The value of asking the right questions

The value of asking the right questions

Winston Churchill said: “He who fails to plan is planning to fail.”

With constant change, entrepreneurs must adapt to stay competitive. Continuous improvement to financial strategies can help capitalize on business opportunities and allow entrepreneurs to stay ahead of the curve and adapt to market changes.

While short-term strategies are important for business growth and raising capital, long-term considerations are crucial for risk mitigation and longevity. For example, attention to cash flow management, tax efficiency and risk management can make the difference between a smooth execution and a turbulent ride.

A lot of entrepreneurs see financial advisors as investment brokers. But most don’t know that some advisors are highly qualified professionals that are a source of tremendous knowledge. Here are 5 questions an advisor can answer that will have a profound impact on your business.


How does advice you receive evolve alongside your business?

As the business evolves, its financial needs and goals also change. For startups, business advice can focus on securing funding and managing cash flow. As the business grows, the focus may shift to tax planning and investment strategies to support long-term growth. Once the business has matured, risk management and insurance comes to the forefront. Finally, the focus may shift to succession planning, exit strategies and estate planning for the owners.


With legislation changing everyday, is the business using all available tax strategies?

Some examples of tax strategies that businesses may use include maximizing deductions and credits, establishing retirement plans, deferring income, and structuring the business in a way that creates the most tax-efficient form of organization.

Tax laws and regulations are subject to change and it is always recommended to consult with a professional to ensure compliance with the current tax laws and regulations.


Is there an exit strategy in place?

One important, yet commonly neglected example of a long-term strategy is retirement planning. Entrepreneurs often neglect to plan for their own retirement for several reasons. One reason is the exceeding focus on short-term goals and growth at the expense of considering the long-term implications of their financial decisions. Another reason is simply because it is complex and overwhelming.

A recent study conducted by the Canadian Federation of Independent Business reported that 76% of Canadian small and medium-sized business owners are looking to exit their business within the next 10 years. However, only 9% of those have a succession plan in place.

An important element of exit planning is assessing the tax impact on selling one’s business. Often, the lifetime capital gain exemption is not sufficient to offset the tax liability. In this case, an individual pension plan and a retirement compensation agreement can be employed to minimize the overall tax burden.


How do I protect my business from unforeseen events?

One example is a buy-sell agreement, which outlines the transition of the shares when a partner is unable to attend to the business needs due to disability or because of other unexpected life events. This can be funded through an insurance vehicle that is structured in a manner to provide tax-free funds needed to cover the transaction.


Would the business be adversely affected by a loss of key partner or employee?

This employee or partner may be someone who has unique skills, knowledge, or relationships that are critical to the business’s success and difficult to replace. A loss of a key person may heavily impact the company’s operations and potentially result in a decline in revenue.

Key person insurance can help to mitigate the financial impact of the loss of such a person, allowing the business to continue operating and potentially recover from the loss.


Conclusion

High quality financial advice involves not only investment advice, but also tax strategies,retirement planning, insurance solutions, and succession planning. These questions are just a few examples of strategizing that can be implemented in collaboration with a professional advisor, but most people don’t know where to receive reliable and accurate help. That is why we built a comprehensive program that systematically approaches business challenges in a developmental fashion. To learn more about these powerful tools, reach out to our dedicated team today.

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