3 Warning Signs Your Corporate Wealth Plan Isn’t Working | Ep. 59

How do you know if the way you are managing wealth inside your corporation is actually working?

In this episode of the Plain English Finance Podcast, Tré and Sierra discuss three warning signs that a corporation owner may not have a real financial plan: too much idle corporate cash, an advisor who is not discussing taxes, and no clear exit strategy for the business. The episode also includes a bonus red flag: using the exact same investments across your TFSA, RRSP, and corporate account without considering tax efficiency or asset location. 

For Canadian corporation owners, incorporated professionals and business owners, these issues can become expensive because mistakes compound quietly. A strategy that feels “fine” today can create tax, investment and planning problems years later when the money matters most. 

In this episode, we discuss:

•  Why corporate cash sitting in a chequing account may be a red flag 
•  How much operating cash a business may actually need 
•  Why excess corporate cash should have a defined purpose 
•  Why setting up the right accounts early can prevent years of delay 
•  Why not every advisor is a financial planner 
•  Why not every financial planner specializes in corporations 
•  Why tax planning matters when investing outside RRSPs and TFSAs 
•  Why business owners should understand their eventual exit strategy 
•  How selling shares, winding down a business, or retiring can create different tax issues 
•  Why the Lifetime Capital Gains Exemption and corporate structure can matter 
•  Why identical portfolios across TFSA, RRSP and corporate accounts may signal weak asset-location planning 
•  Why good intentions from an advisor do not guarantee good advice 

The main idea is simple: if your corporation is accumulating wealth, you need more than an investment account. You need a structure for deciding how much cash to keep in the business, what to invest, where to locate assets, and how today’s decisions affect your future exit, retirement, and taxes.

A corporation can be a powerful financial planning tool, but only if the plan is deliberate.

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Transcript

Tre 0:00

How would you know if the way that you're managing wealth with your corporation is even working for you? Let's talk about a few telltale signs that I see when it's obvious that the person doesn't really have a plan that's working. So let's talk a little bit about corporations, your favorite subject.

Sierra 0:17

I don't hate it.

Tre 0:19

Don't you?

Sierra 0:19

It's just a heavier topic. It's not like an easy one, you know?

Tre 0:24

I, I guess. I guess, you're right.

Sierra 0:26

Yeah. Oh, I like how you're like, I guess," as you're like, "I love talking-"

Tre 0:30

It's what I do, yeah. Yeah. It's the, the bulk of the stuff that I like diving into. So, the reason that I wanted to do this episode was because I've heard it from a few different people now that, it's really difficult to know if you're on the right path. Like, what are the actual signs that you're not on the right path?

Sierra 0:49

Mm-hmm.

Tre 0:50

In a lot of other things, there are some really obvious signs, right? Like, if you're driving down the road and you're lost, you kinda know you're lost. Yeah. There's an obvious sign. If you're in the wrong house, you walked into the wrong house. You know, there, there's lots of signs that you're, you're off the track. But when it comes to finances, it's kinda one of those things that- Because of the way compounding works, mistakes also compound. So you don't really know you're making a mistake or you've made a mistake oftentimes until way later down the road.

Sierra 1:22

Mm-hmm.

Tre 1:22

Because the impact is kind of minimal until it's really, really important.

Sierra 1:27

Yeah.

Tre 1:27

And I get a lot of people reaching out to me at the time when it's now really, really important, and it's like, okay, well, yes, we can still help, but this would've been really nice to figure out ages ago. Yeah. So we're gonna kind of talk about some of those, at least a few things specific for people that own corporations that maybe, maybe you need to be looking at at some other options.

Sierra 1:51

Mm-hmm.

Tre 1:51

So the first one is idle cash.

Sierra 1:54

Okay. Too much cash. Yeah. Tre loves cash just sitting around doing nothing.

Tre 1:59

Doing nothing. So I recently was asked to reach out to a, a TCU member that had over half a million dollars sitting in a checking account as a corporate checking account, and they had had it there for the past, like, four years or something like that.

Sierra 2:18

Mm-hmm.

Tre 2:19

So-

Sierra 2:19

Yikes. Bad timing.

Tre 2:21

Yeah.

Sierra 2:21

Based on what I know.

Tre 2:22

Especially after the markets. Yeah, absolutely.

Sierra 2:23

That's what I'm saying.

