WHY FINANCIAL PLANNING IS DIFFERENT FOR BUSINESS OWNERS

97% of the people employed in Canada are employees. 3% are business owners. Financial planning is different for us business owners but most of us are using the same strategies that everyone else uses. Below are just a few of these differences. 

The Government of Canada's tax system favors small business owners. There are many tax planning strategies available to us but are not used by many. A few examples are:

  • Income splitting techniques that spread the income between family members that can result in dramatic tax savings
  • Individual Pension Plans which have been called RRSP's on STEROIDS
  • Estate freezes 
  • Retirement compensation agreements
  • Salary vs Dividends

Many more strategies exist which can be used by you depending on your circumstances.

Taxes are a business owner's biggest expense. The way you STRUCTURE your business can make a huge difference on how much taxes you pay.  Your goal should be to legally pay the lease amount of tax possible.  A qualified Tax Advisor and Financial Planner can help you find the best structure for you.

Estate planning becomes crucial as you want to make sure that your assets are transferred to the next generation in the most tax efficient manner. If your business will be transferred to the next generation or sold, steps must be taken several years before the transition to ensure that the transaction happens in the most tax effective way. You may need to add family members as shareholders, create a trust to own your business, along with other strategies depending on the structure of your business.

Regarding investments, strategies that most Canadians use to invest their money are not beneficial for business owners. The best example of this is the RRSP. Most financial planners and advisers will always suggest RRSPs but this is not the best solution for most business owners.

The simple fact that most of your net worth may be tied up in your business makes financial planning different for you. The way you manage your investments and tax planning strategies must take into account the fact that your biggest asset is your business.

If you would like to review the strategies that you are using to grow your assets and reduce your taxes contact me. I'm in the same boat as you because after all, I'm a business owner myself!