How To Make A Financial Plan As An Entrepreneur

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Whether you already own a business or are beginning to think about turning your side hustle into a full-time gig, you know that working for yourself can reap significant rewards. However, there can also be unique challenges when it comes to saving for retirement, taxes and overall cash flow. That’s where a good financial plan comes in.

The numerous financial decisions entrepreneurs must make have a direct impact on the success of a startup.

In the early stages of entrepreneurship, you are often more focused on creating cash flow than an overall financial plan. But once the business has solid footing, it’s crucial to update your financial plan to fit this new stage of life.

Unpredictable cash flow means financial planning difficulties

Get your financial plan started even if you have inconsistent income

The freedom from being your own boss is great, but the downside is uneven income. It’s something every entrepreneur has experienced at some point, which can lead to a heck of a lot of fear and doubt. And when the bills pile up, that causes difficulties for your planning.

What to do

Create an emergency fund:

A crucial first step is to have an emergency fund.

You may have heard of having 3 months worth of expenses saved up, which is a good start. But business owners should follow a 6 to 12 months rule, if you can swing it.

Be sure to carefully monitor your spending patterns so you can ensure your hard-earned money is being optimally used.

If you’ve got nothing, start putting something away (even if it’s $50 a month, it gets you in the habit). Setting up automatic withdrawals into a savings account is a great way to “pay yourself first.”

It’s much easier to to make sure you’re saving money when you don’t see it in your checking account. Having a recurring deposit into your business bank account is essential for building up your emergency fund.

Get a line of credit (LOC)

a huge part of your financial plan is an emergency fund

Next, think about obtaining a line of credit. This isn’t to carry a balance, but instead to smooth out month-to-month cash flow.  For example, paying a bill that is due before you receive payment from a client.

Unfortunately, though, if the business is new you may have to secure the line of credit with your own assets or personal credit. Once the business gets more established, an unsecured line of credit will be easier to obtain.

If you’re unsure about how to obtain a line of credit, here’s a few simple steps:

  • Visit your bank, credit union or other lending institutions such as BDO
  • Provide them with details including income history, tax returns, credit history, etc.
  • Determine the use and spending limits for your LOC
  • Once approved make sure you’re being diligent with your payments and only spending within your requirements

Have your accounts receivable in order

Add a line of credit to smooth out the rough times

Remember that money owed to you is not money owned by you.

It’s always good practice to make sure that your accounts receivable are up to date, while keeping in mind that not every client of yours will make their payments on time. Make a habit of running through the numbers and books daily (or weekly, if your business isn’t selling things daily).

It’s important to keep track of payables and receivables while managing your invoices. The process should be systematic to the point it runs like clockwork. Tips to follow include:

  • Set specific parameters concerning payment schedules – and include payment terms in contracts
  • Create internal timetables and guidelines regarding when you should follow up with clients that are late on payments
  • Establish clear penalties for late payments and put them in your contracts so everyone is on the same page

Getting in control of this process will give you a huge feeling of relief and give you a lot more confidence about the company’s books.

Pay attention to tax rules for businesses and entrepreneurs in your financial plan

you may want to consult a tax professional as part of your financial plan

When it comes to determining which taxes you should know about, what can be deducted, and how to file those taxes accurately while saving the most amount of money, it’s easy to become overwhelmed.

Even though tax season comes hand in hand with a lot of confusion, spending a bit of time can actually make you money through tax breaks and rebates.

What to do

First off, make sure you register the right kind of business depending on your needs and size.

Sole proprietor

There are a few specific taxes that sole proprietor’s need to be aware of. These include personal and business income taxes, which determine net tax owing to the Canada Revenue Agency (CRA) after all personal and business tax deductions.

Self-employment taxes such as the Canada Pension Plan (CPP) payments and goods and services and harmonized sales tax (GST/HST) should be on your radar as well since you’ll have to file them (and charge them from clients in the case of GST/HST).


From a tax point of view, a Canadian-controlled private corporation (CCPC), has the most advantages. CCPC’s are eligible not only for the small business tax deduction but enhanced investment tax credits, as well as research and development tax credits if the CCPC qualifies.  