Tre 2:24

Um, but with that's hindsight, right? So- Yeah. ...in foresight, what do you think some of the things that that person could have known maybe that they don't have? Because that's a telltale sign that there is no plan, right? At that point you- you're well aware that there's no plan. You have half a million dollars sitting there.

Sierra 2:41

Doing nothing.

Tre 2:42

Doing nothing, sitting in a checking account, not even like a high interest savings or something like that. Like where there's some resemblance of a plan. Like, just sitting there doing nothing. So you know something is, is wrong. Yeah. But that's so much later. What do you think some of the things that that individual could have maybe been... Could have clued them into the fact that they didn't actually have a plan, they didn't have a-

Sierra 3:03

Like, the corpo- the corporation owner?

Tre 3:05

Yeah.

Sierra 3:08

Well, I'm thinking like, I feel like it sounds redundant, but the fact that they have cash building up is like, okay, I obviously don't know exactly what my expenses are versus like what do I need in my operating account sort of thing. Right. Actually, yeah. I said operating account. They're like, "I knew something." Anyways, um,-- Like, what do I need this money for? How much am I paying, myself, my employees? Do they have employees? Is it... Like, All of these other questions, I guess it kind of sounds simple, but it's like, "Oh, I have cash sitting here. I should probably..." Or, or like for year one, maybe if you're like, "Okay, I have all this cash left over, maybe I should be re-looking at all the numbers again." Either, with your accountant or with your advisor, whatever, to look and see what your actual, numbers are currently. What are you projecting for your business again?

Tre 4:11

Call it burn rate. So, like, how quickly the, the individual goes through cash. Like, how bus- how the business, how much cash does it use?

Sierra 4:19

Mm-hmm. I was gonna reference "Shark Tank" because they're always like, "What's the valuation?" What do you think for next year and the years ahead? Because obviously the point of having a business is to continue to grow or, like, be profitable.

Tre 4:32

Yeah.

Sierra 4:33

Um, so if you already have excess cash, it's like, can you expand? Can you use it for other, whatever, business ventures? Can you invest it? Whatever.

Tre 4:44

Yeah. So a lo- along those lines, yeah, you're absolutely correct. Like, there's lots of things that you, at the very beginning, they could've known or, or been able to see that this was gonna be a problem. Here's, like, a test for you if you're thinking, if you have a corporation and you're thinking, "Do I have a plan or not?" Is if I gave you $100,000 in the corporation-

Sierra 5:04

Mm-hmm

Tre 5:05

and it didn't have a purpose for the business, what would you do with it? And if you have no idea, you very likely don't have a system or structure in place that's going to work.

Sierra 5:17

So question, when you say that, do you mean- for the business specifically or just in general? Like, "Oh, I have $100,000. Even though I don't have a plan for it business-wise, I might invest it." Is that what, like-

Tre 5:28

Exactly what you're thinking

Sierra 5:28

Is that another plan?

Tre 5:30

Uh, the fact that you wouldn't know- is the telltale sign. The amount of people, professionals that I still meet with that don't even realize you can invest inside of a corporation-

Sierra 5:41

I just asked you this, like- is- last year when we started doing this. I'm like, "But wait, can you invest it?" You're like-

Tre 5:46

Yeah, but you're not an engineer of 30 years and

Sierra 5:50

Yes

Tre 5:50

you know, it's like- I'm interested the amount of... it's just glossed over because your banker often probably won't even know or understand the way that it works, let alone the tax consequences of it. Yeah. So not having a clue what you're doing with the, with the cash, whether that be just sit there If that's the plan, if that's what you're gonna do, you don't actually have a plan. Yeah. And you don't have a way of structuring it. What I actually encourage a lot of people to do, even if it's not optimal, is to open and start all of the accounts that you would- you're going to need eventually anyway. So I will start them, if they have a corporation, I'll start them with a small investment account. We'll put $10,000 in there. It's not a big deal. The point isn't the dollar figures going into it, the point is that you already have the system set up so when you're- when we're making decisions on what to do with cash, it's not

Sierra 6:42

You don't have to go and do all that

Tre 6:44

brand new account we have to open that we put on the back burner for the next five years because we don't really wanna hand- deal with it and go in to sign documents. And like, it just- Yeah... it happens all the time to people. Yeah. But if you start properly and you're like, Okay, well, corporation, I know we're setting up a corporate account for investing. We're setting up your TFSA's, your RSP's, your spousals, we're setting it all up.

Sierra 7:04

Mm-hmm.

Tre 7:05

Whether we use it or not is irrelevant.

