More clients are working for themselves. Are you equipped to help them?
A recent Statistics Canada Labour Force Survey shows that from 1987 to 2010, self-employment sparked 21% of job growth. Today’s economic factors are likely to push that trend. Restless retirees are turning to entrepreneurship to cure both boredom and poor investment returns. Disillusioned graduates are trying start-ups instead of corporate jobs. Burned-out executives are embarking on passion plays.
Your challenge? The needs of self-employed clients are very different from those of conventional corporate workers.
For starters, their cash flow is unpredictable. Clients who start companies expend a lot of cash up front as they purchase equipment, pay first and last months’ rent on space, or put a deposit on a special-purpose vehicle. Sales could hit a dry spell for several months, and then experience an onslaught of cash. A harried entrepreneur may not invoice in a timely manner. This makes budgeting for both home life and investing tricky.
Forcing saving and RRSP contributions becomes difficult absent the infrastructure of biweekly paycheques. And entrepreneurs at every stage tend to plow any cash back into operations, instead of paying themselves. You’ll also need to make sure clients set aside enough to pay their taxes come April and June, since the self-employed tend to see sales and income taxes as extra cash flow, not as liabilities.
Reducing taxes for self-employed clients is different, too. So brush up on the deductions and credits available to business owners. Haven’t advised on a SR&ED application? Find an accountant who has. And get to know an auditor who can help with end-of-years.
Then there’s insurance, which is more important to the self-employed than they may recognize. Yes, there’s liability, contents and vehicle insurance. But if an owner’s out indefinitely due to illness, so is the income. Even if employees can fill in, chances are the business will suffer, since owners are notorious for keeping institutional knowledge in their heads.
Read: Goodbye retirement?
So you’ll need to educate them about disability, critical illness, key person, life and partnership insurance. Is the client a director or fiduciary? Add D&O and E&O. Further, taking on the responsibility for other people’s livelihoods means added pressure, and a higher risk of stress-related illnesses. So don’t overlook health insurance.
Self-employed people had the chutzpah to risk it all. Expect pushback on recommendations, and be ready to press them to ensure follow-through.
The rewards of serving these clients are worth it. You’ll differentiate yourself, and if you’re a proper guide, you’ll gain valuable referrals from the accountants, lawyers, insurance and cash-flow specialists in your network. You might even learn how to improve your own practice.
Besides, the next Cora Tsouflidou or Mark Zuckerberg could be sitting across your desk.