Treat your personal finances like you mean business

When it comes to your overall wealth, your personal and business finances are both important parts of the mix

Most entrepreneurs are meticulous money managers - where their business's finances are concerned - but having a plan for your personal finances is just as important, especially since the two are often intertwined to a significant extent.
 

"Me, Incorporated"

Most entrepreneurs are meticulous money managers - where their business's finances are concerned - but having a plan for your personal finances is just as important, especially since the two are often intertwined to a significant extent.


Personal balance sheet
. Like your business balance sheet, your personal balance sheet (or statement of net worth) lists liabilities and assets to provide a quick snapshot of your financial health at any given time. There are many situations, however, when selling the business may not be practical or may not be the best financial choice. Many business owners look forward to passing their businesses on to their children.


Cash flow statement
. Cash can be broken out into its various sources, including personal investment income, rental income, and any other regular source in addition to the income you draw from your business. Dividing the outflow into living expenses, savings and investments, and discretionary expenses may reveal potential areas for improvement.


Goal plan
. Both long-term and short-term goals have a place in your plan. Some people find it helpful to create a visual plan by mapping out the years to retirement, indicating those in which milestones, commitments, or goals are expected to occur.


The power of integration

Your CIBC business advisor can help you harness the synergies between your business and personal finances. For example:


Scenario 1
: The annual revenue for your company exceeds forecast, and you need to decide whether to reinvest the profits into the business or pay yourself. Areas to look at may include:

  • Growth plans for the business and funding sources.
  • Your personal goals for the next year or two.
  • Your personal balance sheet and cash flow - are you personally in debt while your business is flourishing? Do your retirement savings need shoring up?
  • Where will the money earn more - through personal investments or through appreciation/growth of your business?


Scenario 2
: You've contributed the maximum to your RRSP and are looking for additional tax-efficient ways to save for retirement. Options to consider may involve:

  • Hiring your spouse and paying a salary that would allow him or her to make a larger RRSP contribution (the salary would have to be appropriate for the duties performed).
  • Investigating strategies for building the value of your business so you can sell it and use the proceeds to fund your retirement.
  • Setting up an Individual Pension Plan through your business.

By taking a holistic approach, you may be able to develop strategies that leverage your situation as a business owner. Sharing all your information with your advisor will help ensure that he or she has all the information needed to help you develop the best strategies to meet both your business and personal financial goals.


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