8 Mistakes Business Owners Make (and How to Avoid Them)

Every business owner I’ve met has poured heart and soul into analysing market risks, competitors, and the unknowns that could derail success.

But here’s the catch: while most entrepreneurs obsess over external threats, they often neglect one of the most critical success factors – how their business is structured.

And that oversight can cost them dearly.

Think of it this way: accounting isn’t just about numbers – it’s the science of business.

When you expand it to include tax planning, asset protection, succession, and estate planning, it becomes the art of protecting and multiplying wealth.

Unfortunately, too many businesses fail to align their legal structures with tax law and commercial reality.

And the result could be expensive mistakes, lost opportunities, and at worst, the collapse of what they’ve worked so hard to build.

Here are eight common mistakes I see business owners make time and time again – and the lessons you can take from them.

1. Incorrect choice of business structure

There’s no “one-size-fits-all” when it comes to structuring a business.

You need to consider long term success, after all who starts a business to fail. Other considerations include bringing in partners, public or private float and your exit strategy.

• Sole Trader / Partnership issues: Income taxed at individual marginal tax rates (up to 45% plus 2% Medicare Levy). No limited liability. Partnership structures risk joint and several liability.
• Company: Corporate tax rate is 25% (base rate entities) or 30% (other companies). However, retained earnings paid out as dividends create additional tax via the franking system.
  • Unfortunately one of the biggest mistakes when using a company is to have individual shareholders.
• Trusts: There are several types of trusts and they fall into two basic types. A trust does not pay tax but must distribute its profits each year. If trust income is not distributed, at least by a resolution, to beneficiaries by 30 June, the trustee is assessed at 47%.
  • Fixed, normally used when working with others and requiring a fixed entitlement.

• These trusts can distribute fully discretionary i.e. no one has a right. As they are so flexible they tend to be used by family members, hence the term, family trust.

2. Misuse of companies and trusts

Too many owners treat companies and trusts like interchangeable entities – but the rules are strict.

• Borrowing from your company Division 7A loans: Loans or payments to shareholders/associates without a complying loan agreement are treated as unfranked dividends. This can lead up to a 72% tax exposure.
• Corporate Trustees: Using an individual as trustee of a trust exposes their personal assets to litigation risk.
• Trust streaming: Incorrect streaming of capital gains or franked dividends breaches trust deed or tax law, invalidating distribution and leading to trustee-level tax at 47%.
• Incorrect wording in your trust deed.

3. GST compliance errors

GST may look simple, but it’s a minefield if mishandled.

• Threshold: Mandatory registration at $75,000 turnover.
• Errors:
  • Claiming input tax credits without valid tax invoices.
  • Failing to remit GST on cash vs accrual basis correctly.
  • Misclassifying supplies (GST-free vs input-taxed).
• Not registering for GST if required. I have shown this as a separate item given its grave negative impact. This means you cannot claim your input tax credits, but you still have to pay the GST on sales.
  • A misunderstanding is that if you do not register when you should have you can retrospectively register and claim your GST input credits, wrong, you lose them.

Division 129 – Adjustments for Changes in Use. Especially for property developers when they retain property for a more favourable sale price and rent it out in the interim is forgetting to repay GST input credits period to period.

• Also read:How does my super get taxed?
• Also read:Why Testamentary Trusts Aren’t Just for the Rich: A Guide to Safeguarding Your Legacy Introduction
• Also read:The Inheritance Tsunami: What the Baby Boomer Home Legacy Means for Future Generations
• Also read:Here’s what you need to do if you’re planning to give or receive an inheritance?
• Also read:Why You Should Set Up a Family Trust

4. Poor record keeping and tax liabilities

Government guidance for small businesses repeatedly flags record-keeping as a common failure point (and penalty risk), reinforcing how often poor administration undercuts a taxpayer’s position.

