Thursday, June 7, 2007

Profit: How well are you looking after your Finances?

Quiz: How well are you looking after your Finances?

If there is one lesson for us all to remember from the dot bomb implosion, it’s the need to be prudent and vigilant in safeguarding our personal capital. All too regularly, the best laid plans do go astray, so planning for the worst case scenario is always a wise recourse. Financial planning need not be an expensive or time-consuming exercise, but it does need to be looked after, and the sooner, the better. Trying to plan for likely contingencies requires knowledge and foresight, so here’s a quick quiz to give you a head start.

1. Have you become so wrapped up in the finances of your business that you have neglected your personal finances by not diversifying your investment portfolio and taking advantage of other financial tax-saving vehicles, such as RRSP and RESP?
2. Have you remained current on business insurance options such as Segregated Funds, Key Person Insurance and Overhead Insurance that help to guarantee your business’s continuing viability in the event of an unexpected crisis?
3. Given that only an estimated 10% of family-owned businesses survive to the 3rd generation, have your planned a tax-efficient exit strategy for your eventual retirement, or will Revenue Canada be the chief beneficiary?
4. What measures have you taken, such as incorporation or spousal ownership of equity and capital, to minimize your personal liability in case of business bankruptcy?
5. As a full or some time contractor, have you instituted a system to guarantee your sub-contractors carry WCB coverage and other liability insurance so that you’re not on the hook, perhaps years down the road, if problems develop as a result of their actions?
6. Have you engaged the services of a certified financial planner to review your personal finances and provide the best advice on how to manage your investments?
7. Have you provided any personal guarantees for company loans, potentially placing your home and other assets at risk in the event of business bankruptcy.
8. Have you provided an adequate salary for yourself and your family commensurate with your level of responsibility and hours spent on the job?
9. Have you considered the utility of an Individual Pension Plan (IPP) or Retirement Compensation Arrangement (RCA) as a both a retirement and succession planning tool for you and your business?
10. Are you aware that annual maximum initial IPP contribution rates are significantly higher than RRSP contributions rates for older individuals ($26,000 for a 60 year old in 2004 vs. RRSP maximum of $15,500)?
Bonus question!
11. Did you know that contributions made to, or benefits earned under, an RCA do not reduce any amounts you may contribute to an RRSP, spousal RRSP or IPP (or other registered pension plan)?

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