Being a self-employed contractor can bring you a large cash flow and the satisfaction of being your own boss – but it can also make financial planning more complicated than being an employee.
When creating a financial plan, Self-employed contractors need to keep the following in mind:
Knowing what money you have moving in and out of your business is essential. You never want to suddenly find out you are short on cash, especially if you are considering expanding your business.
Tax planning can be complicated for self-employed contractors. Working with a professional can help ensure you are aware of your options, such as claiming the correct tax deductions and the most tax-effective way to pay yourself.
Attracting and Retaining Good Employees
Employees are looking for more than just a good paycheque; they also want a robust benefits program, work-life balance, and pension plans.
You must protect yourself if something happens to you, such as being injured or falling ill. The best way to protect yourself is with the right insurance, such as disability, critical illness, and life insurance.
As a self-employed contractor, this is a must as you won’t have a company pension plan to fall back on. You can’t work forever, so it’s essential to have a variety of income sources during your retirement years, including RRSPs, TFSAs, and an Individual Pension Plan (IPP).
This type of planning is critical and can be triggered by various events, including divorce, retirement, and your illness or death. You must put a plan in place that covers what will happen if any of these events occur. In addition, it’s essential to have the financial resources to ensure the plan can be successfully enacted.
If you are a self-employed contractor working with a partner, you must have a buy-sell agreement. This agreement stipulates what will happen if one partner leaves the business for any reason. Buy-sell agreements can be funded in various ways, including via life insurance.