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Actionable Steps to Stay in Control and Safeguard the Future of Your Business

By: Nicole Ewing, LLB, TEP, CLU June 24, 2020

As a small business owner, you’ve worked hard to build your business. Now, in a time of uncertainty, protecting it as you did building it is paramount. See our steps to stay in control and safeguard your business:

First Thing's First

  • Don’t act rashly. You’re being asked to make decisions about things for which there are no rules of thumb and others for which there are extensive, complex legal systems with significant and expensive potential outcomes. Take the necessary time to understand your options and seek out the guidance of professional advisors who can help you form a strategic approach.
  • Familiarize yourself with the new and existing government programs available to business owners. Visit innovation.canada.com and check out the interactive tool for a personalized list of support based on your unique circumstances.

Terms of Employment

  • Learn your legal obligations to your employees. Leading legal minds have suggested that no area of law has been more impacted by the pandemic than labour and employment law. Be aware of the potential for “constructive dismissal” claims if you change the terms of employment without taking the necessary steps.

Contractual Obligations

  • Review, update or create contracts to govern relationships with customers, suppliers, landlords and employees. We’ve seen that the unexpected can happen, and without clear documentation setting out rights and obligations, you may find yourself unnecessarily exposed.

Cash Flow

  • Prioritize your payments. If you’ve taken advantage of payment deferrals, such as mortgage deferrals or delaying tax payments, this will have freed up cash for other priorities. But don’t put off thinking about how you will cover these cumulative expenses in the not-too-distant future.
  • Consult your financial and tax advisors to assist in cash flow planning. Financing and debt considerations, available government and industry support, adjusted revenue expectations, and tax minimization are all key elements of cash flow planning. Ensure your strategy is coordinated so that you don’t inadvertently reduce your available funds.

Authorized Parties on Your Behalf

  • Ensure you have up-to-date substitute decision making documents in place. This allows an authorized individual or individuals the ability to act on your behalf in the event you are incapacitated due to illness. Similarly, up-to-date wills with appropriate executors should be considered a need-to-have.

Living Benefits and Life Insurance

  • Review your living benefits and life insurance. You and your advisor can work together to ensure your business and loved ones are protected. This may be particularly important if you have unfunded shareholder agreements.

Personal Strategies

  • Consider your personal financial strategies and take steps to plan for a secure future. This may involve changing your compensation strategies to allow for the buildup of Registered Retirement Savings Plan (RRSP) contribution room to accumulate creditor protected retirement savings; utilizing life insurance to protect inheritances from potential creditors; or setting up Individual Pension Plans (IPPs) or Retirement Compensation Arrangements (RCAs) in your corporation to create greater savings in a creditor protected manner.

Tax Planning

  • Consider whether there is an opportunity to get back tax previously paid. Tax-loss selling is a tax strategy whereby assets are sold while in a loss position with the resulting capital loss being used to offset capital gains from other sources. If in any given year, a taxpayer’s capital losses exceed their capital gains, the excess losses (net capital losses) may be carried back to offset net capital gains realized in any of the three previous years, or carried forward indefinitely. Of course, we would not recommend selling at a loss simply for tax purposes – the decision must be made taking into consideration long-term goals as well as the overall merit of the investment.
  • Speak with your tax and legal professionals about whether now is an opportune time to execute an estate freeze or to thaw and refreeze an earlier freeze. The current depressed market may provide an opportunity for larger minimization of capital gains tax and deferral of tax liability than would have been possible a short time ago.
  • Speak with your legal and tax professionals about whether your business structure continues to be appropriate for you. As we’ve recently seen with the Canada Emergency Response Plan, whether you operate as a sole-proprietor, a partnership or a corporation may have an impact on your ability to access certain government or community programs for funding. A holistic review of the pros and cons of each structure (from legal protections, financing options, tax considerations and so on) is well-advised.
  • For those with a higher net worth, prescribed rate loan planning may provide an opportunity to lower your family’s overall tax burden. The lowest rate possible under the prescribed rate is 1%. On July 1st, the rate will drop from the current 2% to 1% for the third quarter of 2020, and possibly longer. Speak with your tax advisor about whether this strategy may be appropriate for you and your family.

Business Structure

  • Speak with your successors about the financial realities of a family business. Before taking any steps to pass on the business to the next generation, a full and frank discussion about expectations needs to be had. Have the past few months impacted the desire or ability of the successor to take on the business? If so, these are conversations better had sooner than later.

Your Edward Jones team is here for you – ready to listen, support and navigate these times together.

Important Information:

Edward Jones, its associates and financial advisors cannot provide tax advice. Please consult your qualified tax advisor regarding your situation.

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