Owning and operating a business requires lots of hard work, sacrifice, and risk-taking. Although entrepreneurs certainly deserve to be paid well for their efforts, tax laws can make it extremely difficult for them to pay themselves without handing over a bunch of money to the government. Without guidance, building wealth as a business owner can be just as much of a challenge as running the business itself.
Chris Coulter is a former mid-sized business owner who became a financial advisor after the 2008 stock market crash. He knows first-hand how difficult it can be to "pay yourself”, and is committed to helping business owners achieve their financial goals while avoiding costly mistakes.
On this page, we have included information about the common challenges that business owners face throughout the life cycle of their organization when it comes to building wealth, and how business owners can pay themselves more and the government less.
“Chris showed me some strategies that will help keep a lot more money in my pocket when I decide to slow down one day. He’s helped to safeguard my future income and significantly grow my retirement income with some unique and clever strategies.”
Jim R, Founder & Owner, Media Company
This is usually in the first five years of a business when the company is using start-up capital to build something sustainable. The new business incurs a lot of expenses with not a lot of income coming in at first. The owner has likely put their personal assets on the line (house, investments) to help finance the business.
Although business owners may not be pulling a lot of wealth out of their business during this stage, there are still ways to maximize wealth. It is equally important to ensure that your assets and hard work are protected, as the first five years of a business can be some of the most vulnerable.
Growth & Profitability Phase
This is when the company starts making money... and with profit comes taxes. Depending upon the year, profits can be significant. You’ll want to leave money in the company to increase retained earnings and you’ll likely want to start taking some money out of the business.
If you bonus or dividend out the money to an owner, you’ll likely be paying the highest marginal personal income tax rates. If you leave passive income in the business and invest it, you’ll be paying the highest corporate tax rates.
Below are some ways that business owners can grow their wealth during the "good years" that don't involve salaries or dividends.
Succession Planning & Exit Strategy Phase
A succession plan is a definitive plan to start transferring capital to your personal assets and ownership of your business to a successor. Doing so strategically and proactively can minimize your taxes payable and enable you to utilize your Small Business Capital Gains Exemption, which is very important.
Plenty of time is required to do this properly and to ensure you are suitably rewarded for your efforts. Ensuring that you conform to the passive income requirements is critical to the Small Business Capital Gains Exemption in particular..
Also, having a strong plan in place early on will increase your company's value in the long run and maximize your sale price: potential buyers like stability and good planning.
At this stage, you’ve stepped back from the business. You’re not taking a salary but likely only dividends. You’re living comfortably, and thinking about the financial and social legacy you’d like to leave. There are many ways to ensure that the wealth you have accumulated is distributed according to your wishes, instead of going to the government.
Your pension should have a “Terminal Funding” element. Your TFSA should be maxed out. You could consider setting aside an annuity to pay for your monthly expenses. You should estimate how much capital gains you have left on your assets and what the taxes payable will be upon death. You can also allocate funds for your favourite charities through a permanent insurance policy. You can also set up legacy accounts for your children and grandchildren.
The Finish Line Group can help ensure that your taxes are minimized, your retirement is comfortable, and the wealth you have worked hard for is sustained across generations.