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Running a small business is rewarding, but let’s face it—growth doesn’t always come easy. In Ireland, where small businesses make up 98% of all companies, owners put their heart and soul into their work.
Yet, some common financial habits can unknowingly hold back growth and profits. In this article, we’ll break down a few habits and share simple tips to help you shift your approach, strengthen your finances, and set your business up for long-term success.
Mixing Personal and Business Finances
Mixing personal and business finances is a common mistake that can significantly hinder business growth. Keeping these finances separate is crucial for maintaining accurate financial records, simplifying tax filings, and maximising potential deductions.
For example, as a business owner, you may be able to claim deductions on specific expenses, like business travel or supplies, through Revenue. However, to successfully process these claims, you need a clear paper trail that shows the expenses were business-related and how they were paid.
Keeping separate accounts for business and personal expenses is a smart move that simplifies financial management and keeps your business on a clear path for growth.
Lack of a Financial Plan
Many small business owners operate without a clear financial roadmap. Without a financial plan, it’s easy to lose track of goals, overspend, or miss out on investment opportunities that could propel growth.
Develop a financial plan outlining short-term and long-term objectives, revenue targets, and budget allocations. Regularly revisit the plan to ensure you’re on track and adjust it as needed to accommodate changes in the business landscape.
Avoiding Financial Review
Without a regular financial review, it’s challenging to understand where money is being well-spent versus wasted. Many small business owners delay looking at their finances, focusing instead on day-to-day operations, which can lead to financial surprises.
Schedule a monthly financial check-in. Consistently reviewing revenue, expenses, and profit margins will help you catch issues early and make data-driven decisions.
Taking on Too Many Loans
The most common bad money habit among business owners is taking on too many loans. While it may be tempting to rely on debt for growth, excessive borrowing can create long-term financial strain. According to The European Small Business Finance Outlook 2023, during the first half of 2023, 24% of SMEs in the Euro area reported severe issues accessing finance, with factors like the economic outlook and limited public support for financing being major hurdles.
High debt can lead to high-interest payments, limited flexibility, and increased risks to both business and personal finances. Only take on debt when it aligns with a solid financial plan and growth forecast, and explore manageable financing options to avoid over-leveraging.
Common issues include:
High-Interest Payments: These can drain resources, reducing funds available for other business needs.
Risk of Default Leading to Forced Bankruptcy: If revenue dips or costs rise unexpectedly, high debt levels can quickly put the business at risk.
Limited Financial Flexibility: High debt restricts your ability to invest in new opportunities, make necessary improvements, or manage unforeseen challenges.
Risks to Personal Finances: In many cases, business owners must use personal savings, sell assets, or even take on more debt to cover obligations, which can strain both business and personal financial health.
Only take on debt when it aligns with a solid financial plan and growth forecast. Focus on financing options with manageable repayment terms, and avoid over-leveraging your business by prioritising cash flow and gradual reinvestment.
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Neglecting Protection & Insurance
One common habit that can hurt the financial growth of small businesses is neglecting proper protection and insurance. Many small business owners focus on day-to-day operations and growth strategies but overlook the importance of securing their business against unexpected events.
Key person insurance, for example, is essential for businesses that rely heavily on a few individuals, like a founder or top performer. If a key team member becomes unable to work due to illness or accident, this insurance can provide financial support, helping the business continue without a critical gap.
Income protection is another must-have, ensuring that if the business owner or key staff cannot work due to illness or injury, they still receive a steady income until retirement.
Life insurance provides essential security, ensuring that if the unexpected happens, there’s a financial safety net for both the business and the family of the owner. Beyond covering immediate needs, life insurance is a key component of estate planning, helping to ensure that beneficiaries are financially supported and that any outstanding business obligations or personal debts don’t create a burden.
Serious illness cover also provides a lump sum if the insured is diagnosed with a major illness, such as cancer. For business owners, this type of cover is especially valuable, as a serious illness can impact not only personal health but also the stability of the business.
By integrating these types of insurance, small business owners can protect their business, their team, and their families, reducing financial vulnerability and helping the business thrive even in challenging situations.
Neglecting Retirement and Personal Savings
Many small business owners invest everything back into their businesses, overlooking their own retirement planning. While reinvesting is crucial, building financial security beyond the business is also essential.
