Smart Financial Planning for Business Owners

Smart Financial Planning for Business Owners

Being a business owner can be stressful at the best of times. Amid mandatory lockdowns, unpredictable stock markets and a widespread economic slowdown, the past few months have dialed up the pressure and uncertainty even more than usual.

Every business owner has their own unique challenges and requirements, yet some concerns are relatively universal: managing cash flow, growing asset values and maximizing tax efficiency while balancing business and personal financial needs.

Amid today’s complex market conditions, going back to basics can offer a profitable path forward.

Meet Mike

At 48, Mike is in the prime years of his career. He runs a profitable consulting firm, which had seen revenues growing steadily up until the start of the pandemic. While business has slowed downed sharply during the past few months, Mike is optimistic that he’ll be able to bounce back as the economy picks up again.

However, Mike is less confident about his personal finances. With no employer pension to fall back on, he knows it falls on his shoulders to save for retirement and meet his family’s long-term financial needs. Although he regularly puts aside money for savings and investments, he’s not sure whether it’s enough and whether it’s optimized.

Ultimately, Mike is focused on efficiency and results. With a business of his own to run, what he really wants is someone with the expertise to guide him toward a financially secure future so that he can be free to focus on growing his business.

Smart yet effortless financial planning

Mike’s time is valuable, so he needs financial planning solutions that can drive results without taking up too much of his time or mental energy. He has no use for needlessly complex financial structures; instead, he’s looking for a simple, clear path to a secure financial future.

If you see similarities between Mike’s situation and your own, here are three things that may help you balance running your business with managing your personal finances:

  1. Understand your situation. It’s hard to save for retirement without a clear understanding of how much you’ll need to maintain your desired lifestyle. A clear business plan is a crucial starting point for any successful venture, and a clear financial plan is similarly critical for charting your path to retirement. A bit of effort up front will pay huge dividends in terms of clarity and peace of mind.

 

  1. Optimize for tax efficiency. You don’t leave money on the table when running your business, and it also doesn’t make sense to do so in your financial plan. As a business owner, you have opportunities to make smart use of various tax structures to minimize your tax bill. The key is knowing what they are and how they work so you can do more with every pre-tax dollar.

 

  1. Create an effortless plan. You already have one business to run, so you don’t need a financial plan that also demands ongoing time and effort to keep it progressing smoothly. Once you lay a foundation of sound strategies, repeatable processes and thoughtful diversification, your financial plan should be able to work hard in the background while you get on with growing your business.

Financially efficient strategies for business owners

The unprecedented economic disruption of the pandemic has provided business owners with a stark reminder of the need for contingency plans. And when your personal finances are tied closely to your business performance, optimizing both is important for ensuring long-term financial security.

At Rubach Wealth, we help business owners optimize their financial position both personally and professionally. If you’d like to discuss your financial situation, contact us today at www.rubachwealth.com.

Together, we got this.

This blog post is part of Rubach Wealth’s Back to Basics series highlighting how focusing on financial planning fundamentals can help you stay on course toward your long-term goals during these uncertain times.

 

Simple Steps for Gaining Financial Confidence

Simple Steps for Gaining Financial Confidence

The pandemic has changed many things, not least of which is thrusting parents – especially mothers, it seems – into the role of homeschool support teacher. This is just one more responsibility being placed on the shoulders of working women who already had plenty to worry about.

Even before the pandemic, many working women in Canada lacked confidence in their financial situation. Now with increased economic uncertainty and a precarious employment environment, it is more important than ever for women to take control of their financial future.

The best place to begin is by going back to basics.

Meet Eve

At 42, Eve is thriving professionally as a partner at a law firm. Although her career progression was slowed down by two maternity leaves, Eve’s expertise and hard work are currently opening doors to exciting new opportunities.

On the home front, however, Eve is having a rough time. Having recently emerged from a messy divorce, she is doing her best to create a stable new home life for her two children. This is no easy task as she’s also juggling a heavy workload and strained relationships.

Given the recent upheaval in her life, Eve has become increasingly stressed out regarding her finances. In particular, she is concerned about whether she is saving enough for retirement and her family’s future needs – especially in light of the recent divorce. Although she is well paid by her law firm, Eve doesn’t have a good sense of whether she’s setting aside enough for the future and whether she’s doing it in a safe yet efficient way.

In her ideal scenario, Eve would like to have a clear yet hands-off plan for managing her finances so she can focus her thoughts and energy on excelling at work while building a new, happier home life with her children.

Gaining financial confidence

For Eve, gaining clarity and confidence regarding her finances would help take a weight off her shoulders. With a career and family to balance, she wants to ensure that her money is working hard for her and putting her on track to a secure future.

If you can relate to Eve’s situation, here are three actions that could help you take charge of your financial future.

  1. Make a plan. At its core, financial planning is about identifying where you want to go (in terms of finances, lifestyle and peace of mind) and making a clear plan for how to get there. It doesn’t have to be complicated – in fact, it’s better to keep things simple. What it does require is getting organized, reflecting on your priorities, and finding a trusted advisor to listen and provide guidance.

