Founding, managing and growing a business—as so many entrepreneurs will advise—is not for the faint-hearted. It’s a thrilling, time-consuming labour of love that requires a business owner to wear many hats in order to steer their organization toward success. The same is true if they’re an incorporated professional, where the need to build and service a robust client list is the top priority. As we noted in our previous blog on overlooked personal finance opportunities corporate financial planning considerations can also fall by the wayside when life and business take centre stage—as they inevitably do.
But achieving financial wellness on the business front is just as important as attaining it personally. The reality is that running a fast-growing company is like riding a roller coaster—constant ups and downs with little time to catch your breath. Before it’s too late, you could realize that overlooked corporate financial planning has resulted in avoidable (and potentially costly) mistakes. Some of these could compromise the long-term, bottom-line performance of the organization, or at the very least, stifle its growth.
While there are dozens of considerations when building a financial priority list for your business, here are four commonly overlooked opportunities that you can act on now:
Investing in human capital
Well-designed group benefits are an important tool to attract, retain and engage employees. Many organizations are learning just how valuable a well-structured group benefits program is at a time when labour shortages and increased labour mobility are putting added pressure on HR professionals to find creative ways to court top talent. But even at times when there’s a greater balance between supply and demand in the labour market, organizations face a common problem: their group benefits plans simply aren’t relevant to their employees, or those employees don’t fully understand (or know how to access) the benefits to which they’re entitled.
Of course, this undermines the basic premise of a group benefits program. Beyond being an attraction and retention tool, these packages are an effective way to help foster employees’ overall wellness through the provision of health, dental, mental health or various lifestyle-related benefits. If staff don’t value (or understand the amazing) package at their disposal, then it’s a wasted investment on the part of their employer.
By optimizing your group benefits program and investing in human capital, you have the opportunity to position your company as an employer of choice—the kind of organization where top performers want to work. Doing so will help you build a stronger, more innovative and dynamic employee culture, while also helping you compete for (and retain) talent.
Optimizing tax structures
One of the greatest obstacles to effective tax planning is complexity. Not that business owners and incorporated professionals are generally doing the accounting work themselves, of course, but merely understanding tax structuring, compliance and minimization strategies can be overwhelming. Many avoid it altogether.
It pays to work with a group of trusted advisors—which could include some combination of your accountant, tax lawyer, financial planner and wealth manager—who can help you cut through that complexity and understand the most cost-effective options to minimize your tax burden. That should start with a strategic tax review that analyzes your current tax planning strategy and makes recommendations on ways to optimize that plan, reduce your organization’s effective tax rate, increase cash flow and, in turn, boost your personal net worth. Potential risks on the horizon—and your tolerance for managing them—should weigh heavily on that strategy. So, too, should a fulsome understanding of potential tax obligations with proper financial forecasting and budgeting to address future tax remittance requirements.
What’s important to remember is that while you may start your business as a sole proprietorship, when you incorporate, hire your first few employees then potentially grow to become a much larger company, your strategic tax requirements and the optimal strategies to achieve them will evolve. Even if you operate a lifetime microbusiness, your financial circumstances will undoubtedly change as you age and the focus shifts to an eventual business exit or transition into the next phase of life. The key takeaway: don’t forego opportunities to continually optimize your tax infrastructure for the best possible business and personal wealth-building results.
Managing risk with comprehensive business insurance
Our recent blog on key person insurance highlights the importance of solutions that protect your business in the event that a leader or team member passes away suddenly, or becomes disabled and is unable to work. Key person insurance is a financial bridge to help your organization reorganize and recover until that individual can be replaced (if that’s even possible). Other forms of insurance including disability, life and critical illness coverage can help enhance your overall financial wellness by delivering peace of mind that you and your family will be covered in a worst-case scenario.
We can add other forms of insurance to the list including liability coverage, which protects the company in the event of an error, omission, product failure or other incident that could result in litigation.
Bonus tip: any comprehensive risk mitigation strategy should also include a close audit of shareholder agreements to ensure they’re properly structured for tax purposes, protect all parties in the event of a business dispute or exit by one of the key partners, and effectively address your estate planning goals.
Separating personal and corporate finances (while managing them holistically)
One of the greatest barriers to business succession planning is poor accounting and financial management. While many owner-operators aspire to eventually sell their business for a hefty sum, when they enter into a sale negotiation, so-called ‘shoebox accounting’ and the overlap of their personal and corporate finances negatively impacts the potential sale price or gives prospective buyers reasons to exit negotiations altogether.
Setting up proper accounting practices early on that separate your personal and professional finances not only helps to mitigate this risk, but presents opportunities to optimize tax structuring and gives Canada Revenue Agency fewer reasons to trigger an audit if they suspect your books aren’t being properly managed.
But there’s a contradiction to this piece of advice: while it’s always best to run corporate and personal accounts separately, you should take a holistic view when building financial strategies for yourself or your company. Why? For the vast majority of business owners and incorporated professionals, the performance of their company will directly influence the scope of their personal wealth. Carefully integrated planning will allow you to align strategies and set a roadmap for the future—think retirement, philanthropy or estate planning—based on your company’s projected performance.
The key to capitalizing on these overlooked opportunities is execution. Talk to your financial advisors and act now to put your business on a path to success.
The Bridgewell Team
For corporate financial planning insights, contact a member of our team today.