Sierra 7:07

Yeah.

Tre 7:08

Everything is set up so that when it comes to, okay now where do we, what do we do, or how do we allocate this cash in the best way possible? It's not a case of what do we do with the money, it's where do we put the money. Yeah. Because we know for a fact we do not need it in the corporation, in the operating side of the corporation. Yeah. So therefore, that is not where we put it. There's always somewhere better for it, is the way that I encourage people to think, right? Mm-hmm. You keep what you need for the operating costs, same as your personal expenses. You keep budget very similar.

Sierra 7:36

Yeah.

Tre 7:37

You keep what you need for your operating, everything else needs to find a better home.

Sierra 7:40

I feel like people are probably like me. Maybe not though, because I do not own a corporation, so maybe these people are quite different. But I would assume some people would be like, But what if I... But what if I NEED more cash?" Like, what if something comes up? And you know, it's just like having those answers.

Tre 8:00

That's super common. Absolutely.

Sierra 8:00

Yeah.

Tre 8:01

Yeah.

Sierra 8:01

Because I think it, it's one thing to budget personally, but I do think for a business it's maybe a little scarier because the numbers might be bigger. What if we have a huge expense like the... What's a huge business expense? I don't even... You guys know. Could be like a... Right? Could be... you just fill in the blank for this one.

Tre 8:19

It could be like You're expanding or something like that. You're purchasing property. There's a bunch of-

Sierra 8:24

Yeah, like an opportunity almost. Something comes up and someone's like, "Hey, do you wanna invest in this other part of... You could expand your business this way," but it's kinda-

Tre 8:31

A lot of people don't know that... or don't understand that things aren't always locked away. Especially if they're raised on GICs and that's all they've-

Sierra 8:40

I've asked

Tre 8:41

ever had access to.

Sierra 8:42

Yeah. And they- It's like the idea of pulling out of the markets again. It's like all of these things, the mentality of it. It's not locked in, but then you're like, but this isn't for this. You remember we talked about that? Mm-hmm. Like, being able to pull from the investments, like personally, I wonder if it would translate as well. But anyways, that's beside the point. It's just some things I'm thinking like, oh, if you were in their shoes, maybe these are some of the reasons you would hold off doing it some- like, more with the cash, I guess.

Tre 9:10

Absolutely. Yeah. Yeah. Yeah. I think lack of knowing is a major thing. Not wanting to make a mistake-

Sierra 9:17

Mm-hmm

Tre 9:18

often leads people to inaction, which is, like, some of the worst mistakes. You know, doing things suboptimally is better than doing them-

Sierra 9:28

Not at all

Tre 9:28

not at all. Uh- Yeah there's a there's a few things, but it's just the telltale sign that you don't actually have a, have a plan. You don't have a structure. Um, by the time that you have... Especially for small, like, professional corporations and stuff, where maybe you have, two, three, $400,000 of revenue, By the time you're accumulating, like, $50,000 of cash, you should be looking at what your long-term plan and goal is for these funds. Mm-hmm. I was, working with a new client I brought him on last year or the... Yeah, I think it was last year. And he owns a physiotherapy, type of corporation. And, yeah, we started when he got to about $30,000 of cash, and he just lets me know, like, once a quarter or something like that to move over an extra 20, $30,000. And it's really simple because we've took the time to set up the, the process and so we know what we're doing, right, with this, with this buildup cash. We know how much we actually need and things like that. So-

Sierra 10:31

Mm-hmm. Yep

Tre 10:32

those things, yeah, really, really, uh, really common thing that happens to a lot of people. So that's, that's the first thing. The second thing is that whoever you're dealing with right now, and I've, I've said this before But I'll say it again, not every advisor in Canada is a financial planner.

Sierra 10:51

Mm-hmm.

Tre 10:52

And not every financial planner can deal with corporations, a lot of people will have an investment person who all they do is manage investments, and they'll think they have a financial planner.

Sierra 11:01

Yeah.

Tre 11:02

So, and this is really important, especially for people that own corporations, because there's so much more complexity to it. So if your individual has never discussed taxes with you, you need to find somebody else. Just- Yeah. I don't care how much you like them. Like they-- When it comes to investing and growing wealth, when you are investing outside of typical RSP's and pensions and things like that, it's a whole different ballgame. You don't have to know anything about tax really to help somebody accumulate assets inside of a RSP. Doesn't So it's very difficult to screw that up. But when it comes to the other side, it's very easy to screw it up if you don't know what you're doing. Mm. So if your advisor isn't discussing the tax side, that's another red flag that you don't really have a-

Sierra 11:49

Like a plan.

