Top 5 Financial Tips For Canadian Entrepreneurs


Posted on Wednesday 11 December 2019


Top 5 Financial Tips For Canadian Entrepreneurs

Growing a business can be incredibly rewarding. It can leave you feeling empowered and truly in control of your financial success. But there are a lot of responsibilities that come with being a successful Canadian entrepreneur.

According to a 2018 poll, 42 percent of small business owners in Canada feel “uncertain about their post-business life.” Much of that uncertainty stems from financial worries, like whether they have a succession plan in place, if their business is ready to sell, or not feeling ready for retirement.

Whether you are new to the entrepreneurial game or a seasoned pro, understanding the common pitfalls (and how to avoid them) will put any business plan on the path to success. In the sections below, we’ll share the top five financial tips for Canadian entrepreneurs. Follow these tips and you’ll be well on your way to enjoying better financial health—not just for your business today, but for your own personal finances, too.

Financial Tip #1: Establish Clear Financial Goals

We’re all familiar with setting personal financial goals, like creating a separate savings account for your first home purchase, or contributing to a savings jar to plan for a vacation. And if you’ve ever created a budget for your personal finances, you know all too well that goal-setting is part and parcel to financial success! But Canadian entrepreneurs don’t always think about setting financial goals for their business in the same way—which is a big misstep.

Creating financial goals is so important to making sure that your business can succeed over the long run. Not only does it create a roadmap for your spending and saving, but it also establishes a foundation for larger goals in the long run.

For example, if you want to expand to a second location someday or bring a few additional employees onto the team, you’ll need to start laying the foundation for those goals now. Make sure that the smaller business goals that you create today will set you up for success in the larger goals that may come into play five years from now.

But how do you even start creating a list of goals? Even the thought of setting financial goals for your business can feel overwhelming—but remember: the hardest part is often just getting started. Make it easy on yourself by sitting down with a pen and paper and jotting down what you want to accomplish financially with your business. (And if you weren’t an English major, don’t worry about writing out full sentences; this part can be messy and filled with a stream of consciousness or short fragments).

Once you have a collection of thoughts put together, you can use the principles of SMART business goals to start organizing. This means identifying the goals that are:

  • Specific
  • Measurable
  • Attainable
  • Relevant
  • Time-Based

This is a great way to identify anything that doesn’t fit into the right categories. Set aside anything that doesn’t seem to fit your business today, and revisit them later on to see if anything has changed.

And don’t forget that writing down your goals is the best first step that you can take to push yourself towards achieving them. The simple act of writing (instead of just thinking or saying it) can help each goal sink into your brain. Even better, put your goals somewhere that you can see them on a regular basis to keep them top of mind and hold yourself accountable.

Financial Tip #2: Put Yourself On The Payroll

Many small business owners forget that they are more than the founder or owner—they are also an employee. Paying yourself a salary is a key part of making sure that you can afford to keep your business profitable for years to come.

Sit down and make a list of all of your bills so that you can get a baseline of how much income you need to keep up to date on your expenses. Use that as a guide for your paycheque amount (and resist the urge to transfer even more to yourself on the months when your business is more profitable).

Getting into the habit of putting yourself on the payroll in order to keep your bills current is the best way to make sure that you don’t get into a situation where you’re stuck trying to pay the rent, utilities, software subscriptions, or any number of items that are key to running both your business and your personal finances.

And on that note, you’ll need to ensure that your business finances and your personal finances are separated properly. Create a bank account for your business and keep a separate account for your personal finances. The most important thing is to make sure that you have a clear view of your business income and spending (keep your personal spending out of it).

Financial Tip #3: Keep Track Of Your Income And Spending

This one feels like a no-brainer, but it’s a step that many entrepreneurs forget to take. Understanding how much cash is coming in—and how much cash is going out—is crucial to ensuring that your business venture can be successful in the long run. Don’t fall into the trap of spending more than you are earning!

Take the time to map out a plan for saving and spending. This includes getting an income statement and a cash flow projection. You could do this on your own or with the help of accounting software (more on that below), but as your business grows, it may be better to partner with an accountant or a financial adviser.

