Financial intelligence for business owners

While everyone must addresstheir retirement, tax minimizationand protection planning needs,business owners have uniqueneeds requiring special attentionand care.

SPECIAL REPORT

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“Financial intelligence for business owners” ©Investors Group Inc. 2011. MP1227 (02/2011)

IPPs are generally most attractive forthose who are older than 53 years ofage with annual salaries exceeding$100,000. Through IPPs and RCAs,the company contributes money toyour plan while you’re working.

Payments are then made to you outof the plan during retirement. IPPsand RCAs are complex options —they should be carefully considered.

You can’t take it with you

After many years of building yourbusiness, you want to ensure the people you care most about inherityour legacy in an orderly fashion. A solid estate plan can eliminate conflict among your heirs and ensure your estate goes to whom it was intended, without delay.

Your will is the centerpiece of yourestate plan. A legally binding docu-ment, your will sets out precisely howyou want your business and any otherassets you own to be distributed.

As you think about dividing assets, be sure to account for tax that will

ultimately erode your estate. If anequal distribution of assets is impor-tant and you’re not careful, a failure toaccount for capital gains tax couldresult in an unequal allocation.

For this reason, you may want to con-sider using life insurance to preserveyour estate.

While drawing up your will, mostlawyers (and notaries in Québec) willalso recommend you complete aPower of Attorney or POA (called a“Mandate” in Québec). If, for whatev-er reason, you should become inca-pable of managing your own affairs,the POA appoints someone of yourchoice to act on your behalf. Healthcare decisions can also be handled inmost provinces if you have a healthcare directive.

As you can see, running a businesscan be a complicated affair. Allow usto help you tackle issues while youfocus on keeping your business thesuccessful operation it is today.

provide personal guarantees, haveold guarantees removed. If your busi-ness is incorporated and has built-upexcess cash, consider moving it to aholding company to help reduceexposure to future creditors.

You may also consider GuaranteedInvestment Funds for inclusion inyour RRSP and other personalinvestment plans as they offer poten-tial protection from creditors. Theseare just a few of the “creditor proof-ing” strategies we should discuss.

Reduce taxes

The fact of the matter is, successfulbusinesses pay taxes. Fortunately, you can take steps to reduce the taxes you pay today and minimizetaxes on your estate.

Split income to reduce taxation

Salaries to family members—Paying salaries to family members is the easiest way to split income. In order to be effective, the salarymust be deductible to the business.This means the family memberreceiving the salary must providesome service to the business and that salary must be reasonable inlight of services provided.

Ownership by family members—Paying dividends to share-owningfamily members who are at least 18 years of age is another form of income-splitting. This is particularlyeffective if you expect the sale of sharesto result in a large capital gain inexcess of your capital gains exemption.

Planning for a retirement that won’t slow you down

Your retirement may be just aroundthe corner or a number of years away.

Regardless of when you plan to winddown your involvement, it’s never tooearly to plan for sufficient incomeonce you move to a new chapter inyour life

Doing it yourself—Avoid the dangerof relying exclusively on the sale proceeds from your business and contribute as much as possible to a registered retirement savings plan (RRSP).

To maximize your contributions, you first need to create enough RRSPcontribution room. This means yoursalary and dividend allocations— both to you and any family membersinvolved—have to be carefullyweighed in order to generate as muchRRSP contribution room as possible.

If you’re not careful, opting for lesssalary in exchange for more dividendincome could limit your ability to con-tribute to RRSPs. Be aware that yourretirement income goal may requireyou to save more for retirement thanyour annual RRSP contribution roomallows. This means you may need toestablish a non-registered portfolioalongside your RRSP. Consider taxadvantaged mutual funds and univer-sal life insurance for non-registeredinvestments, as growth in theseinvestments may be tax-sheltered until you redeem them.

Selling your business to provide a source of retirement income—You may be relying on the eventualsale of your business to provide someor all of your retirement income. Our Special Report, “Business suc-cession: Preparing to relinquish thereins,” details many considerationsinvolved in selling a business. Wewould be pleased to discuss this withyou further.

Have your corporation finance your retirement—You may haveestablished a Group RRSP, GroupTFSA or Defined ContributionPension Plan to attract and keep keyemployees. You too can participate inthese plans. If you’re looking toincrease tax deferred compensationfor yourself and perhaps members ofyour family as well, you may be ableto utilize an Individual Pension Plan(IPP) or perhaps a RetirementCompensation Arrangement (RCA).

Why you need a buy-sell agreement

A buy-sell provision is probably themost important component of anybusiness protection plan. The agree-ment spells-out the terms and condi-tions of your departure and allowssuccessors to assume control of thebusiness in an orderly fashion.

If there are other partners or share-holders, the buy-sell agreement candictate what happens in the event ofyour death, disability or retirement.A fully-funded buy-sell agreementcan ensure that a key individual, ortheir family, is looked after in any ofthose circumstances. Life, disabilityand critical illness insurance may bethe simplest and most inexpensiveway to provide for the orderly transi-tion under any of those circum-stances. Working together, we cancustomize a plan to fit your needs.

Protect your family and employees

Disability insurance—The harsh reality is the ongoing need for incomeremains even if you lose your ability

to work, that’s why sufficient disabilityinsurance is critical. A group disabilityinsurance plan is a valuable benefitto offer employees. You could partici-pate in that plan and supplement yourcoverage with an individual policy.We can help you determine theamount and type of coverage that’smost appropriate for you.

Group health and life insurance—Attracting and keeping key employeesrequires you to provide these benefits,as they’re valuable parts of any com-pensation package.

Critical illness and long-term careinsurance—These are relatively newforms of protection that provideimportant benefits when you needthem the most.

Protect yourself againstclaims by creditors

Along with business ownershipcomes increased exposure to liability.Your personal financial plan shouldminimize exposure to business risk.Whenever possible, avoid providingpersonal guarantees for business debt.If your business can secure credit onattractive terms without the need to

While your business is doingwell, you can’t afford to losesight of the fact that one cannever take things for granted.You need to think about pro-tecting the business and itsassets from a variety of factorsthat could harm your futureprospects. How would the lossof a key business partner oremployee affect your business?

What unforeseen circumstanceswould leave your business atrisk? We all tend to take ourhealth for granted but have youconsidered how your businesswould function in the event youwere to lose your ability to workdue to an accident or illness? In short, running your businessinvolves a lot more than just theday-to-day activities.

Your business could very well be your single most valuable asset.It must be protected against any eventuality. Make sure you have:

3 Liability insurance

3 Property insurance

3 Key person life or disability insurance

3 Business continuation (interruption) insurance

PROTECT YOUR BUSINESS FROM PERIL

THE FINANCIAL PLANNINGTOOLBOX

As a business owner, there’slikely a place for at least some,if not all, of the following toolsin your financial plan:

3 RRSPs

3 Tax advantaged funds

3 Tax-Free Savings Account (TFSA)

3 Guaranteed InvestmentFunds (GIF) with LifetimeIncome Benefit (LIB) option

3 Insured buy-sell agreements

3 Liability Insurance

3 Property Insurance

3 Key Person Life andDisability Insurance

3 Business Continuation(Interruption) Insurance

3 Group Health and Life Insurance

3 Critical Illness Insurance

3 Long-term Care Insurance

3 Individual Pension Plans

3 Retirement CompensationArrangements