A healthy business usually looks pretty good from the outside. Turnover is growing, the team is performing well, margins are improving, and there’s a comfortable amount of money in the bank. But the owner’s personal financial position can tell a very different story.
For many business owners, the bulk of their wealth is tied up in the business itself. Take that away, and what’s left might be a home with a mortgage, some super, and very little else to show for years of hard work.
That’s a risky place to be. When the business is the only asset that’s growing, one bad year, one big client walking, or a sale that takes three years longer than planned puts everything at once on the line.
The answer is to build wealth outside the business while keeping enough inside it to operate and grow. Here’s how that works.
The Difference Between Income and Wealth
If you give yourself a pay rise from your own business, it tends to go the same way as a pay rise would for one of your staff. More comes in, and more goes out on the mortgage, the car, the kids and the holiday. That’s income. It’s the money you earn and spend each year, and a bigger wage usually just means a bigger lifestyle.
Wealth is different. It’s the assets you own that keep earning whether you’re working or not, like an investment property, shares, super or a stake in another business. Paying yourself more doesn’t build any of that on its own.
In practice it comes down to two decisions. The first is to pay yourself a proper wage for the job you actually do in the business. The second is to treat the profit above that wage as a separate pool of money, and decide on purpose where it goes rather than letting it get absorbed into everyday spending.
Where the Profit Can Go
Profit in a trading company has four places it can go, and each one is taxed differently.
- Wages to you. Taxed at your personal rate, super paid on top, and the simplest way to get money out.
- Super contributions. Between the super paid on your wage and any extra the company puts in, up to $32,500 a year can go in before tax in 2026-27, taxed at 15% on the way in instead of your personal rate, as long as you have the cap space and meet the eligibility rules. It’s locked away until retirement, which is the point.
- Dividends. Profit the company has already paid tax on can be paid out to the shareholders with a credit for that tax attached, so you aren’t taxed on it twice in full. Dividends work best when they are planned, so set a dividend target with your accountant at the start of the financial year and pay against it, rather than deciding in June based on whatever is left. Timing and who the shareholders are both change the outcome. What you do with the money afterwards is where the wealth gets built.
- Retained earnings. Profit left in the company for equipment, a second crew or a cash buffer. Useful, but still sitting inside the one asset.
Read more: How to build wealth with the right business structure.
Taking Money Out Without a Plan
The option to avoid is the one a lot of owners fall into: treating the business account like a personal one and leaving the accountant to sort out what each transfer was at tax time. Money taken out of a company without being recorded as a wage or a dividend can turn into a loan you have to repay with interest, or a tax bill on cash you’ve already spent. Decide how you’re paying yourself and record it properly.
Before You Move Anything Out
Money should only come out of the business bank accounts once the business has what it needs to keep running. Taking profit out of a business that needs the cash is how a good year becomes a bad one.
Before anything leaves the company, check four things:
- Income tax, GST, and super for the quarter sit in a separate account.
- You can pay wages and suppliers through your slowest six weeks without touching the overdraft.
- Any ute, fitout or hire planned for the next twelve months is already allowed for.
- There’s a month or two of fixed costs in a buffer that doesn’t get touched.
What’s left after those four is the amount you can actually move, and for most businesses it’s smaller than the profit figure suggests. A rolling cash flow forecast shows you that number before you commit to it.
What It Looks Like in Practice
Let’s put it in context. Take a plumbing business, for example. Say they have two crews turning over $1.4 million a year and $180,000 in profit after the owner’s $110,000 wage. Until now the owner has left it all in the company and drawn on it whenever something came up.
Instead, the owner and their accountant set targets at the start of the year for where the profit will go, and the $180,000 is split three ways against those targets.
- About $19,000 goes into super. The company already pays $13,200 in super on the $110,000 wage, so this top-up takes the year’s contributions close to the $32,500 limit.
- $60,000 is paid out as a dividend, and the owner invests it outside the business.
- The remaining $100,000 or so stays in the company to pay for the second ute, cover the tax bill and keep a buffer in the account.
Run that for five years and there’s a few hundred thousand dollars outside the business, growing on its own, that doesn’t depend on how next year’s quotes go. Returns are never guaranteed, and the split that suits you depends on your structure, your tax position and what the business needs next, so have the conversation with your accountant before the end of the financial year rather than after it.
What the Money Does Once It’s Out
Getting profit out of the company is only half of it. The wealth gets built by what the money goes into next, and the aim is to end up with more than one thing working for you.
Super is usually the first stop because of the tax treatment, and because it’s locked away from everyday spending. Beyond that, the money needs a home where it can grow in its own right, whether that’s shares, a managed fund, an investment property, or a second business you don’t run day to day.
The money can also be held in a separate entity, such as a family trust or an investment company, so it sits apart from the trading business and the risks that come with it.
Which of those suits you, and whose name or structure it sits in, is a personal advice question, so it’s one to work through with your accountant and a licensed financial adviser rather than decide on your own.
Why It Matters Later
Wealth outside the business takes the pressure off the business. It stops being the one thing that has to fund every future goal, which means you can step back, bring someone in, or sell on your timing instead of when you’ve run out of options. A company that pays out properly and keeps a clean set of accounts is also worth more to a buyer than one that’s been run as the owner’s wallet.
Start Building Wealth Outside Your Business
If most of what you own is still inside the business, there are three things to check: whether you’re paying yourself a proper wage, how much cash the business needs for tax, running costs and the next twelve months, and what happens to the profit that’s left.
Book a free discovery call with our Adelaide business advisors and we’ll work through those three with you. We are here to help you plan your next steps.
Growth iQ is an accounting and business advisory firm based in Malvern. We support owners across Adelaide in construction, trades, and specialised services with tax and compliance, business strategy and planning, and Agile CFO services.