Once you have a plan in place, it will be much easier to create a budget for your business and identify areas where you might be spending too much. Even if you’re spending a lot on write-offs, you may find that you need to minimize your write-offs so that you can maximize the amount of profit that your business is bringing in.

Financial Tip #4: Minimize Your Taxes

We all have that same dread as soon as tax season comes along: how much am I going to have to pay this year? Have I set aside enough to make my tax payment? What if I’ve expensed the wrong things?

Without a doubt, one of the largest expenses that you will incur as a business owner comes from the taxes that you pay each year. If you are self-employed and operating your business as one person, you’ll have to pay both income tax and employment tax. If you have employees on your payroll, make sure you have accounted for the tax that will be paid on their paycheques (as well as your own). This means getting acquainted with the Income Tax Act and fully understanding your tax obligations. Depending on the size of your business, minimizing your taxes may also mean:

  • Ensuring that you are using the right business structure
  • Working hand in hand with a financial adviser or a lawyer to develop the right business structure and learn more about protecting your income
  • Use pension plans, charitable donations, and trusts to your advantage

For smaller businesses, accounting software can be a huge help when it comes to ensuring that your tax expenses are as minimal as possible. If you already have an accountant, they will be much better prepared to help you evaluate the profitability of your business and keep everything in order. And if you don’t have an accountant, software like QuickBooks and FreshBooks can make it easy for you to put on that accounting hat and fill the role of bookkeeper all on your own (as long as you have the time and energy to devote to it).

If you want to go that route, QuickBooks and FreshBooks both offer intuitive platforms to keep track of a wide range of accounting items, such as:

  • Tracking revenue and expenses
  • Storing receipts
  • Sending and saving invoices
  • Keeping track of clients and employees
  • Tracking and submitting tax expenses

Most importantly, using accounting software keeps a holistic picture of your finances right at the tip of your fingers. You can generate reports, create and view graphs, and even access your finances via mobile apps (so there are no excuses for losing important receipts or not knowing how much you are spending).

accounting

Financial Tip #5: Plan For The Future

As a business owner, you need to ensure that you are well-prepared for the future. Can your business survive a slow period? Have you set aside enough money to keep your business afloat if your influx of customers changes?

The answers to these questions are important for every entrepreneur, but especially if you are just starting out with a smaller structure. Approximately 7,000 small businesses go bankrupt each year in Canada, and if you want to avoid becoming a part of this statistic (yikes), you’ll want to put a solid plan in place for your future.

One of the best ways to do this is to ensure that you are saving properly. You should have enough set aside so that you can cover your overhead costs or supplement payroll expenses for at least a few months. There are varying guidelines on how much you should have set aside to cover your business, spanning anywhere between three months to a year. Choose the starting point that works best for you, and build from there.

Planning for the future also means ensuring your own personal financial future, aside from your business. As a Canadian entrepreneur, you have a range of options to choose from when it comes to saving for retirement, including:

  • Registered Retirement Savings Plan (RRSP)
  • Registered Retirement Income Fund (RIF)
  • Tax-Free Savings Account (TFSA)
  • A high-interest yielding savings account with your local bank
  • Old Age Security (OAS)
  • Canada Pension Plan (CPP)

This is where partnering with a financial adviser can be a huge benefit. They will help you identify which type of retirement account is best-suited for your needs (and that of your business) and keep you up to date on all of the various requirements from one year to the next.

You have a lot of freedom as an entrepreneur, like how long you want to work for. Don’t forget that retirement can happen exactly when you want it to—as long as you make the right financial moves early on in setting up a retirement fund.

Canadian entrepreneurs have a lot of moving parts to juggle when it comes to managing their financial health, but that doesn’t mean that it can’t be done successfully. If you’re struggling to get your finances in order due to overdue bills, high overhead costs, or just need a temporary influx of cash to meet your payroll, you might want to consider taking out a payday loan with My Canada Payday. Give yourself a boost towards better financial health by calling (604-630-4783) or emailing (getpaid@mycanadapayday.com) our industry-leading customer support team!