Tre 11:50

Yeah. You actually have a plan for how you're accumulating, let alone the deaccumulation phase of your life. I'm not even gonna touch on that, but-

Sierra 11:57

Yeah

Tre 11:57

let's just focus on the accumulation stuff. The other thing is that you've never visualized what an exit would be like.

Sierra 12:06

Like either selling, retiring, whatever..

Tre 12:09

Yeah. So that's really important when it comes to how you accumulate assets, because if the goal is to exit a company, there are certain tax benefits you really, really want be able to access, and you could put yourself in a situation, especially when you include insurance and stuff like that into the picture. Mm-hmm. But you could put yourself into a, a situation where you're paying... It's not like a few thousand dollars more, it's like hundreds of thousands of dollars more in tax because you don't qualify for capital gains exemptions for this reason or that reason. So that's a really- another really important thing where you should have-- And certain types of companies are prone to certain types of exits. Like a professional services company, typically you're winding down, like a lawyer's typically winding down the business. That's very different to a, an engineering firm where you've bought shares and now you're probably gonna be selling those shares and what that- Mm-hmm looks like. And those type of things have various tax consequences, and the way that you would accumulate those shares and stuff like that depends greatly on how you're planning to exit that- Mm-hmm that business.

Sierra 13:17

Yeah.

Tre 13:18

So that was the other thing. So the three main things that, um, really you should be looking at Or should be red flags that will go off in your head to know, "Okay, I, I need to spend more time in this area."

Sierra 13:30

So it was how much idle cash do you have?

Tre 13:33

Yeah, just sitting on idle cash

Sierra 13:35

yep. And then, your planner not talking to you about taxes.

Tre 13:39

Yeah.

Sierra 13:40

And then, We were just talking about engineering shares and stuff. Exit strategy.

Tre 13:47

Look at you go.

Sierra 13:47

La, la, la. la. I had to replay that real quick in my head.

Tre 13:52

And then there's, this is the bonus one, I guess. Uh, 'cause this is definitely harder for you to see. You have to have a, a level of financial literacy to understand this. But I... If you're looking, I want you to go to your statements, and this is assuming now that you are investing, you do have an accumulation strategy, you do have the type of things. But I want you to To take a look at your portfolio that's inside of your TFSA, RSP, And corporate account, and if they are all the same, like exactly the same, that's also a big red flag.

Sierra 14:29

Number wise? Like, hey, let's put-

Tre 14:30

Not the dollar figures- ...what it's invested in.

Sierra 14:34

Ah.

Tre 14:34

So let's say if every account they have you in a, I'm gonna just throw it out there, like a RBC balance fund, and that's in your TFSA, and that same RBC balance fund is in your RRSP, and then inside your corporate account you have that same RBC balance fund. That is a big red flag because when it comes to investing in, outside of RSPs and TFSAs, even with TFSAs, so we'll say specifically RSPs, you have to factor in tax and just like we learned a little while back, certain types of investments- Mm-hmm are taxed in certain ways.

Sierra 15:11

Yeah.

Tre 15:12

And when you ha- when you are looking after the whole thing, you have the ability to put more tax efficient types of investments in certain places to get the best after tax return.

Sierra 15:24

Mm-hmm.

Tre 15:24

So that's another red flag. That's the bonus red flag that if you can, go take a look and, and see because there are, there are a lot of mistakes. I see mistakes made with asset location all of the time. It's probably ...the biggest mistake there, and it's a simple, it's simple to, get right, it just means that you have to be... The advisor has to educate the client and has to put in that work a little bit because it's a little bit more complicated, but it isn't difficult to get right. So if that- is not being looked at at all, again, it comes back to the advisor not-

Sierra 16:02

Knowing what they're doing- or just taking maybe a shortcut or something, like it's just not quite...

Tre 16:07

Well, so because it's relatively easy to do, the more likelihood is that the advisor doesn't know. Yeah. Which is very common. It's fair. I, I'd, I would say that I could have a very good career never touching corporations in Canada. The vast majority of people do not invest in corporations. You could have a incredible retirement practice focusing on average employees-

Sierra 16:36

Yeah

Tre 16:37

and be a very good planner, right, for that subset of people.

Sierra 16:42

Mm-hmm.

