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Top 10 investing mistakes business owners can avoid

NICOLA 10 INVESTING MISTAKES business owners can avoid If one of your goals is to be smarter about your personal and business finances, here are ten common investing mistakes many small business owners should try to avoid: 1. PAYING TOO MUCH TAX TOTAL TAXES PAID (Corporate + Personal) TOTAL SAVINGS Incorporated business owners making less than $500,000 TRADITIONAL SALARY APPROACH $ 133,806 $ 168,600 annually can restructure their compensation so that they pay less tax. $ 109,130 $ 192,500 DIVIDEND APPROACH You are often better off paying yourself in dividends rather For a small business owner making $500,000, but needing $200,000 of income for spending, a dividend approach can both lower taxes and increase savings than a salary, which also allows you to opt out of CPP. on an annual basis. Based on 2012 tax rates and CPP premiums. Income based on $340,000 paid in salaries and $160,000 retained in the company with tax paid at small business rate of 13.5%. 2. NOT BEING DIVERSIFIED ENOUGH Reinvesting your money into a successful business is almost always going to be your best investment. However, wise business owners also have some money strategically invested and sheltered outside their business. self-imposed savings program where you Consider a take money out of your operating company to keep separate and safe in a tax-efficient account where it can be invested and grown independently. 3. FOLLOWING CONVENTIONAL FINANCIAL PLANNING STRATEGIES Adhering to traditional financial planning methods and investment Consider established ways to grow a Wall Street substantial nest egg strategies isn't wrong, it just hasn't necessarily worked well for a without assuming as much risk or lot of business owners. If volatility as found in the conventional "60/40 stocks and those strategies were bonds" investment mix, working, business owners wouldn't be questioning a highly-diversified portfolio comprised their performance and of cash-flow investments, which are less reliant on whether or not they'll ever be stock market returns, is a good choice to provide able to retire. solid returns over the long-term. TYPICAL BALANCED INDEX WEIGHTED PORTFOLIO DIVERSIFIED BALANCED INCOME PORTFOLIO 40% FIXED FOREIGN 16% EQUITIES 2% CASH INCOME FOREIGN 3.5% BONDS MORTGAGES 15% PREFERRED SHARES CANADIAN EQUITY 15% ALTERNATIVE 5% STRATEGIES BONDS 14% 5% PRIVATE EQUITY 7.5% BONDS HIGH YIELD EQUITIES 60% REAL ESTATE 12% CUMULATIVE ANNUALIZED RETURNS 2.44% GLOBE PEER INDEX 6.26% NICOLA WEALTH MANAGEMENT RETURNS Disclaimer: Return information for the period of Jan 1, 2000 to June 30, 2012. Globe Peer Index: 60% Globe Cdn Neutral Balanced Peer Index and 40% Globe Global Neutral Balanced Peer Index. Nicola Wealth Management Returns: Weighed average NWM client return (net of fees). Past performance is not indicative of future returns. 4. NOT DEMANDING TRANSPARENT REPORTING FROM FINANCIAL ADVISORS LESS THAN 5% of the investment/advice industry in Canada reports DETAILED results. YOUR RETURNS Most financial advisors don't clearly disclose their fees so many investors aren't aware of all the fees they are actually paying. If your fees financial advisor is unwilling to disclose all fees to you, particularly after you've made a request, consider finding a new one. 5. PERMITTING KEY ADVISORS TO OPERATE IN SILOS A business owner's advisors (lawyer, accountant, insurance professionals, financial advisor) should Communicate annually to collectively review their client's big picture interests. The best way to achieve this is to assign a 'driver' to ensure your business advisors are on the same page and maximizing value efficiently and profitably for your business. 6. NOT MAXIMIZING THE PERKS OF INCORPORATION Incorporated individuals can employ some innovative income solutions. For example, they have the ability to establish a trust, which costs about $1,500 plus to setup. It's flexible and can be used as a financial planning tool for different situations throughout a business owner's life such as income splitting with your spouse or low-income retired parents. Tax savings in "ideal" scenarios for high net worth individuals could be very significant and efficient, particularly if a business owner uses a trust to get funds from a small business tax environment (where the tax rates are very low) and into low-income hands without the funds being taxed in the business owner's hands. 1. BEING AN EMOTIONAL INVESTOR While "buy, hold and prosper" isn't always the answer, business owners tend to lean too far PANIC the other way. For the past 16 years the average investor may have underperformed equity markets by as much as 5% annually as a result of emotional trading instead of BUTTON investment decisions. Don't let fear or greed dictate your investments and allow your advisor to guide you through the long term. Source: 2010 Dalbar "Quantitative Analysis of Investor Behaviour" study 8. GROWING WITHOUT A SUCCESSION PLAN Entrepreneurs tend to be the focal point of their company, but most fail to (or perhaps refuse to) recognize that the business must continue to grow after their involvement. Develop a proper succession plan that not only transitions your business, but prepares you financially for retirement or a reduced role. 1 IN 4 OWNERS are considering exiting their businesses within the next 5 years. 77% of those owners DO NOT HAVE a succession plan in place. 45% of business owners planning their succession intend to have a CONTINUING ROLE in the business. BUSINESS SUCCESSION STRATEGIES - THE BREAKDOWN 34% Sell to third-party 29% Pass business to family members 15% Sell to management/employees 11% Sell to partner 11% Don't know Source: Quantitative Study of the Business Succession Market in Canada (March 2007) published by RBC 9. NOT HAVING SUFFICIENT RISK PROTECTION Business owners rely on their company for income and, in turn, the company often relies on the owner to operate and thrive. But what happens to the business - and the business owner's family - if a tragedy should prevent you or a key partner from working? Make sure you have the right insurance in place to protect your interests; it is important to understand how being a business owner impacts both your business and your family. CHANCES OF BECOMING DISABLED FOR 3 MONTHS OR LONGER BEFORE AGE 65 Nearly 50% of BUSINESS OWNERS aged 25 58% 35-65 will become seriously ill or suffer a serious illness, 30 54% including mental 35 50% health issues. It's 40 48% important that business owners take 45 40% care of themselves to ensure they're in a better position to look 50 30% after their business. 55 23% Source: Derived from Commissioners Individual Disability Table A; Small business and stress, July 2010, Article Base Only 33% of Canadian business owners have disability coverage. Source: LIMRA, marketing facts quarterly, Spring 2009 10. SEPARATING CHARITABLE GIVING FROM INVESTMENT PLANNING Business owners in a position to generously give back to their community don't recognize their gifts are a poten donor advised accounts as a financial solution that not only lets you give more investment planning option. Think about plementing stru such as effectively, but also creates a lasting legacy. Building a successful business involves long hours and sweat equity. Don't let the lack of a well-thought out plan undermine a whole life time of hard work. Take the time to look at your financial goals so you avoid these common mistakes and make the right decisions. Vancouver-based Nicola Wealth Management is one of Canada's premier financial planning firms that works with business owners, professionals and other high net worth individuals to reach their financial goals. This material has been distributed for informational purposes only and is not intended as personalized legal, accounting, tax or specific investment advice. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. TOR THE ------

Top 10 investing mistakes business owners can avoid

shared by zentime on Oct 22
Wealth management and asset management tips and advice for small business owners.


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