How business owners accidentally put themselves at financial risk

Running your own business means juggling a lot, sales, staff, operations, marketing, and more. But while you're busy growing the business, it's easy to overlook some of the financial traps that could put your personal assets or future at risk. Many business owners don’t even realise they're vulnerable until something goes wrong, a tax issue, a client dispute, or a cash flow crisis.

Mixing business and personal finances

Blurring the line between personal and business money may seem harmless, especially in the early stages, but it creates legal, tax, and liability risks.

Actions:

· Set up a dedicated business bank account and credit card.

· Avoid using personal funds to cover business expenses (unless it's properly recorded).

· Don’t pay personal bills directly from the business account.

· Track all transfers between yourself and the business with proper documentation.

· Use cloud accounting software to keep records clean and separate.

If your finances are currently mixed, spend an hour with your bookkeeper or accountant to clean up your records and separate personal from business accounts going forward.

Signing personal guarantees

When applying for loans, leases, or supplier credit, you might be asked to sign a personal guarantee. It sounds routine, but it means you could be personally liable if your business can’t pay.

Actions:

· Read every contract before signing, especially the fine print on guarantees.

· Ask lenders or landlords if a limited guarantee or company-only agreement is possible.

· Avoid putting your personal home or savings at risk unless absolutely necessary.

· Get legal advice before agreeing to a guarantee for a significant amount.

· Keep a record of all personal guarantees you've signed.

Review all current agreements and list where you’ve signed a personal guarantee. If there’s exposure you weren’t aware of, talk to your advisor about strategies to reduce the risk.

Choosing your business structure

The structure you choose, whether it’s a sole trader, partnership, or company, directly affects how exposed you are if things go wrong.

Actions:

· Sole traders and partnerships offer little to no personal asset protection.

· A limited liability company separates your personal assets from business debts.

· Make sure your structure still suits your size, income level, and risk profile.

· Review your structure if you've grown significantly or taken on more liability.

· Seek accounting or legal advice before making changes.

If you’re operating as a sole trader or in a general partnership, ask your accountant whether it’s time to transition to a company to limit your personal liability.

Tax obligations

Falling behind on tax payments is one of the quickest ways to trigger financial stress. You can become personally liable for tax debts like PAYE, even with the right company structure.

Actions:

· Stay up to date with income tax, payroll, and GST filings.

· Set aside tax funds in a separate account and don’t rely on catching up later.

· Use a cash flow forecast to predict upcoming tax payments.

· Don’t ignore notices from the tax office, early communication is key.

· Hire a tax advisor to help if you’re behind or confused.

· Use a payroll intermediary like Smartly or iPayroll to avoid falling behind in PAYE.

If you’re unsure of your current tax position, run a quick health check with your accountant or bookkeeper this week to catch and address any red flags early.

Relying on one client, supplier, or key staff member

Depending too heavily on a single client, supplier, or team member can create serious vulnerability if that relationship ends or changes unexpectedly. Diversifying your dependencies helps protect your business and ensures greater stability in the face of disruption.

Actions:

· Diversify your client base to reduce revenue risk.

· Build relationships with backup suppliers in case of disruption.

· Document your systems so operations don’t grind to a halt if a team member leaves.

· Use contracts to lock in key clients or suppliers where possible.

· Review and update your contingency plan at least annually.

Identify your biggest point of dependency (client, supplier, or staff) and put one backup or mitigation strategy in place this month.

Final thoughts

Financial risk often builds up slowly and silently until it becomes a serious problem. The good news is, most of these risks are preventable with a few proactive steps and the right advice. By separating finances, understanding 

If you’re unsure where your vulnerabilities lie, now’s the perfect time to get clarity. Our Wellington accountants and business advisors can review your current setup, highlight any risks, and help you put practical protections in place—so you can focus on growing your business with confidence. 

Get in touch today to start building your safety net.

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