Small Business Tips Blog
Seth Godin is a marketing guru, and notorious for sharing valuable information and setting trends in the marketing industry. He hands out various business insights daily, recently among them: “None of this writing is worth the effort if the ideas aren’t shared.” In a similar vein, your business is doing little for you if you are not paying yourself first.
Paying yourself first is touted the “golden rule” of personal finance. But, if you are a small business owner, paying yourself a salary is also essential to the health of your business.
With the economy picking up, and the opportunity for small business growth, it might be instinctive to put all your profits back into the business. But you still need to get your teeth cleaned, buy groceries, and could use some savings for a rainy day. Paying yourself first also allows you to save some money if you want to put some efforts back into the business one day, or if you want to invest in something to grow the business.
If your business has investors, paying yourself first shows your dedication to making the business work, and subconsciously, seeing some of the payoff for your hard work in a pay cheque, makes you work harder, find better solutions, and get creative on how to increase revenues. If the purse strings are ever pulled tight, or the economy takes another turn, you do not plunge yourself into a financial trouble. It’s wise to have a safety net so you don’t have to get yourself, as well as your business, back on its feet.
A rainy day plan for employees might entail an Employee Savings Plan (ESP). ESPs are attractive and can help with employee retention. In an ESP, a portion of pretax wages are deducted from the employee’s pay and saved for retirement of other long-term goal. In some cases, employers will match the employee contribution.
As a small business owner, it is also a good idea to review and ensure you are taking advantage of all income tax savings:
1. Maximizing RRSP contribution. Or maximize your TFSA.
2. Maximizing capital cost allowance
3. Maximize charitable donations with registered charities
4. Income split with your spouse or children
5. Incorporate your company to qualify for corporate tax deferral
6. File paper work/receipts to claim expenses, like office supplies and business meetings
7. If you work at home, claiming home-business tax deferrals.