Can Your Kelowna Business Keep Up With Your Lifestyle?

Kelowna accountantsThe best part about owning a Kelowna business is getting to live in Kelowna! Not many other small cities have the luxury of so many beautiful natural amenities to compliment a thriving community.

Many Kelowna business owners ask me how much money they should draw from their company. I’ve seen many people before coming to me rack up hefty amounts of personal debt while putting their business at extreme risk and taking out more than it can sustain to maintain their lifestyle.

 

The bottom line is that if your business cannot support your lifestyle, then there needs to be a change.

In the short-term, a company may be able to support an owner who is over spending or drawing more of a salary (or dividends) then the business can sustain. For many busineses, over a long-term basis, this cash drain cannot be sustained and will cause the business to fail.

There are only so many resources and there is only so much cash a company can generate. If you are spending more than what your company is generating over an extended period of time…it will go broke!

Whatever You Do, Don’t Do This…

I frequently see and hear about business owners who borrow from their GST or HST account, payroll account, corporate tax account etc – to pay for personal expenses.  Revenue Canada charges hefty penalties and interest and should be paid before the owners are.

Before you pull money out from your company for personal or living expenses, there are two very important things to make sure of:

  1. You are paying the least amount of taxes (so there is more money for you).
  2. That the business can actually support your family…if not, it’s time to move on.

I’ve seen it happen many times where somebody has a certain lifestyle and a small business that causes them to continue borrowing. They borrow the first $10,000 from the Federal Business Development Bank (Community Futures) downstairs from my office with a great plan to make money and within 5-8 months they’re out of cash and they are back to the bank to borrow against their home.

Don’t Be A Victim Of Poor Planning

Kelowna accountants

A good business model and financial planning will save you from the burden of not making enough to sustain yourself. You can’t keep borrowing money. You will not survive doing this on a long-term basis.

Don’t get me wrong. Businesses fail for many different reasons but if it fails because you’re pulling out more money then it can generate to live and survive, then it didn’t fail because it was a bad idea…it failed because it couldn’t support you and your lifestyle.

Good strategic planning with realistic goals and projections will usher you past the success barrier faster than you would think. Aesop’s old fable rings true where slow and steady still wins the race.

Get your Kelowna business in a position where you are always thinking ahead and working backwards from your goal. Don’t neglect to consult your trusted advisors for advice so that you receive a knowledgeable and objective opinion to help you with the bigger picture.

What has been helpful for you with managing your finances? Leave a message in the comments below.

 

 

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