How building a financial roadmap can support the wealth needs of practice owners

How does a financial roadmap help achieve your goals for the future?

It’s never too early to get started on building a financial roadmap — no matter whether you have just purchased your practice or are considering transitioning your practice.

A financial roadmap can support your wealth needs and help you achieve your goals by:

Minimizing your tax liability

Tax planning involves individuals and professional corporations legitimately organizing their affairs to minimize their income taxes. A financial roadmap can help you identify tax solutions during your lifetime to minimize your income tax. For example, if you pay yourself a salary from your practice, you may choose to postpone your CPP contributions to a later date to maximize the amount you get while you are working.

A financial roadmap can also map out your financial position in the present day and project it forward to provide a snapshot of your tax liability upon your death. Without this pre-planning, your estate may be forced to liquidate your assets to pay these taxes — which will affect the amounts available to your dependants. This can help you make decisions such as passing your wealth to your dependants while you are still alive to minimize taxes upon death.

Creating an estate plan to achieve your objectives

Developing a financial roadmap involves defining your goals for the future — including how you would like to pass your estate on to the next generation. Understanding these objectives allows you to create an action plan to achieve them, such as by identifying better planning opportunities and potential tax efficiencies over your lifetime.

A financial roadmap also allows you to understand the impact of your decisions. For example, it can project how your choices will impact your estate tax liability, which enables you to make an informed decision to maximize the amount your dependants receive. It is important to ensure your financial roadmap is reviewed regularly and updated for changes to personal circumstances or tax legislation to help you continue to meet your goals.

Identifying gaps in your estate plan

A financial roadmap provides a lens into your estate plan, which may help identify areas where there are gaps — such as where insurance may be required. You may have a tax liability upon death of $1 million but your estate may not have the liquid assets to pay the amount. Putting appropriate life insurance in place can help cover this amount.

Additionally, it can help identify where you have too much insurance. For example, your tax liability upon death may be $1 million, however, you may have a life insurance policy of $3 million that you pay premiums on. Reducing that amount can help prevent overpayment and enable you to pass more wealth to the next generation.

Protecting your practice and family from the unexpected

Creating a financial roadmap can help you determine the impact of unexpected events — and how to stay on track. It can help you understand how much compensation you will need to recover from a business interruption event and ensure you have the right coverage and policy in place.

It can also help you identify how much money you will need in situations such as moving to a facility to receive long-term care. If an emergency leaves you incapacitated, it can define a power of attorney to handle your financial affairs and identify what will happen to your practice and estate in the event of an unexpected death. This helps protect your family and your practice from unanticipated events.

Planning for succession

A financial roadmap can help guide your decisions during succession planning. It can help you understand the financial implications of transitioning your practice to a family member or a third party — such as whether you will receive the after-tax cashflow you need to support your retirement. If you choose to transition your practice to a family member, it can also help you begin that conversation to ensure that everyone’s goals and objectives align.

A financial roadmap can also help you determine the best way to split your assets among your family members. Succession involves a significant emotional aspect, and your heirs may wish to split every asset equally between them. However, you may identify better ways to split those assets to optimize the amount your family receives through a financial roadmap — such as by giving one family member your house and providing another with a cash payment.

Take the next steps

It can be difficult to look forward to the future while you are busy meeting the daily needs of your practice and your patients. However, planning ahead plays an essential role in setting your family up for success — and the best time to begin is today. Developing a financial roadmap can help you understand the impact of your decisions and ensure you have enough to support yourself, your family, and your practice in the future.

For more information, contact a member of MNP’s Professionals team. We have the knowledge to support your practice from start-up to succession and can work with you to build customized strategies in areas like tax planning to support your future success.