 

  1. Safeguard your finances. One of the main causes of financial stress is all the ‘what ifs.’ What if I lose my job? What if I fall ill? What if I need to financially support my parents? Financial planning can’t eliminate all the uncertainty, but it can help you achieve safer financial footing. What this looks like will depend on your unique situation, but it could include things like building up an emergency fund or topping up your group benefits with personal insurance coverage.

 

  1. Ask questions. This is your money and your life, so you deserve clarity in order to make informed decisions. If you’re uncertain about something related to your finances, simply ask. And if the person you ask won’t listen or can’t provide a clear answer, find someone else who will and who can. Life is way too short to waste on uncertainty or self-doubt – especially when your financial future is on the line.

Moving fearlessly forward

As we slowly return to a life resembling pre-pandemic days, one thing we should aim to ditch is the financial uncertainty that many working women grapple with. By going back to basics, women can boost their confidence that they’re on track for retirement – and any surprises life may throw at them.

If you’d like to discuss your financial situation and gain insights to help you move forward fearlessly, Rubach Wealth can help.  elke@rubachwealth.com

Together, we got this.

This blog post is part of Rubach Wealth’s Back to Basics series highlighting how focusing on financial planning fundamentals can help you stay on course toward your long-term goals during these uncertain times.

 

Passing on the family cottage

Passing on the family cottage

For countless Canadians, the cottage has a special place in our heart. It’s the patter of little feet and the joyous splash of our kids running along the dock and plunging into the lake. It’s the cozy afternoon of hot chocolate and playing cards, while the thunderstorm howls outside. It’s the togetherness of family sharing stories around the dancing flames of a campfire.

Many of us assume that our cottage will stay in the family, passed on through the generations. But have you considered how this will happen from a practical and legal perspective? If you have multiple children, will they share ownership or will only one inherit the cottage? Have you thought about who will pay the capital gains tax – potentially in the tens of thousands of dollars – that may arise with the transfer of ownership when you die, and where this money will come from?

Your cottage is the backdrop of cherished family memories. However, without planning to pre-empt potential family disputes and unexpected tax burdens when ownership passes to the next generation, there is no guarantee that your children and grandchildren will be able to continue building these memories.

No tax holiday for your holiday home

When you die, your cottage is treated the same as your other assets: from a tax perspective, Canada Revenue Agency will assume it has been sold at fair market value and – assuming this value is higher than price you paid for the cottage – apply capital gains tax to half of the increase in value.

In this situation, numbers are better than words for illustrating the point: if you purchased your cottage years ago for $225,000 and it is worth $500,000 when you die, your estate could be hit with a capital gains tax bill of $61,875[1].

Will your children have that kind of cash on hand to pay the tax owing? Will they have to take out a loan to cover this amount? Or will they be forced to sell the cottage?

[1] This assumes a marginal tax rate of 45%, applied to half the increase ($137,500) in the value of your cottage.

These questions can be difficult to answer, especially when you don’t know what the future holds for you or your children. Fortunately, there are different strategies that can help you minimize the uncertainty and reduce the risk of your family losing the cottage, including the following:

  • Establish a family trust. By transferring ownership of your cottage to a family trust, you or an appointed trustee can exercise greater control over the ownership, maintenance and use of the cottage. Your children and other family members will be able to enjoy the benefits of having the cottage, but will be spared some of the financial implications of direct ownership.
  • Use a life insurance policy to cover any tax obligations. This can be a cost-effective way to cover the capital gains tax for your cottage. By using the death benefit from the life insurance to pay the tax bill, your children will not need to come up with tens of thousands of dollars on their own.

Hoping the kids will play nicely

Most of your family memories of cottage life are undoubtedly positive, but chances are there were some sibling arguments mixed in among all the sunny days. As grownups, your children will be better at resolving disagreements without wrestling, but that still doesn’t mean they will see eye to eye on everything.

If you have more than one child and want to leave the cottage to all of them, the best place to start is with an open and honest family discussion. This is an opportunity for both you and your children to share your wishes, intentions and expectations.

Even if everyone is on the same page now, it’s important to acknowledge that this may change as personal, financial and health situations evolve in the years ahead, resulting in differing views on usage and ownership. A buy/sell agreement is a useful tool for managing changing circumstances in the future.

Such an agreement lays out clear rules for what happens if one or more of the children want to sell their share of the cottage. By providing clarity, a buy/sell agreement can help prevent your family’s cottage memories from being overshadowed by tears and animosity.

Sunny outcomes require a plan

Ultimately, there are many factors to consider when passing along a cottage to the next generation and many ways to tackle this issue, but doing nothing is not one of them. Failing to plan ahead can result in hurt feelings and financial hardship among your family members after you die.

At Rubach Wealth, we can work with you to understand your priorities and develop tax-optimized strategies aligned with your wishes. If you have a cottage that you hope to keep within your family for future generations, call us today to set up a meeting. Your family has been shaped by the magic of sunsets at the lake, and we want to ensure that your children and grandkids can enjoy sparkling sunrises on the dock for decades to come.

 

Disclaimer: This article is provided for informational purposes only and does not constitute any form of legal or tax advice. You should consult your lawyer and/or accountant prior to making decisions related to the topics covered in this article. Rubach Wealth can work with you to facilitate such discussions.

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