How this team can help you prepare
Over the last 15 years I have worked with a number of well-intentioned business owners who omit the services of an accountant, lawyer or insurance advisor in an effort to save money. However being well intentioned and saving money today can create the nasty surprise of less money later. It’s for this reason that it is so important that business owners understand why they should partner with each of these three professionals. Here’s why it’s so important you have an accountant, lawyer and insurance advisor working on your team.
Many business owners use an ACCOUNTANT or book keeper to assist with book keeping, financial statements and preparation of tax returns. While these are certainly valuable and necessary services, these activities are a historical review of where the business has been. Consider working with an accountant to better understand the future potential of your business. For example, ask if your accountant can help you uncover your business’ best growth opportunities and highest profit activities. With this type of knowledge you’ll be better able to focus your time, effort, and resources on that which is most likely to help your business grow and prosper.
As a small business owner gets older it’s inevitable that the business will eventually change ownership. The next generation will take over, the business will be sold to an outside party, or the business will be shut down. Regardless of the future situation it’s advisable to work with an accountant at least two years prior to the transition so the proper planning can be completed and implemented. The more planning time you allot the better. Keep in mind that proper planning takes time and implementing the plan can take years to complete.
Good tax planning is an important part of a business owner’s succession and estate plan. Tax planning helps to ensure the business owner pays the right amount of tax and doesn’t pay more tax than necessary. However, some business owners are concerned with the cost of tax planning so they opt to skip it. Ironically when the business is later sold or transitions to the next generation the tax bill that results from the lack of tax planning can be far greater than the cost to have worked with a qualified accountant would have been.
LAWYERS are the professionals who dot the i’s and cross the t’s. It is their work that helps you ensure your plan and preferred outcome are realistic and documented in legal fashion. You may work with a lawyer as part of incorporating your business, setting up a holding company, setting up a buy-sell agreement, drafting a corporate will, or designing your business succession plan, etc. There are numerous ways a lawyer can help you structure your business and protect your business.
Consider that having a business partner is much like have a business spouse. When times are good they can very good and when times are bad sometimes divorce is the outcome. Divorcing a business partner can be expensive, stressful, and distracting. This is just one reason that business partners should have a formalized buy-sell plan drafted by a lawyer as early into the relationship as possible. Buy-sell plans can formalize the reasons and timing for a business partner to exit the business and they can also provide a pre-determined business valuation model deemed fair by all owners.
It may not be a relationship breakdown that causes an upheaval. Upon the death of a business owner the spouse of the deceased may inherit ownership of the business. In effect this means that the surviving owner is now business partners with their deceased partner’s spouse. If there is no formalized buy-sell agreement in place then there is no legal requirement for the spouse to sell their portion of the business back to the surviving partner – the result could be good, bad or even disastrous.
Spending the money now to formalize your plan with a lawyer vs. saving the money and hoping for the best is a mental battle many business owners face. However it is important to foresee that the objective to save money is lost if the lack of legal planning results in a law suit or court battle as both can be expensive and highly time consuming. A bit of out of pocket cost today can save dearly in the future.
The INSURANCE ADVISOR plays a very important role in helping the business owner financially protect themselves, their family, and their business in the event a disability, critical illness, or death occurs. Insurance advisors can work independently or partner with your accountant and lawyer to help ensure all your insurance planning needs are met. Generally speaking insurance is considered a reliable and affordable way to help protect financial security because of its ability to create a significant sum of money (the insurance benefit) through a comparably small deposit to the policy (the insurance premium or cost). Also notable is that insurance products are designed to create a pot of money when needed most – at time of claim and this pot can be designed to be available regardless of the economic landscape. Alternatively, those individuals who choose to save money may find that when access to liquidity is needed they haven’t saved sufficiently or poor market conditions negatively impact their ability to access funds.
Three of the most valuable insurance benefits are individual life insurance, critical illness insurance and disability insurance. Consider the following; a 50 year-old small business owner dies after a three year battle with cancer. Thanks to the advice of a financial advisor the client had disability insurance to replace a portion of his income while he was disabled and unable to work. Critical illness insurance provided a lump sum benefit 30 days following the initial diagnosis of life threatening cancer; his business used the benefit it received to hire a replacement sales person and to cover the monthly lease payment on his office space. The family used the critical illness benefit they received to recreate his wife`s income so she was able to take unpaid time off work to be with her husband (without dipping into their savings). Lastly the life insurance paid a benefit to the corporation to pay off a line of credit and provided much needed liquidity that kept creditors away. His wife was also a beneficiary of a personal policy that paid off their family home mortgage, and will recreate 70% of her deceased husband`s income for the next 15 years. Without the proceeds from insurance the client`s financial situation would have been dramatically different and certainly their business and personal lifestyle would have been negatively impacted.
Similar to forgoing the accounting or legal advice it is possible to skip over insurance and save on the cost of insurance. However, the hard truth is that improper insurance planning can cost an individual, family or business significantly more out of pocket than the insurance premium would have been.
Pro-actively work with an accountant, lawyer, and financial advisor that you trust and help them understand your priorities. Provide details about your business and yourself and be forthcoming with the type of the planning that is most important to you and what you want to achieve as a result of this planning. Don’t forget to also seek input, ask each professional to explain what type of planning you can do now and in the future and what this planning will accomplish. If you are involved in the process you’ll likely have a better appreciation as to why the planning is important, how it benefits you, and what the alternative of not planning actually looks like and can cost you. Armed with these details you’ll be able to make wise and informed decisions that can help you today and position you, your family, and your business for a better tomorrow.
Written by Shannon Bennett-Parisotto BA, CHS
Financial Security Advisor at Benefits Consulting Plus Inc.
101-1375 Gardiners Road Kingston ON K7P 0L8
Benefits Consulting Plus Inc is an independent employee benefits and insurance advisory firm. Shannon Bennett-Parisotto, CHS, has 15 years of specialized knowledge with life, disability and critical illness insurance and works with clients on their personal and corporate insurance planning. Bryce Parisotto, CFP, works with local businesses to design and implement tailor-made employee benefits solutions
This article is for information purposes only and shouldn’t be construed as legal or tax advice. Every effort has been made to ensure its accuracy, but errors and omissions are possible. All comments related to taxation are general in nature and based on Canadian tax legislation for Canadian residents, which is subject to change. For individual circumstances, consult with legal or tax advisors.
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