When you’re busy chasing your entrepreneurial dreams, are you paying attention to your personal financial goals, too? Launching a new business can consume an immense amount of time, effort and money. Keeping a watchful eye on your personal finances on top of all that is quite an accomplishment.
The demands of starting your business can take over the time you need to manage your own money. But if you address small issues as they come up, you could prevent big headaches in time.
These tips can help you balance keeping up with your personal financial goals with establishing your new venture.
Prepare your finances before starting a business
Are you thinking about launching your own business? Do you realize how deeply your personal finances can influence your business success? In fact, a strong financial situation at home could help start your fledgling company on the right foot.
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 toward my retirement? What if I’m drawing a reduced salary?
- Even after I start taking a higher salary, how will I budget for leaner months?
Here are some other things to think about:
Saving for retirement. You’re still going to need to save for retirement. How will drawing a salary from your incorporated company affect your RRSP contribution room? One option is to leave money in your corporate accounts to draw on during retirement. Another is to set up an individual pension plan. Perhaps you need to weigh the pros and cons of each.
- Are you saving enough in your RRSP? Try this RRSP calculator to find out.
- Self-employed? Here’s how you can retire comfortably
Avoiding debt. Think about the regular personal expenses that you can’t avoid, like rent/mortgage and groceries. Then set aside enough money to cover them for a few months. This can help you avoid financing your personal life (or your enterprise) with credit card debt. There are many details to sort through and understand, but there is good news. Planning ahead can set you up for success.
Building a solid plan. 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. A complete business plan includes an executive summary and description of the product or services you will offer. It also includes a description of the operational structure and a financial summary.
Take a comprehensive approach to planning. It shows banks and investors that you have seriously thought through your current path. It also shows that you are well equipped to get past those unforeseen hurdles that could crop up.
Insurance premiums and tax deductions for small businesses
Did you know that the extra insurance small-business owners need may be tax-deductible? This could include the cost of commercial insurance on your business premises and equipment, and auto insurance. The regular payments you make for insurance are called premiums. In most cases life insurance premiums are not deductible. But if you need life insurance to get a business loan, some of the cost could also be tax-deductible. Even the health insurance premiums you pay for yourself, your spouse and your children could sometimes be deductible. These deductions have complicated rules. You’ll need to work with an independent tax advisor to see if you qualify.
- See what the Canada Revenue Agency has to say about business expenses.
- Are your insurance premiums tax-deductible?
Taking time to get to know the different choices you have and making educated decisions could seriously pay off.
Save time and money by asking for help
You can build a business while protecting your personal finances, especially if you seek help when you need it.
An advisor can give you information on funding, while a tax professional can help you with tax deductions. Both can save you time and money and give you the tools to make informed borrowing and investing decisions.
An advisor can give you a new, objective perspective on your plans. You can better understand the pros, cons and costs of each possible approach. That way, you can chart a custom course. An advisor can also connect you with other entrepreneurs who have gone through – and conquered – similar challenges.
So before taking a leap into a new business, protect your family’s current and future finances. The professional advice you get now could pay major dividends down the road.