Businessman Using Laptop

HOW WE HELP BUSINESS OWNERS

Growing a business is a difficult undertaking today as business owners must confront a myriad of tax laws and regulations while trying to effectively create products or services, manage their employees, develop and cultivate clients, and do so profitably.

Often times business owners are too absorbed in their business to tend to their own financial needs, and they may also overlook key planning considerations that could help their business grow and prosper. Also, the livelihood of a business owner can be imperilled when unexpected events occur that adversely affect the bottom line of the business.

BUSINESS OWNER NEEDS

RETIREMENT

For many business owners, their business is their primary retirement asset.  After many years of building a successful business they expect to convert it to an income for retirement by selling it.  If they are relying upon the business as their sole means of retirement they run the risk that it may not attain the value needed to produce the needed income.

Businesses can fail. Businesses can lose value in certain economic cycles. The timing is not always right to sell a business. Many times the true value of the business lies in the talents and good will of the business owner who won’t be around to run the business after he retires.  

Business owners today must prepare for retirement with the same level of diversification recommended for any retirement plan. Business owners have access to a number of qualified and non-qualified retirement plan options that can provide a cornerstone for their retirement income needs.

BUSINESS SUCCESSION

When a business partner dies, the business loses a valuable asset and could suffer in the short term.  The long term issue for surviving business owners is whether the business can survive when the partner’s family members show up for their interest in the business. 

For the families of business partners, the business interest is often their biggest asset and they become the rightful owner of that interest at the death of the partner.  They will want to receive their share of the business, either in direct compensation or through their participation as an active partner in the business.

If the surviving partner does not have the capital to compensate the family for their share, their options are limited and not very attractive.  A business succession plan can provide for the orderly transfer of the business interest from the deceased’s family to the business.

KEY EMPLOYEE PROTECTION

One of the more devastating events a small business can suffer is the loss of a key employee.  Often times it’s a key employee who brings a special talent to the business and is responsible for much of the success of the business owner.  The loss of such a valuable asset could set the business back for a period of time, and at tremendous cost, while the business owner seeks to find a replacement, if one can be found at all. 

In financial planning, we are taught that it our most valuable assets – our home, our ability to earn income, our cars – should be insured against an unexpected loss.  It’s no different for business owners as the loss of a valuable business asset could imperil the business. 

Buying life insurance coverage on a key employee makes good business sense. The amount of coverage should be enough to cover the costs of recruiting and paying a replacement, loss of earnings to the company, any redemption of stock or a salary continuation plan arrangement with the surviving family.

EXECUTIVE COMPENSATION

In a small business setting, it could take years to find or develop the executive talent needed to build the business to the next level.  Executive talent is hard to come-by, and it is even more difficult on the business when it walks out the door in pursuit of another opportunity. 

When key executives are presented with a strong monetary incentive package, they are more likely to stay and utilize their talents where they feel appreciated and appropriately rewarded.  Structured incentive plans can help keep key executives in place and motivate them to higher levels of performance. 

Plans such as Non-qualified Deferred Compensation, Executive Bonus, and Split Dollar Life Insurance are life insurance based plans that enable the business to offer current and future benefits to their key executives in exchange for their continued service for a specified period of time. 

FINANCIAL PLANNING FOR BUSINESS OWNERS

Business owners face unique challenges—and opportunities—in terms of financial planning. You’ve worked hard to develop your ideas into a successful business, or perhaps you’re considering moving into self-employment. Regardless of your situation, choose a financial planning strategy that takes advantage of your unique situation.

If you are considering moving to self-employment, contact us to discuss how to revise your financial plan. Working together, we will help you adjust from a situation where a previous employer might have provided benefits, such as health or life insurance or a company pension. Life and disability insurance can be difficult to purchase at first, since many insurers want two years of tax results. As well, self-employed people can gain tax write-offs for some health insurance premiums.

You may also need to negotiate a bank loan or line of credit to help fund office space, materials and other business investments. We can help you explore options to effectively secure these start-up expenses.

Tax planning is another important component of a strong business strategy. Depending on your business, consideration may include paying wages or collecting GST. You also need to pay your own CPP and EI, and possibly make quarterly tax instalments. As well, you can take advantage of capital cost allowances on equipment such as computers or vehicles, and business expenses such as advertising, salaries, or travel.

No matter what stage of growth your business is in, contact us today to design a tax-efficient business planning strategy.

BUSINESS SUCCESSION PLANNING

You worked hard to develop a business, and now is time to enjoy the results. Many entrepreneurs spend years of focused effort building up a business, but then fail to consider how to make the transition to retirement. A financial security advisor can offer expert advice in how to plan an effective business succession strategy.

Entrepreneurs can work to turn equity in the business into capital that can be used to fund retirement. A financial advisor can help business owners with tax-effective retirement strategies, such as using life insurance policies, paying yourself a salary as the business founder, or arranging for an heir to slowly buy up your shares.

Life insurance is another consideration when planning business succession. If the founder is nearing the end of his or her life, a well-planned life insurance policy can help successors transition into business owners. Upon death, successors face estate taxes on business values of more than $500,000—with the tax-free amount potentially offset by any capital business losses the owner declared during his or her lifetime. Life insurance is one way that successors can cover the remaining amounts.

Smaller businesses may not need to pay estate taxes, but can still benefit from a plan that ensures an equal legacy for their successors. A financial security advisor can help entrepreneurs plan an inheritance that is fairly distributed among all loved ones.

Contact us today to discuss strategies for business succession.