CFO Services | Why Entrepreneurs Should Get A Financial Plan
One problem that many new entrepreneurs face in their business according to CFO services. Is that they are running out of money. And yet, are also paying more money than they should in taxes.
If they had an effective financial plan and tax plan created for them by unknowledgeable accountant. Not only will they be able to minimize how much taxes they would have to pay.
But they would also be able to keep that money that they were previously paying for taxes in their business. So that they could avoid running out of money a lot easier.
In fact, this is an extremely common problem. And according to industry Canada, 15% of all businesses fail within the first year of opening their small business in Canada. While 30% fail within their second year of running their small business.
By the time businesses have been in operation for five years, CFO services says only 50% of them are still around. And there are only three reasons why they typically fail.
The second most common reason that business owners in Canada fail. Which affects 29% of the businesses that fail. Is that they run out of money in their business.
The conclusion that business owners should draw from this. Is running out of money causes many entrepreneurs to fail. And if they do not have an effective tax plan, they are paying too much in taxes.
So if an entrepreneur can work with their accountant on creating an effective financial and tax plan. They may be able to be more likely to avoid running out of money in their business. And stay in business longer in order to be successful.
However, there are many reasons why business owners refuse or avoid getting a financial and tax plan created in their business.
The first reason, is because many entrepreneurs make the assumption that they need to be making millions of dollars. Or at least hundreds of thousands of dollars in net income to benefit from a tax plan.
This is extremely untrue says CFO services. And the threshold that business owners need to be making in their business. In order to make paying for a financial plan financially worthwhile. Is fifty thousand dollars in net income per year.
Therefore, even the smallest businesses and solo-preneur’s will be able to benefit from a tax and financial plan. So virtually no businesses would not benefit from these financial plans.
The other reason that entrepreneurs would not create a financial plan. Is because they are unable to afford paying an accountant an hourly rate to create one.
However, if they understand that they can save more in taxes than it would cost them to pay for an accountant to create their financial and tax plan. They may be more apt to create one.
But also, they should be able to find a great accountant who does not charge additional for it such as the accountants at Spurrell and Associates. Who understand how important financial and tax plans are. And include them as a regular part of their services.
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Entrepreneurs should understand that a financial plan and a tax plan is just as important as a business plan says CFO services. And is much as they would use a business plan to succeed. A financial and tax plan can help minimize the taxes they have to pay.
Many business owners have not created a financial or tax plan because they are unable to afford it. But others make the assumption. That their accountant has just created the best financial or tax plan for them.
Even if they have not specifically sat down with them to work on this. And they can find that out very simply. By looking at how their accountant has asked them to take money out of their corporation.
If they are either taking out hundred percent salary, or hundred percent dividends. That typically indicates they do not have an effective tax plan.
The reason why says CFO services. Is because an efficient tax strategy, usually requires a combination of both. And what that combination is is dependent on the entrepreneurs individual and personal circumstances. As well as the circumstances of the business.
The reason whites important for the accountant to understand the entrepreneurs personal circumstances. Is so that the financial plan they create is rooted in reality.
They must understand how much income the household is generating. Such as from a spouse or another family member. As well as how much debt they have, how much money they are paying in bills.
And if they have dependants such as children. And how many dependants they have in total. Because that will influence the financial plans. And how much money an entrepreneur must take out of their business to survive.
It is also important to take note. That an entrepreneur must do this process with their accountant every single year. Because every single year not only will their personal circumstances change.
Such as a spouse changing jobs, or a child moving away from home for example. As well as the circumstances of the business. Such as making significantly more profit than the business did in the previous year.
Therefore, CFO services says that when business owners do this exercise with their accountant every single year. It will end up with the most effective tax strategy every year.
If they end up not doing this exercise and use the last years tax strategy for the next year. The risk is that entrepreneurs will end up with an ineffective tax strategy. That will have them paying thousands of dollars in additional taxes.
That could have been avoided, simply by going through the financial and tax plan document with their accountant again. By understanding how important a yearly financial plan is.
Business owners can ensure that they are doing a financial plan and tax plan on a yearly basis with their accountant. So that they can always have the best tax strategy.
To minimize the amount of taxes that they have to pay. And to keep that hard earned money where it belongs, inside their business.