Set aside funds for retirement contributing to a pension such as a PRSA or occupational pension scheme. Small, consistent contributions over time can build a solid retirement fund and give peace of mind. Learn more by reading our Retirement Planning Guide.
The ultimate Retirement Planning Guide.
Planning for retirement is a significant life milestone. Whether you’re just starting to think about retirement or are already well into your retirement journey, this guide aims to empower you to make informed decisions and create a retirement plan that aligns with your unique financial goals and expectations.
After you download your guide, one of our expert mortgage advisors will be in touch shortly to provide you with guidance and further relevant information including typical repayments, qualification amounts and mortgage requirements.
Not Leveraging Tax Benefits
Ireland offers various tax reliefs for business owners, but missing out on these benefits can mean leaving valuable savings untapped. For example, self-employed individuals can claim tax relief of up to 40% on payments toward an income protection policy, making personal income protection a smart investment for sole traders.
Employers can also provide executive income protection for directors and key employees, ensuring their financial security while benefiting from tax relief.
Additionally, for business owners considering succession planning, retirement relief can help minimise tax when selling or passing on the business. Leveraging these incentives can reduce your tax obligations and free up capital for essential business activities.
Work with our financial advisors at True Wealth to ensure you’re optimising available tax benefits.
Not Investing in Employees Benefits
Not investing in employee benefits can be a missed opportunity to boost team morale, loyalty, and overall productivity. Providing benefits like group life insurance or income protection shows employees that they’re valued and gives them peace of mind, knowing they have a financial safety if something unexpected happens.
We can help set up tailored employee benefits packages, including group life insurance and group income protection, to support your team and enhance your workplace culture. Investing in these benefits is an investment in your team’s well-being and your business’s long-term success.
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Why is having a financial plan essential for small business owners?
A financial plan is essential for small business owners because it provides a clear roadmap for managing finances, setting and achieving growth targets, and making informed decisions. Here’s why it’s so important:
Set Clear Goals for Smarter Decisions
A financial plan helps you outline your goals and create steps to reach them. It enables you to allocate resources effectively, prioritise investments, and manage risks strategically.
Stay on Top of Cash Flow
Small businesses often experience cash flow fluctuations. A financial plan helps you anticipate income and expenses, preventing cash shortfalls and ensuring you have funds available for operational needs.
Boost Your Profits
By tracking your income, expenses, and profit margins, a financial plan helps identify areas for improvement, leading to increased profitability. It allows you to cut unnecessary costs and invest in high-impact areas.
Supports Funding and Financing
If you need loans or investments, a well-structured financial plan demonstrates to lenders and investors that you have a solid approach to growth. This can improve your chances of securing the financing you need.
Build Stability for the Long Haul
A financial plan helps you prepare for future changes, such as market shifts or economic downturns, by building reserves and staying adaptable. It gives you a buffer and peace of mind, knowing you’re financially prepared for unexpected challenges.
Track Progress and Keep Growing
Setting financial milestones allows you to track progress over time, measure success, and make data-driven adjustments. This ensures that your business stays on track to meet its growth goals.
Why Do I Need a Financial Advisor?
Many people believe financial advisors are only for the wealthy, but that’s a common myth that can hold you back. A financial advisor can be a vital resource for small business owners who need to manage both business and personal finances effectively.
Financial advisors can help you build a solid financial plan, make smart investment decisions, and identify tax-saving opportunities that align with your business goals.
We’ve outlined some common myths that might prevent you from working with a financial advisor—let’s clear them up so you can see the true benefits.
Whether you’re planning for growth, saving for retirement, or simply managing cash flow, a financial advisor provides valuable guidance and peace of mind.
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As a business owner, managing both your personal and business finances can be complex, but a tailored financial plan can make all the difference.
Our specialised financial planning services focus on the unique needs of business owners—helping you with cash flow management, retirement planning, investment strategies, and tax efficiencies.
Reach out today for a customised quote, and take the first step towards a financial plan that supports both your business goals and personal security.
We are also experts in savings and investments, pension tracing, pension and retirement planning, mortgages, protection, wealth management and extraction and more.
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All our content has been written or overseen by a qualified financial advisor. However, you should always seek individual financial advice for your unique circumstances.
