Home » Articles » Why Financial Plans Shouldn’t Cost Extra | Edmonton Accounting Firm
Why Financial Plans Shouldn’t Cost Extra | Edmonton Accounting Firm
If someone was to give me an airplane, theoretically I could use that airplane to get the Vancouver or Toronto or Mexico quicker. In reality, if I was piloting the plane, he would probably crash on the runway.
Yeah, I can see why. Cause it’s mad.
Hi. Thanks for joining us for another episode of ask spurl CPA. Today we’re talking about why financial and tax plans shouldn’t cost extra here with Trevor either. And Edmonton Accounting Firm, you don’t, and Trevor, you know, probably agrees with me and inspired me that you guys have mean we have flat fees as well for clients, right? So that’s right. Yeah. It makes it very simple for people to get on board because they know what the fees are going to be. It’s not a mystery every month. And we’ve also been able to put things into a system that makes it affordable for a lot of people. Yeah. Yeah. Why? Why do we have one fee to develop a website and another feet to make sure the website actually gets seen by somebody? Right. It doesn’t make a lot of sense. Yeah, exactly. So the cool that we have here is a Michael Gerber, ah, Co author of the e myth.
And it says, you know, the fatal assumption is if you understand the technical work of a business, do you understand that the business that does that technical work, and those are, are two different things. And, and let’s stat that we’re looking at is 50% of all Canadian small businesses go out of business within five years. Now, 29% of these fail entrepreneurs, they will list, I’m running out of cash as one of the reasons, Edmonton Accounting Firm, for their business failing, which makes us the second highest reason for businesses failing. Um, and the story that we have here as business owners, they’re running out of cash, they’re having this common problem and they’re paying unnecessary amounts of tax because of an inefficient tax strategy. Right? So, Trevor, what are the questions you think these business owners need to ask? Well, the first question is why do you always say only incorporation is like owning an airplane?
So I say it’s like owning an airplane. I’ll explain that. So if someone was to give me an airplane, theoretically I could use that airplane to get the Vancouver or Toronto or Mexico quicker. In reality, if I was piloting the plane, he would probably crash on the runway and we would never leave the airport. And hopefully we would even be more worried if we would live through the experience. Owning a corporation is a lot like that, just because you have a corporation, it is capable of helping you save additional tax. But just owning it alone does not help you save on the tax. You have to know how to use it. Right. And it’s the same thing. Now how much money does a business have to make to benefit from that tax strategy? Yeah, so a lot of business owners, thank you. Owe Tax planning.
That’s something that people with millions need to invest it. That’s where the government gets you. They get your, their trunk and change off the off the, the, the middle class more than we like to admit. Um, but the average business owner can really start to benefit from tax biting out about $50,000 in net income. So we’re talking small solo preneur businesses. Even that will benefit from formal tax planning where you know, the value of the planning itself, you know, we’ll, we’ll exceed the amount that they’re paying for the planning and has done it in an efficient manner. So $50,000 of net income, you should be having some, some tax planning done. Uh, for sure. What is a crude test to know if someone is deploying some form of a tax planning? Yeah, so the mess of that method, I’m going to tell you it’s not quite exactly what it, it, it, it works, you know, nine times out of 10, um, and if you look at a set of small business financial statements and you see how the owner is getting paid.
Now, if that owner is getting paid by all salary or all dividends, nine times out of 10, they don’t have an efficient, Edmonton Accounting Firm, tax strategy. Not every time, but nine times out of 10 I would estimate. Um, you know, and efficient tax strategy usually involves paying the owner or owners a combination of salary and dividends. They’re getting both salary and dividends from a corporation in most cases, you know, that will, you know, at least tell you someone has at least considered it whether they’re doing it right or not in the right levels. That’s a different discussion altogether. But if you have all sour, all dividends, probably time for a second opinion. Now, is it possible to plan for the business without considering the household? It is, you know, uh, it’s not possible to plan for the business efficiently. New Island. I looked at a file just the other day and the accountant came up with an idea that he was going to reduce the corporate taxes by declaring an interest expense in the corporation and report that interest income on the personal return.
Okay, great. We’ve got the corporate tax to zero, but we stuck all the, the income on the personal return at the highest marginal rate. So, you know, I’m not sure what the purpose behind it is. And even, you know, there’s, there’s more initiatives like that, you know, things like, does the bay, this is the whole, those, the, Edmonton Accounting Firm, the business owner, do they own some real estate mean to the real estate makes more sense in the business. Maybe they own vehicles that make more sense in the business. Maybe they have a bunch of cash sitting around personally, in which case, why are they taking cash out of the corporation? Um, you know, so try to do corporate tax planning with out, you know, considering, um, you know, what’s being done in the household. You’re not going to get the efficient agile, you’re going to miss opportunities and even pointing people in the wrong direction.
Now, do strategies often change from year to year with clients? Yeah. Yeah. Sometimes I’ll get clients and say, Josh, can’t you just do this once and just set it and forget it? That’s, that’s not how it works. Everything changes, you know, their households, circumstances change. One spouse is working, [inaudible] is not working one year and you know, the business income goes up or it goes down or everything stays the same and the government changes the rules on the changes, the rates on you, it changes from year to year. This is not an exercise where you can, you do it once and know that’s why we don’t, we don’t sell it on, Edmonton Accounting Firm, all the carte basis. This is how much is it for a financial plan. This is how much rest and it’d be your accountant on an ongoing basis and we’ll make sure the planning gets done each and every year and updated.
