The most valuable asset is you, or you as a business owner and your ability to earn an income. If you can’t earn an income, what is that going to look for your business, and for your family?” said Mr Trethewie.

“Things like income protection, debt protection for the business. [Not having them] can mean you’re personally liable, and that can mean the family home.”

He said that insurance actually forms an important part of any wealth creation strategy.

“Protect yourself with adequate insurances – not just fire and theft – I actually mean protecting their business and their ability to work, and then paying their super so that they’re accumulating wealth.”

Common financial mistakes costing self-employed dearly
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Adam Zuchetti
Adam Zuchetti

Adam Zuchetti is the former editor of MyBusiness and a senior freelance media professional, specialising in the fields of business, personal finance and property. In 2020, he also embarked on his own business journey – inspired in part by the entrepreneurs and founders he had met through his journalistic work – with the launch of customised pet gifting and subscription service Paws N’ All.

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