Self-employed individuals make up a large portion of the workforce in Canada. In 2023, according to Statistics Canada, about 13.2% of the working population in Canada was made up of self-employed individuals. This same study showed that out of these self-employed individuals, 71.9% operated a business that had no employees. If you did have employees, there’s a 68.7% chance that you had five people or fewer working for you. With so many people being self-employed in Canada, I thought it might be interesting to review some of the common financial hurdles you face and talk about potential ways to deal with the obstacles you face as someone who takes the risks of being a self-employed business owner.
In This Article
- 5 Problems that Seem to Plague All Self-Employed Individuals
- But What About the Tax-Man?
- The Bottom Line
5 Problems that Seem to Plague All Self-Employed Individuals
Here’s a list of five of the most common hurdles that self-employed people face, as well as some suggestions on ways that working with a financial advisor can help you deal with them.
- The Hurdle – You have irregular and unpredictable income. For many self-employed individuals, their income can vary significantly from month to month. This can make it stressful, wondering if you have enough to pay your bills in months where cash flow is reduced, let alone having money to save for the future.
The Solution – When speaking with Matt Schaap, a financial advisor at Strata Wealth & Risk Management, he offered this advice. Make sure that you always ‘pay yourself first’ and that you set up and follow a cash flow plan that helps manage your monthly cash flows. When your cash flow is variable from month to month, it is essential to have a plan in place where you don’t treat months when you’ve received lots of payments as if it’s Mardi Gras and just ‘Let the good times Roll!’. By setting up a plan that earmarks money for expenses and savings plans first, you know that when a month comes where your income is a bit lower that you don’t need to worry about where the next payment is coming from because your cash flow management plan has accounted for that already. - The Hurdle – Without an employer that you work for, there is no workplace retirement plan that you are part of. This means that the responsibility for saving for the future falls fully on your shoulders.
The Solution – Invest early and make time work for you is the advice that Graham Finch from Strata Wealth & Risk Management gives his clients. Managing your cash flow is another essential part of this advice because, just like the previous point, when you are self-employed, and your cash flow varies, you need to make sure that the times when you have a surplus, those funds are saved for the future so that when things are slower, money is there for you to rely on. If you set up a plan where you make regular investments in your retirement savings, that money becomes part of your monthly cash flow plan. All investment advisors will tell you that time in the markets is one of your biggest allies. History has shown that with most investment options, the longer you are able to stay invested, the better the returns that you will see. So by setting up a plan where you make sure that you put away money every month into your retirement plan, you will stand a much better chance of being able to enjoy the retirement you dream of when you are working. - The Hurdle – There are very limited options for efficient ways to pay health care and dental expenses without the option of a group benefit plan.
The Solution – The options that you have will rely on a few questions. One main one is whether or not your business is incorporated. If it is, a Health Care Spending Account may be an option that makes sense for you. If it isn’t incorporated, then Health Care Spending Accounts simply aren’t an option. If you happen to be one of the self-employed individuals who also has employees, there are options for group benefit plans for businesses with two or more employees that can provide you with health and dental coverage. If you are one of the self-employed individuals without employees, you can look at other options for personal health insurance, like the ones offered by different major insurers, or explore options like coverage provided by your local chamber of commerce or other groups or associations you may belong to. Take the time to chat with an advisor like Brett Restemayer at Strata Wellness & Benefits to go over the options that are available to you. - The Hurdle – Difficulty qualifying for a mortgage. Many lenders are less willing to work with self-employed individuals because of what they consider ‘non-traditional’ income.
The Solution – Work with a mortgage broker who can shop the entire lending market for you. Do not go to the bank where they only have access to the products that they carry. Branden Eden, a level 2 Mortgage Agent with Strata Mortgages, can help self-employed individuals find a lender through both the traditional and non-traditional channels. A mortgage broker will be able to shop all of the options available to you and help you get situated in the best solution for your personal situation. - The Hurdle – Many self-employed people know the ins and outs of their businesses like the back of their hands. Sometimes, they are so focused on what makes up their business that they put less focus on their long-term financial planning and don’t really understand the different options and tools available to them.
The Solution – Use an advisor who can help you understand potentially complicated solutions in a way that makes sense to you. Jason Robinson from Strata Wealth & Risk Management understands that business owners are often really good at what makes their business run, but they should make use of an advisor who will operate kind of like a CFO for their personal finances. Make sure that you utilize the expertise of people in different industries to make your life easier when you are self-employed.
But What About the Tax-Man?
With the hurdles we just mentioned, I specifically left out taxes because this is a topic that bears its own category. When you are self-employed, it is essential that you deal with a tax expert like the team at Strata Accounting with services that extend beyond simply filing your tax return each year. Here are some reasons why you should have an expert help you with your tax planning if you are self-employed.
- The Hurdle – Keeping personal and business finances separate. When you are self-employed, running a non-incorporated business, there is no requirement that you have separate bank accounts for your business and personal finances.
The Solution – Using an accountant, they can help you set up a banking system that works for you. They can suggest things like best practices for bookkeeping systems and how to maintain your records so that when it comes time to file your taxes or analyze your business for access to credit products (like those pesky mortgages we talked about earlier), your records are clear and concise, and easy to work with. - The Hurdle – Self-employed individuals face tax burdens and complex compliance rules that others don’t.
The Solution – Your accounting team should help you set up a system to make sure that things like quarterly installments for things like HST are planned for and made on time, that other remittances like the CPP contributions are made, and that you can maximize the write-offs available to you as a self-employed individual. - The Hurdle – Self-employed individuals face a lot of regulatory and tax filing paperwork that can be overwhelming.
The Solution – Making sure that you use the resources that an accounting professional recommends to you is essential. The days of showing up with a shoebox full of receipts are long gone, unless you want to pay extra every year to make sense out of a pile of paper that you should be managing. Instead, your accountant will suggest bookkeeping and accounting systems that you need to implement to make your life easier and keep you up to date with your tax filings.
When it comes to tax filing, being a self-employed individual allows for many more tax deductions than an employee of a business gets. This is because of the way that a self-employed person runs their business; they are ‘personally’ funding the expenses associated with the running of that business. This allows self-employed people access to several tax deductions that may be unavailable to others. To make sure that you are running your business in the most tax-efficient way possible while making sure that you stay within the limits that Canada Revenue sets, working with a professional accounting team like the one at Strata Accounting will help make your life much easier in the long run.
The Bottom Line
If you have decided to become self-employed, you may have found yourself dealing with one or more of the common hurdles that we talked about in this article, along with many other things. Simple aspects like the loss of the social aspect of working with others and the risk that you take on working for yourself often also weigh heavily on the mind of a self-employed entrepreneur. If you are facing any of the hurdles that I mentioned in this article, then I would also suggest that you take the time to consult an expert to help you through them. With everything that you need to worry about regarding your business, make sure that you aren’t adding to your burden by ignoring the help that is out there for you. Talk to the team at the Strata Group of Companies and see how having so many experts under one roof can make your life easier.
