Financial Planning for Professionals and Business Owners
It is no secret that as Canadians, we pay a lot of taxes. Aside from tax planning, there are very few ways to guarantee yourself savings in Canada. That is why tax planning is an integral part of the financial planning process. For business owners and professionals operating within a corporation, there are certain strategies available to reduce your tax liabilities on operating income and passive income (income generated from passive investments). No two businesses are the same, which is why we tailor-make each strategy to fit your business's unique situation.
You may be thinking, isn't that what my accountant is for? Yes, some of the planning we do can be complemented by the work your accountant does but, more often than not, the strategies we implement are not common knowledge for accountants and certainly can't be implemented by them. In fact, it is often the case that our business owner and professional clients ask us to meet with their accountants and lawyers. We want you to know that we are happy to do that as we believe in a team effort.
Key Person Protection
Key employees drive your business and are essential in its future success. This reality makes them very tough to replace. Unfortunately, life can be unpredictable and something unexpected can happen to one of your key employees making them unable to work for a period of time or forever. This can result in lost revenues from key employee production for an indefinite period of time and can cost your business greatly to replace them. That is why you should use disability insurance, critical illness insurance, and/or life insurance coverage to supplement the lost revenue and cost of replacing one of your key employees. Moreover, there is a specific type of disability insurance that provides overhead expense coverage used to pay for your business overhead expenses should a key employee becomes disabled.
Buy/Sell Arrangement Funding
When there are multiple partners or owners in your business, there should always be a contract outlining how each partner or owner should be bought out of their share of the business in certain scenarios. How these arrangements commonly work, technically speaking, are as follows: the business owner or partner that is being bought out of their share of the business would sell their share to the remaining partner(s) or owner(s) under the conditions outlined in the contract and the remaining partner(s) or owner(s) would compensate the owner or partner who is being bought out for their share of the business.
Customary conditions included in buy/sell arrangements are death, disability and illness. If one of these scenarios would take place with an owner or partner of the business, the remaining partners could buy the exiting partner or owner out of their share of the business.
How would the remaining partners fund this purchase?
Using life insurance, critical illness insurance, and disability insurance.
Owning a professional practice or business in a corporation can be highly advantageous for many reasons. Here are some:
Defers liability to a corporation rather than to an individual if ever sued
Highly tax efficient if used effectively
Allows for income splitting opportunities
Provide creditor protection
Corporations can 'live' forever
Effective for succession and estate planning
Easier to obtain financing
If you have incorporated or decide to incorporate in the future, ensuring that you have an efficient corporate structure is something that we can advise on and use in our planning. An efficient corporate structure will allow you to maximize the growth of your assets in tax efficient environments. This is especially important for business owners and professionals with sizeable retained earnings in their business, real estate investors, and those earning over and above the small business deduction.