Another significant advantage of a corporation is that business income can be paid out in the form of either a salary or dividends, which allows you to optimize for tax minimization.

Expense deductions

Track every expense related to your business. It could get you a huge tax break at the end of the year.  

Pay attention to tax deductions you can claim, including overlooked expenditures including travel, vehicle, education, inventory, meals and entertainment, home office, advertising and many others.  

Since the CRA doesn’t work on the honour system, you will need receipts and documentation to prove what you spent was “ordinary and necessary.”

If the CRA audits you, it’s crucial you have a receipt present, going back at least seven years. Although you may still win a case without proof of receipt, it’s likely you would have to go to many unnecessary lengths.

Keep retirement in the back of your financial mind

Your financial plan should always consider retirement

As an entrepreneur, you’re likely more focused on the day-to-day tasks that are involved in keeping your business running smoothly. You may not have yet considered retirement, even if it isn’t that far in the future.

Some working Canadians are registered in a company pension, or their employer matches their contribution to help fund their retirement, luxuries that you as a small business owner don’t have. It’s up to you to plan ahead and determine how you will afford to retire.  

The Old Age Security (OAS) and Canada Pension Plan (CPP) are available to almost all Canadians and can help provide a modest level of income.


Compare OAS and CPP

OAS is the simpler of the two, having nothing to do with how much you’ve worked in your lifetime, your earnings, or how much tax you have paid. It’s merely based on residency. If you have resided in Canada for 40 years, are between the ages of 18 and 65, you are eligible for OAS. It’s funded from general revenue (taxes) and can be collected beginning at age 65.

The amount of CPP  you will receive in retirement is based on contributions to the plan. In Canada, everyone between the ages of 18 and 70, with an income greater than $3,500 is required to contribute to the CPP.

Regular workers contribute 4.95% of their annual wages above $3,500, to a maximum of $2,593.80. Their employer may contribute an equal amount.

If you are self-employed, you are required for both employee and employer amounts, meaning you’d be contributing almost 10% of net income up to an annual maximum of $5,187.60. This contribution is based on the net income of your business.

You do receive a tax deduction for the employer portion of your contribution, in addition to a 15% federal tax credit for the employee half. It’s important to note that CPP benefits are available starting from age 60 to 70. To learn more, check out this guide here.

Throughout your working life, the Registered Retirement Savings Plan (RRSP) and Tax-Free Saving Accounts (TFSA) offer you a tax-advantaged solution to save money for retirement. Planning ahead is a good idea, and building up your RRSP and TFSA are smart ways to plan for your (potentially pension-less) retirement.

How you plan to fund your retirement involves a lot of big decisions and many big questions, none in which you should be alone in deciding. Be sure to seek out some expert advice about how you diversify your sources of retirement income. People that will have valid input include:

  • Financial advisors
  • Accountants
  • Lawyers
  • Bookkeepers
  • Your spouse and other family members

Don’t forget about fun

don't forget about fun in your financial plan!

It’s common to hear that entrepreneurs often have difficulty disconnecting and taking a break. But doing so can be vital to recharge yourself, and your business.

When you’re self-employed, it can become easy to convince yourself that you can’t have fun or get away. You worry your business will lose clients or completely collapse under the pressure if you take time off.

With a financial plan in place, you can have guilt-free fun knowing that the likelihood of a financial emergency is minimal.

When it comes to planning vacations explicitly, try the following tips:  

  • Marking time off in your calendar before you’ve booked anything – create a sense of accountability to take time off
  • Let life’s moments guide time off. Important family holidays or other dates (birthdays, anniversaries, etc.) can be the anchor that encourage you to take time off. Bonus here: other entrepreneurs are likely off as well for major holidays, as may be your clients
  • Hold your team accountable to taking a mutually-decided upon minimum number of days off per year

When you’re an entrepreneur, finances become much more complicated. Having a financial plan is essential to make sure your business is not only sustainable but continues to grow. It can help you plan for the future while also setting you and your venture up for success.

No matter your goals, a financial plan will help you shape your financial future. When a good business plan and a good financial plan come together, inspiring things can happen.

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Photo by Matthew Henry from Burst