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Financial planning tips

June 14, 2017

Starting a business? Don’t neglect your personal finances

You need to watch over your personal finances when you’re starting a business – or both business and home can suffer. Here’s how to balance the two.

When you’re busy chasing your entrepreneurial dreams, it can be easy to let your personal financial goals fall by the wayside. After all, launching a new business can consume an immense amount of time, effort and money – and keeping a watchful eye on your personal finances on top of all that is no small feat.

The demands of starting your business can make it difficult to find time to manage your own money, but it can be all too easy to overlook small issues that could snowball into big headaches in time.

Here are a few tips to help you balance keeping up with your personal financial goals with establishing your new venture.

The power of planning ahead

If you’re thinking about launching your own business, you may not realize how significantly your personal finances can influence your business success. In fact, a dicey financial situation at home could put your fledgling company in jeopardy.

Planning ahead can give you a financial cushion and overall peace of mind. To begin, ask yourself:

  • What’s my personal budget, especially during the early days?
  • How can I keep up with my daily expenses while also putting money towards my retirement, especially if I’m drawing a reduced salary?
  • Even after I start taking a higher salary, how will I budget for leaner months?

Other considerations include your continuing need to save for retirement. How will drawing a salary from your incorporated company affect your RRSP contribution room? Perhaps you need to weigh the pros and cons of leaving money in your corporate accounts to draw on during retirement versus setting up an individual pension plan.

Think about your vital, recurring personal expenses (like rent/mortgage and groceries) and set aside enough money to cover a few months’ worth. This can help you avoid the dangerous proposition of financing your personal life (or your enterprise) with credit card debt – a route that can ultimately drag down your business. Though there are many details to sort through and understand, the good news is that planning ahead can set you up for success.

A little foresight can also go a long way for your business. Banks and investors want to see clear, detailed and realistic projections for your company. When you’re on the hunt for financing, your business plan is the key component of your pitch. Among other key points, a complete business plan includes an executive summary and description of the product or services you will offer, as well as a description of the operational structure and a financial summary.

A comprehensive approach to planning demonstrates to banks and investors that you not only have thought through your current path in a serious way, but are also better equipped to get past those unforeseen hurdles that will undoubtedly crop up over time.

Insurance premiums and tax deductions

Did you know that small-business owners have additional insurance needs that may be tax-deductible? This could include your commercial insurance premiums on business premises and equipment, and auto insurance. And while in most cases life insurance premiums are not deductible, if you get a business loan and the lender requires your life insurance policy as collateral, a portion of your life insurance premiums could also be tax-deductible. Even the health insurance premiums you pay for yourself, your spouse and your dependents could be deductible in certain situations.  These deductions have complicated restrictions, so you’ll need to work with an independent tax advisor to see if you qualify.

Taking time to familiarize yourself with the different options available and making educated choices could seriously pay off.

When it’s time to ask for help

It is possible to balance building a business with protecting your personal finances – especially if you’re not afraid to seek assistance when you need it.

An advisor can provide information on funding, while a tax professional can provide information on tax deductions.  Both can save you time and money and give you the tools you need to make informed borrowing and investing decisions.

And by providing a new, objective perspective on your plans and ensuring you understand the pros, cons and costs of each potential approach, an advisor can help you chart a custom course. An advisor can also put you in touch with other entrepreneurs who have gone through – and conquered – similar challenges.

So before taking a leap into a new business, be sure you’re doing all you can to protect your family’s current and future finances. The professional advice you receive could pay major dividends down the road.

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