Um, because if we just replicate last year’s plan, that’s the recipe for disaster. It works and all of a sudden it does it. But by the time you realize it doesn’t work, you’ve paid tens of thousands of dollars in extra tax. Um, because you didn’t go through the plan every year. Now it’s Berlin associates. Do you do corporate year ends without tax planning and financial planning? Yeah. So we actually won’t take on that sort of client. So the client that comes through and they say, hey, we want the, the year end done. Um, and we, you know, we don’t want any, any, Edmonton Accounting Firm, financial planning or tax planning done with it. Um, you know, we just, I don’t believe in that, that sort of work. You know, I view it as I’m selling some of the car without a seatbelt. Seatbelt doesn’t cost extra. I just don’t think it’s the right way to, you know, point clients.
You know, maybe you can give them a cheaper price, but you give them a cheaper price and do less work so they can pay more than what it would cost to do it properly. Uh, once they consider the additional taxes that we’re doing. Uh, so we viewed them as, you know, they’re one of the same best practices. They should be done together. Um, so we’re not going to do anything other than, than the best practice. Do you believe the additional taxes outweigh the costs savings on going and planning? Yeah. So nine times out of 10 when it comes to that business owner and they’re making $50,000 a year or more, they’re probably paying more when you consider the extra taxes that they’re paying. And even if you know, deduct some of those additional fees that they pay to do it correctly, um, they’re probably paying more people that are just completely underestimating.
You know, how far a bit of tax planning can go. Um, you know, you, you, you might pay a little bit extra to do some tax planning. Say you pay it, you know, $1,000 or $2,000 extra to do the tax filing in addition to the year end and now you’re saving five, 10, $15,000 in tax. Um, provided you have, you know, at least a minimal income level. And like I said, it’s not as high as people think. It’s not millions. It’s tens of thousands where the tax planning starts to benefit you. Do you have set systems to ensure the planning can be done efficiently? Yeah, so you know, we have protocols that we go through, right? There’s a lot of times I think tax planning is super expensive and it seems unattainable, Edmonton Accounting Firm, for, for business owners. But we have, you know, set systems that this, these are the questions that we’re going to ask the business owner.
We know exactly where we’re going to do in the, what we call the initial financial planning meeting and the final financial planning. We were going to ask exactly these questions. So we make sure all the variables and all the missteps that, you know, other clients have gone through or missed opportunities that their address. Right. And, you know, if we ever, we find it a new scenario that keeps a rising, we build it into our process. So, you know, when we don’t have the same client falling into the same pitfall, um, you know, year after year, Edmonton Accounting Firm, we asked the same questions and then it goes out to the team and the team actually has a set calculation sheet on how they’re going to plow through those calculations. They’re not inventing from scratch each and every time. You know, that would be completely inefficient. Although there’s a level of customization and every client, there’s some things that, you know, there’s some processes we have to do over and over again.
So why not template them and make them as efficient as possible so we can save our time to do, you know, the customized were uh, and spend a little bit of time on like customized work. All right Josh. So what happens to the cost of planning when firms don’t have set processes to plan? It just skyrockets. I mean, you, you, it would not be outrageous for a firm to charge you $10,000 to do some tax planning and other firms and they charge at $10,000. But the problem is the average small business owner can’t save $10,000 each and every year. So they just forgo it all together, right? So we don’t have those systems in place. You can’t do it at a rate that’s affordable and beneficial every single year. So you got to get it to the, you got to get those systems to a place where the average business owner can benefit, benefit for plans every single year.
And sometimes people think, well, maybe that’s a water down approach me that high level planning custom from scratch is better. You know, we have experienced where clients have come to us from other firms, you know, uh, a big four firms will eat it, didn’t say it, and they paid, you know, thousands and thousands of dollars for tax planning, but they didn’t have the systems in place. And you’ll, we’ve seen capital dividends where they were missed for decades and you know, a three point $3 million capital dividends or consents comes to mind. We saved the guy one point $4 million in tax. And guess what? We use the exact same process that we would have use for Bob the plumber on his first day on the job. It was just a template. You know what we, we knew exactly what questions. That wasn’t even a customized solution. It was just one of our key items, you know, routine items that we, we look for.
But because we systematize it, not only, you know, our re, uh, can we do it officially, we could actually even do it at a, Edmonton Accounting Firm, at a higher level, at a price point that the average business owner can afford and afford and benefit from each and every year rather than just what they have. These, you know, one time life events. All right, now the million dollar question, Josh, do you charge extra for tax and financial planning? We do not. We will not. And I would argue that no, you should not ever. It should be one in the same. Um, you know, like I said, it’s the car without a seatbelt. I don’t think we should be selling cars seat belt. I don’t think we should be selling your ends without doing financial plans to make sure that they’re actually paying, you know, the, you know, minimizing their tax, um, to, you know, every degree that that’s possible for these clients.
Uh, so we build in the tax planning and building the financial planning. You know, we don’t want them to pay too much tax and we don’t to make other financial decisions that completely override all the work that they put into their business. Um, so, you know, it’s, it’s, it’s included as part of the process. I mean, even our year end meeting, we’re going through the year end. Part of our process in the year end meeting is to update the plan. You know, we go back through those variables. We’ve systematized even that meeting, we have that year end meeting, we’ve already started the next plan. It’s built right into that meeting. There was no point in getting them back there. Another time. We can, we can knock that out, Edmonton Accounting Firm, in the same meeting. So, so I think that’s what we have here today. Thanks so much for joining us. As always, we, you know, we look forward to any, any comments that you have, please leave them below so we can, uh, we can respond back to you guys and use your comments to a guidance on what future topics to tackle it in future videos. Uh, and there’s always places to like and subscribe buttons. So we can you, can you deliver you tips on how to beat the odds of business.