Many business owners and wealth holders wonder – “Do I really need a financial plan?” Some feel that saving regularly in recurring deposits or Systematic Investment Plans (SIPs) in investment accounts is financial planning. However, allocating savings and investing in an ad hoc manner is not enough to achieve your life goals. In order to become financially sustainable for the long run, you need to make money work for you. This is where financial planning comes to your rescue.

WHO NEEDS A FINANCIAL PLAN?

One who does not realize where and how their income is spent every month
One who has various debts or liabilities
One who does not have a roadmap of how to achieve their future
One whose investments are scattered
One who is not sure if they made the right investments
One who wants to plan for financial goals
One who does not have a habit of investing regularly and systematically
One who has multiple life insurance policies and doesn’t know which policies to keep
One whose portfolio is skewed towards any particular asset class

HOW SHOULD YOU SELECT A FINANCIAL PLANNER?

Check the capability of the person that you wish to hire as your financial planner. Ask a few simple questions such as:

Do I like this person and can I get along with them for a long time?
What is the process that they use to provide advice and am I open to accepting advice from them?
How do they guide their clients and solve their financial questions?
How big is their team and do they have specialized resources for unique situations?
How long has the firm been in business and what does their typical client look like?
Do they have existing clients that would be open to a conversation about their experiences?

1.FINANCIAL PLANNING FOR SMBs – BEST PRACTICES

SEPARATE BUSINESS AND PERSONAL GOALS

Blurring the fine line between business and personal goals could mean bargaining with certain aspects of your finances for certain others. Perhaps you want to start a new business project but also want to add funds to your child’s RESP plan. Which takes priority? Of course, you’re building the business to make money to forward your personal financial goals but if you don’t distinguish between personal and business objectives, you may end up hurting both.

Thus, it is not just important to separate finances but also to distinguish between financial goals. Ask yourself:

Personal: What are my immediate personal priorities? Examples: Get more exercise, learn a new skill, buy a new home. What’s my five- and 10-year plan? What are my family’s priorities?

Business: What are my immediate business priorities? Examples: Hire a new employee, make a marketing plan to acquire more customers, expand into a new city. Where do I want my business to be in five years? What is our product or service development priorities?

2. HIRE FAMILY MEMBERS APPROPRIATELY

If you plan to hire family members make sure to carve out a proper job description and pay structure for their provided services. Paying non-arm’s length family at above market rates in an effort to purely split income for tax purposes can be problematic. Having the proper documentation supporting work and justifying income can go a long way in avoiding painful tax audits and costly penalties.

3. LOWER BORROWING COSTS AND MAXIMIZING DEDUCTIBILITY

If you are a business owner with a mortgage-free home and debt in your business, you may consider borrowing personally and loaning the funds back to your company to pay off company debt. This will likely reduce your borrowing costs and generate a higher tax deduction at the personal level. It is also best practice to speak with your lawyer about securing the loan to protect yourself from company creditors.

4.INCORPORATE

If you are self-employed, consider incorporating your business. This could result in tax savings as corporations are taxed at 12.2% on the first $500,000 of taxable income in the 2021 calendar year compared with the top combined personal federal and provincial tax rates in Ontario of 53.53%. However, this strategy works best if taxable income is retained in the company for further business expansion or investment.

5.MANAGING TAXES

Tax-Smart Investment Strategies are an integral part of any company’s financial plan. Contributing to tax-efficient accounts that have little impact on passive income and small business deduction rates maximizes returns and operational profits. Going the do-it-yourself route may work for your personal finances, but investment tax planning can be far more complicated as a small business owner. Outsourcing tax planning and portfolio selection to a qualified planner will not only free up time, but that expertise will reduce future tax liabilities.

6.CONTINGENCY PLAN

An emergency fund or a contingency plan is a financial safety net for future mishaps and/or unexpected expenses. Emergency funds should typically have three to six months’ worth of expenses, although the pandemic has led some experts to suggest up to one year’s worth. In case of any emergencies, this fund comes handy and is directly proportional to your risk factors.

A financial plan is the blueprint of one’s current money situation and a road map to achieve long-term goals. Financial planning includes budgeting your expenses, investing in the right assets, setting SMART goals, selecting the right asset allocation, creating a retirement plan, and more. It also helps you build your contingency fund for any unforeseen needs that may arise. We would be happy to plan your finances prudently to help you achieve your life goals.

The fundamentals we firmly believe in are:

✔ Creating value for you, your family, and your business

✔ Providing creativity and capabilities to help “make things happen”

✔ Providing leadership and direction to help “point the way”

✔ Providing relationship and confidence to “accompany you on the journey”.

It’s not what you make, it’s what you keep.