As a small business owner, your relationship with money is likely to be different from when you were a salaried employee. Because your personal income is so closely tied to your business finances, it is important for you to make the most efficient use of your hard-earned dollar. Read on to discover the nine common investing mistakes that all small business owners should avoid:
1. Paying too much tax.
If you are an incorporated business owner and you make less than $500,000 annually, you can restructure your compensation to pay less tax. By paying yourself in dividends rather than a salary, it will often result in more money in your pocket for investment. It will also allow you to opt out of Canadian Pension Plan (CPP) providing you with further money to play with, should you wish.
2. Not being diversified enough.
It is important to not reinvest too much of your money back into your business. Strategically shelter your money outside your business, in a tax-efficient account where it can be invested and grow independently.
When you do invest, try not to do it in the same industry in which your work. For example, if you own a jewelry store, you might not want to buy a lot of precious metal funds. If gold goes down, it will mean that both your business and your investments will suffer at the same time, instead of supporting each other.
3. Following conventional financial-planning strategies.
With the market continuing to be volatile, traditional financial-planning methods and investment strategies may feel too risky for you. But that does not have to stop you investing full-stop. By creating a highly diversified portfolio made up of cash-flow investments that are not tied to the stock market you will be able to grown your nest egg, without the volatility of stocks and mutual funds.
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