A comprehensive business plan is widely recognized in entrepreneurship, where success hinges on unwavering dedication, strategic foresight, and navigating unpredictable financial landscapes. However, during the entrepreneurial hustle, your passion and ambition may lead you to prioritize your business objectives over your financial well-being. Often, the emphasis on your business ambitions may cause your personal financial needs to be neglected despite being equally crucial.
Behavioural Guardrails
One key reason business owners need a financial plan is to ensure lifestyle security beyond the boundaries of their business. In addition to starting and running a business, you must also deal with the unmeasurable and obscure cost of ongoing sacrifices and emotional strain. A well-crafted plan offers significant behavioural advantages:
• It serves as a behavioural guardrail, steering you away from impulsive financial decisions.
• It reduces decision fatigue, enhances commitment to long-term financial success, and instills confidence and resilience to navigate market volatility and uncertainty with composure.
• Life is inherently unpredictable, so the plan promotes an adaptable and flexible mindset, reducing stress in unsteady business times.
• The behavioural benefits of a financial plan extend far beyond mere numbers and calculations. It unlocks the full potential in your journey to business success and retirement to enhance your response to unfavourable emotions and behaviours.
Evidence-Based and Unique Advice
A personal financial plan fosters discipline and financial prudence, essential traits for successful entrepreneurship. It shields you from conflicting and misleading advice. This can be particularly dangerous in the early stages of entrepreneurship. Instead, your financial plan establishes action steps backed by evidence and parameters relevant and unique to your circumstance and not that of the general public. Your business is unique, and so is your life. With clear personal and business financial goals, you make informed decisions and prioritize actions that align with your long-term objectives, giving you control and empowerment over your financial future. This tailored approach makes you feel understood and catered to, enhancing your confidence in the plan's effectiveness.
Salary or Dividends
The link between personal and corporate income tax rates dramatically impacts how you remove earnings from your business. That decision and compensation mix can vary yearly. Without a comprehensive financial plan, you may not be aware of the potential negative impact on your wealth through the forfeit of CPP benefits and RRSP contribution room. Dividends, for instance, do not generate RRSP room or your ability to receive an inflation-adjusted pension for life like the CPP. A comprehensive financial plan enables business owners to optimize tax strategies and maximize wealth accumulation, bringing common pitfalls and assumptions to the surface. With the recent federal budget and increased capital gains inclusion for corporations, your financial plan will ensure you set up the most tax-efficient compensation mix.
Business Succession Planning
Additionally, a well-defined personal financial plan facilitates succession planning and business continuity. For example, if your children are involved and capable of running the business, you can pass it along to them. However, they most likely lack the financial capacity to purchase. In this case, implementing an estate freeze strategy solves the obstacle of insufficient funds. Secondly, it allows you to retain control during the transition phase and mitigate a significant tax liability as the future growth of the business will happen in the hands of your children. Consider implementing this strategy once you have sufficient net worth to fund your retirement needs. The peace of mind that comes with this level of preparedness can free you from financial worries, enabling you to concentrate on your business's growth and success.
Despite the complexities of owning a business, consider the indispensable role of a well-crafted financial plan in shaping and securing your lifestyle and financial future. Whether selling or considering passing your business to your family, contact us to help you align your business and personal goals.
