Understanding Your Personal Earning Potential When You are Starting a Small Business

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Understanding Your Personal Earning Potential
When You are Starting a Small Business
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• Alberta is a province that is ripe with potential
  for small business owners to build their
  companies and their future. As a province, we
  have a higher than average family income than the
  rest of Canadians, sitting at 100,750 per
  household compared to 78,870 per household, the
  national average (source http//www.statcan.gc.ca
  /tables-tableaux/sum-som/l01/cst01/famil108a-eng.h
  tm). This additional household income means more
  flexibility regarding saved capital for starting
  a small business but can also mean a larger
  discrepancy between your take-home pay as an
  employee and what you can expect to earn in the
  early years as a small business owner.

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• When you are trying to plan for your future, it
  is imperative to consider your financial
  well-being and earning potential, both in the
  short term and in the long term. How can you know
  how much to invest in real estate, stock
  portfolios or ancillary spending if you do not
  have any idea of how much your earning potential
  will be?
• When you are trying to plan for your future, it
  is imperative to consider your financial
  well-being and earning potential, both in the
  short term and in the long term. How can you know
  how much to invest in real estate, stock
  portfolios or ancillary spending if you do not
  have any idea of how much your earning potential
  will be?

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• What is the earning potential of owning your own
  business?
• It is no secret that in the early days of your
  small business, you might struggle with
  consistent client acquisition and cash flow. The
  average new small business takes 3 5 years to
  get off the ground, and often entrepreneurs
  work for free for the first 1 2 years, before
  they begin to take home a regular pay cheque.
  While there are certainly some startups that do
  well right out of the gate (such as restaurants
  or other franchises), your household income might
  fluctuate from where it was before you started
  your small business. As an individual, the best
  way to balance this out in both the short and
  long term is through tax deductions.

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• The tax benefits of being a small business owner
  are much greater than that of an employee. Income
  tax is the single largest expenditure a person
  will make in their life (even more than their
  home!). When a business earns 100 in income, it
  pays roughly 13 in tax and, therefore, keeps 87
  dollars to either reinvest into the company or to
  pay out as dividends. When an employee earns
  100, they pay roughly 35 in tax and keep 65 to
  invest (please note, there are numerous
  assumptions being made here). As you can see, the
  after-tax profits are 22 higher for the business
  vs the employee in the example given. Simply
  put, a business can earn more after tax than an
  employee. As you build your business, bear in
  mind that a smart small business accountant will
  help you understand all the tax deductions
  available to you as a small business owner, as
  well as how to take advantage of those after-tax
  profits.

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• But we havent even gotten to the best part yet.
  In addition to receiving better tax rates
  throughout your earning years, when its time to
  retire you can sell your small business. When an
  employee retires, they typically get nothing
  extra from the company they simply stop working.
  The cash injection from a small business sale in
  the later years of ones life can prove very
  beneficial in funding an enjoyable retirement.
  Furthermore, if you are selling a Canadian small
  business you can receive up to 835,716 tax free
  (note there are many restrictions on what
  qualifies ensure you seek a qualified small
  business accountant). In my opinion, this is the
  single best tax deduction available to Canadians
  you should take advantage of it!

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• Keeping accurate, detailed financial records is
  critical for future sales potential at Kent
  Accounting, we are happy to help you map out a
  record keeping plan that, if kept up to date,
  will save you hours of work and headaches if you
  choose to sell your business at some point in
  time.
• So what should you do with those after-tax
  profits? To maximize the growth potential of your
  income, we recommend flipping that income to a
  secondary venture and allowing it to grow
  alongside your business, increasing your cash
  flow and earning potential. Feel free to connect
  with us at Kent Accounting to talk about what
  those new ventures could be and whether taking a
  passive or active role is best for you.

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• Kent Accounting is a full service accounting firm
  located in Calgary, Alberta. The firm is lead by
  Kent Greaves, a CPA in Calgary with over 18 years
  of experience working with privately owned
  companies. Hiring Kent Accounting for your tax
  preparation or to do your bookkeeping in Calgary
  will allow you to rest assured that your books
  are accurately kept and will free up your time to
  engage in your business in the activities that
  you are best at.