Tre 16:42

You can be an incredible planner for that and never need to touch corporations. So most people don't. Like you don't have to. Why would you?

Sierra 16:50

So if, if a client comes to them and they're like, "Oh yeah, I'll help you," but it's not optimal for the client because the advisor That's not where their specialty is

Tre 17:01

sort of thing. No. And it could be somebody that you worked with for ages, right? Like, there's lots of people that will... They'll be an employee for many years, and then they'll go and buy into a company-

Sierra 17:09

Or, your parents advisor. And then all of a sudden you're actually an engineer who now has bought into the firm, and it's like you're a corporation owner or, have bought shares or whatever. So it's like your circumstances have changed. But this is my dad's advisor that I've known for-

Tre 17:22

I don't know if- the dad's advisor would be the-

Sierra 17:25

But it's like if you've worked- be a no, but

Tre 17:26

it could be. Yeah

Sierra 17:26

if you've worked with them for, for... What's happening? If you've worked with them for a really long time then, or known of them or whatever- Exactly. Yeah it's like the trust thing, right? Like- Yeah.

Tre 17:37

You've been with them for 15 years and-

Sierra 17:39

But again, remember, let's loop it all back to episode... It was super early, I can't remember. But we were like, just because someone has good intentions doesn't mean they're giving you good advice.

Tre 17:49

Yeah.

Sierra 17:50

So you may trust that person-

Tre 17:52

To give you what they view as the best advice.

Sierra 17:54

Yep.

Tre 17:55

And I don't doubt- Yeah ...that they are giving you what they view as the best advice. Yeah. It's just simply you don't know what you don't know.

Sierra 18:01

Yeah.

Tre 18:01

And this is one of those worlds where you- because I know I would te- because I was in that boat. I had no idea the rabbit hole I was going down.

Sierra 18:11

As you started, and you're like, "This is fun."

Tre 18:13

Yeah.

Sierra 18:14

"I love reading the tax code."

Tre 18:17

So I'll write... Yeah. It's one of those things that the more you learn, the more you feel like you don't know, and then you look back, you're like, Oh, no. Okay, no I've come a long way." It's just- Yeah... there is so much to learn. You're always looking at better ways, and if you're somebody like me, you're always trying to find better- Yeah more optimum ways to do stuff. So it's always a learning, always a learning process, which is fun. But yeah, so that's... They're, They're, the things. Okay? So- Perfect ...if you are, if you are in this situation or you know somebody in this situation that has a corporation Or you probably wouldn't know that they have a corporation, what would you say? I would say anybody that is doing really well in their career and they are a professional should be paying attention to this type of information. Anybody that is running a sole proprietor company, first of all, there's tons that you can do before you become incorporated, so you should definitely do all that stuff first. But that being said, if they're... If you have a friend or something like that that is a, that is in that world running a small, uh, and they're expanding and want to grow things, again, they're the type of people that need to know this information because decisions you make in your 30s make a big impact for when you're in your 60s, 70s. Yeah. So.

Sierra 19:33

Yeah.

Tre 19:33

Okay. That's the end of that episode. See? Wasn't so bad, right?

Sierra 19:37

Yeah. Wasn't bad.

Tre 19:39

Oh, wow.

Sierra 19:41

Wasn't bad. I'm just kidding.

Tre 19:42

So happy. Okay. Okay.

2026_0623_2021 19:46

And..

Tre 19:46

We're gonna do a future one. I got some really good feedback on the default options.

Sierra 19:50

Oh, good.

Tre 19:50

So we're actually gonna do an episode on default options for corporations-

Sierra 19:54

Okay

Tre 19:54

in a little bit.

Sierra 19:56

Perfect.

Tre 19:57

Don't know when, but it's on my list now, so.

Sierra 19:59

Maybe it'll be the next one

Tre 20:00

who knows. Maybe it'll be... Yeah, who knows? Okay, perfect. Well, we will see you guys later. Thanks for listening.

Sierra 20:06

Bye.

Tre 20:07

Bye.

Speaker 5 20:08

Thanks for listening to this episode of the Plain English Finance Podcast. Trey BYO, certified Financial Planner. Chartered Investment Manager is a financial planner with TC Wealth Management and a Visa wealth. You should always consult with your financial, legal, and tax advisors before making changes. This podcast is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell at any securities. The views expressed are those of the individual and are not necessarily those of a Visa Financial Inc. Mutual funds and other securities offered through a Visa wealth, a division of a Visa Financial, Inc.