• Practical takeaway. There isn’t a reliable “percentage of ATO wins due to poor paperwork,” but a substantial share of taxpayer losses—especially for individuals/small businesses and R&D claimants—hinges on evidence gaps (missing invoices/logs, non-contemporaneous records, inconsistent accounts), rather than pure black-letter law disputes.
• Directors breach notices. The ATO can penalise directors (and even CEO’s) who are personally at risk for payment of tax debts including GST, tax , super guarantee etc

5. Co-mingling business and personal funds

 Blurring the line between business and personal money is one of the fastest ways to lose tax deductions and attract ATO scrutiny.

• Division 7A again: Using company funds or assets for personal use without proper treatment.
• Loss of deductibility: The tax legislation requires nexus between expense and assessable income. Mixed-purpose expenses are easily denied.

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• Record-keeping breaches: Poor separation may breach Corporations Act director duties.
• Fringe benefits tax is an easy target for the ATO. You need to carefully consider even part use of a company asset i.e. personal use of a company car, gifts and entertainment rules.

6. Capital Gains Tax mismanagement

For many businesses owners who have worked hard all their lives the final recognition of a buyout or sale is music to their ears.

Unfortunately, the structure you have chosen to operate your business has a significant impact on the tax you will be liable for.

Ignoring structuring early and missing out on millions in tax savings at exit.

Typically, there are several tax concessions available, but they may not apply to each taxpayer.

• 50% general CGT discount. Assets must be held for at least 12 months
• Small Business CGT Concessions:
  • 4 unique tax concessions can be accessed.
• Mistakes:
  • Failing the net asset value test ($6m) or $2m aggregated turnover test due to poor structuring.
  • Restructure rollover relief: Often overlooked when moving from sole trader/partnership to company.
  • Loss of 50% discount when a company sells its assets.

7. Superannuation Guarantee (SG) non-compliance

Super obligations aren’t optional – and the penalties for missing deadlines are brutal.

• Rate: Currently 11.5% (FY2024–25), rising to 12% in 2025.
• Due dates: 28 days after each quarter. Late payments can create the scenario of a  non-deductible claim.
• SG Charge (SGC): Penalty regime includes nominal interest and administration fees, often exceeding the original contribution. Directors may be personally liable.

8. Succession & asset protection failures

What happens to your business when you’re not around? Many entrepreneurs avoid this question – and their families pay the price.

• Estate planning: Failure to align business structures with wills leads to CGT/stamp duty liabilities. Not all wills are created equally.

An incorrect will can lead to:

• • higher tax for your family, loss of assets in a family dispute, punitive taxes for minor children and large superannuation death benefits taxes (including a forced sale of super assets).
  • Loss of your business.
• Buy–sell agreements: Without insurance funding, surviving partners may be forced to sell or liquidate.
  • While you are more than happy to be in business with your business partner how happy would you be on their death or impairment to see one of their family members step into their shoes.
  • Note, life insurance paid out for the buyout of a partner is normally assessed as fully taxable income and not tax free. Specific agreements need to be put in place if insurance is a funding source.
• Key man insurance. This can assist to pay additional personnel costs in the event of a senior staff being unable to work where a replacement is needed
• General insurance. Unfortunately we see too many businesses either under insuring or not having the appropriate insurance. While it may seem like a cost saving it can lead to a business foreclosure and directors liabilities in the event of a serious negative event.
• Trust cloning/transfer rules: Since the 2010 changes, many trust restructures now trigger CGT events. The wording of your trust deed will either assist or diminish your ability to make changes to the trust “rules”.
• Family law risks: Assets in trusts may still be exposed under the Family Law Act 1975.

Some final thoughts

These eight mistakes are avoidable, but only with foresight and proper advice. Too many professionals focus on just one area – tax, legal, or financial – without connecting the dots.

Smart business owners take a holistic approach to their operations. They structure for success, build in flexibility, and plan not just for today but for the future.

Because in business, it’s not just about growing profits – it’s about protecting them.