Small business owners have a lot on their plate from growing their business to managing their employees, and sometimes their finances can take a backseat. But that shouldn’t be the case. Like it or not, finance is the backbone of every single organization no matter how big or small, and as a small business owner, it’s imperative you know what to be aware of. Here’s five areas of your finances you need to ensure you’re on top of:
While small business owners typically don’t have pension plans, they have invested significant personal capital in their venture – precisely why they need a good financial advisor who can develop a customized personal pension plan savings strategy. With proper planning, business owners can often take advantage of different corporate structures to increase tax efficiency and accelerate asset accumulation.
An investment advisor who is acting as a fiduciary becomes a trusted partner for the small business owner to ensure they can attain their personal goals outside the business.
Many small business owners have partners and unfortunately these relationships often breakdown over time. Proper upfront planning and advice can save a lot of heartache down the road. Each partnership needs to have a shareholders’ agreement that contemplates all that has to happen when one shareholder decides to depart or when conflicts can’t be resolved. One needs to contemplate what happens if a partner endures an extended illness or dies … the estate now becomes the surprise partner to the remaining shareholder running the business and that is likely not the intended consequence.
Proper planning and guided discussions can ensure many of these issues are avoided and peace of mind can be the small business owners today, allowing them to focus on growing the business.
3. Succession Planning
Many small business owners are so busy trying to grow the business they don’t start with the end in mind. They haven’t determined how and when they might exit the business down the road. This is a key oversight that a trusted advisor can assist with. It’s important to identify whether there is a succession candidate emerging from within the business or from outside.
An advisor can help with tax and legal structures as well as discuss how the succession buyout can be structured financially. Further, the departing business owner now has liquidity and investments to consider as part of their long-term financial independence plan.
Small business owners are often so busy they overlook planning for their own disability or demise. What would happen if the owner or key employees could no longer function as they do in the business? Covering these risks is very important and yet can often be overlooked or passed over due to cost.
A skilled and strategic advisor can build a risk management plan that balances proper coverage and the cash flow that is required. It’s a balancing act between covering the risk and diverting money away from growing the business.
5. Tax Planning
Tax law seems to be changing frequently and the typical small business owner has no way of keeping up to date on these changes. When the taxation within corporations change – whether on income or on investment growth inside operating or holding companies, the long-term plans that optimize withdrawals for the business owner need to adapt as well.
A good advisory firm can provide expertise from accounting professionals to help the small business owner optimize their after-tax income.
Brent Vandermeer is a Portfolio Manager with HollisWealth®, a division of Industrial Alliance Securities Inc., which is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. The opinions expressed herein are those of Mr. Vandermeer alone and may not be aligned with the opinions and values of Industrial Alliance Securities Inc. or any of its affiliated companies.