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Small business owners have a lot of planning and decisions to make as they start, grow, and manage their business. The success of the business has a major impact on their personal lives, so there’s bound to be a question posed about integrating business and personal finances.

The complexity and size of the business will have an impact on that decision, but for many small business owners, there are practical reasons for doing so. Here are just a few.

Risk reduction and diversification

Business owners are naturally inclined to want to see their business flourish, so they’ll often reinvest profits back into the business. But that also means that much of your net worth can end up in one place. You don’t necessarily want all of your nest egg in the one basket.

If selling your business is the lynchpin of your retirement strategy, you may be putting your future at risk. Finding a buyer at the time of retirement may prove difficult or be a lengthy process. And health or economic pressures may force you into a selling price that’s far less than what you had envisioned.

To mitigate that risk, look to diversify your options by building a savings and retirement plan outside of the business. RRSPs, TFSAs, non-registered accounts, or even a permanent life insurance policy can go a long way to supplement and strengthen your future retirement income. Speak to your advisor about the advantages of creating a diversified investment portfolio.

Optimize income and tax saving opportunities

From time to time, you may need to tap into the business to fund personal expenses. Do you draw that as a salary or pay yourself a dividend? The decision can impact your tax bill and more.

When it to comes to your RRSP, salaries and wages qualify as earned income for calculating your contribution room. You’ll also be able to claim the Canada employment amount on your tax return.

If you opt for a dividend instead, you won’t have to pay into the Canada Pension Plan, freeing up some of the dollars earmarked for that fund. In addition, tax on dividend income doesn’t have to be withheld at source and is frequently remitted.

Talk to a business banking advisor or a tax strategist for the optimal path for you and your business.

If you own a business, you’ll have access to tax-saving opportunities that aren’t available to the individual taxpayer. If your business is just getting started or you haven’t incorporated yet, you may be able to offset business losses against other earned income, thus reducing your tax bill. You can also plan your salary around your RRSP contribution, within limits.

Visit the Canada Revenue Agency website for further details and talk to a business banking advisor or a tax strategist to explore the optimal path for you and your business.

Meeting with BlueShore business advisor

Establish and enrich retirement plans

If you’re like most entrepreneurs, owing and operating your own business offers the autonomy you desire mixed with a sense of excitement and purpose. But eventually, you’re going to want to enjoy the fruits of your labour with a successful retirement. Your future retirement and the future of your business are matters that are likely on your mind.

This is where mixing your business and personal financial plan is most important.

Timely adjustments can be made to your retirement plan if your exit strategy is affected by key events such as marriage, a serious illness, an adult child entering the business, or significant tax changes. Your advisor can help anticipate how incorporating the proceeds from selling your business into your retirement income might impact your tax rate, income-tested benefits like Old Age Security, or at what age you decide to begin receiving CPP.

When your succession and retirement plans are in sync, you boost your chances of leaving your business on your own terms for a financially-secure future.

Get sound advice

Financial planning and management can be complicated, especially if you’re running a business while juggling all of your personal obligations. From revenue streams and dealing with suppliers to managing your mortgage and planning for retirement, it can be a lot. We’re here to help.

BlueShore Financial’s business advisory team can help you get the full picture. From cash flow to risk management, from insurance needs to retirement planning, we’ll work with you, your business partners and your other advisors to set goals and build plans. That way, you can stay on track with getting the most out of your business and your personal life. Reach out today to talk about your business and personal financial needs.

BlueShore Financial, Business Advisor, Shane Yu

Shane Yu

Business Advisor

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The information contained in this article/video was written by BlueShore Financial or one of our expert financial writers and was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. It is provided as a general source of information and should not be considered personal financial advice.