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Advice, Uncategorized

Run Your Home Office Like a Business

There are two major advantages to running a business out of your home: reducing overhead and taking advantage of some of the tax benefits that are available. That doesn’t mean, however, you shouldn’t treat your home-based enterprise like a regular business.

At one time a home-based business was not considered a serious entity. That thinking no longer applies. Thousands of consultants and practitioners have chosen to run lucrative careers out of their homes.

Entrepreneurs continue to be a major part of Canada’s economy and it is through their energy and determination that new jobs and opportunities are created. But they also tend to be sales and customer focused, and that can expose them to unnecessary risks.

Like any business, the owner of a home-based business must address internal issues that can have an enormous impact on their operations.

You may have taken out adequate protection against certain liabilities such as insurance for errors and omissions, public liability and loss of assets and profit. But where many owners are falling down is ignoring personal issues that can greatly impact the business.

For example, do you have a Will and is it up-to-date? Without a Will, or failing to keep it up-to-date, you risk having your business fall into a quagmire of legal wrangling and crippling tax implications. The result could be your business being forced into liquidation or tied up in court for years, leaving your heirs little or nothing in the end. The company can be taxed out of existence, because it is subject to legal or tax rules that have changed since you wrote your Will.

If you have a partner, make sure you have a Shareholders/Partnership Agreement that carries appropriate buy/sell clause provisions and a method for a fair business valuation. Also consider life insurance funding for the buy/sell. Everything might seem rosy today, but relationships can sour and the business can be destroyed without the proper mechanisms in place.

Disability insurance makes sense if you are young and need to protect your earnings for the rest of your life. The high premiums may not make sense for an older person who is close to retirement.

If your spouse doesn’t have a group insurance plan with his or her employer, consider a group plan offered by some insurers. The premiums might be a little more expensive, but it is likely worth it if you have a young family.

Protect your assets. Incorporating your business will protect your personal assets from creditors. The downside is that incorporation introduces more paperwork and is more costly. There are other options that may be available for creditor proofing your personal assets, these options would depend on your individual personal situations. Consider segregated funds held by insurance companies for your investments. These are insured and are creditor-proof.

If you hate paperwork, hire a bookkeeper. A good bookkeeper will keep your documentation in order, will help keep tax filings up-to-date and help you stay on the good side of the government. While many entrepreneurs believe that they are saving money by doing it themselves, consider this: if you charge $75 an hour for your services and work four hours and then put in four hours to do paperwork and filing, you are in fact working for $37.50 an hour for an eight-hour day. Certainly using that extra time on billable work and marketing your business would not only pay for a bookkeeper but would also assist greatly in growing your business.

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