that she uses are “working cash flow” (WCF) and “active cash flow” (ACF). The WCF are items you are likely to spend constantly month-to-month, such as rent or a mortgage payment, insur-ances, car payments. ACF deals with the more variable and emotional expenses such as food, clothing and gifts. The relevance to the corporate world is that there are also two types of cash flow that are expended. If we continue with the nomenclature that Holm-es-Winton used, then it would be reason-able to say that the WCF would include such items as clinic rent/mortgage, staff salaries and regular supplies. ACF in the corporate world would be such things as advertising, marketing, research and development. Holmes-Winton has recommended using only 15 per cent of one’s net in-come for the ACF expenses every month, and that would be a reasonable limit to set for the corporate world as well. So, the first thing to do is to determine what your income, net of tax (not expenses), would be and then use that as the level to measure against for the 15 per cent limit. As an example, if the net after tax and before expenses is $100,000 it means you should limit your ACF to $15,000. The typical WCF is between 50 and 70 per cent of the net income, which means at the end of the day, each business should be able to have a buffer of be-tween 15 and 35 per cent, after all ex-penses of both types of cash flow. It is this buffer that can accommodate for any slow periods, be they expected or unex-pected. – in other words, a huge unfunded liabil-ity is potentially in the offing. TAX PLANNING Aside from a business plan, knowing your numbers, implementing a cash flow management structure and funding your legal liability, the other significant impact on your cash flow is your tax structure. Your business setup is important because it has a direct impact on the net after tax before expenses cash flow you will have to spend. There are three types of tax structures for a business: sole proprietor, partnership and incorporation. For a sole proprietor, the money and expenses generated from the business are deemed to be personal income and fully Aon Risk Solutions™ Insurance shouldn’t be a pain. Aon Healthcare Advantage protects you and your professional practice. With up to 30% lower premiums and the ability to choose from professional liability, commercial general liability, property, crime and business interruption insurance, we have you covered. We also offer insurance for additional disciplines that you may practice such as massage therapy, acupuncture, physiotherapy, occupational therapy and many more, for as little as $50 each. Call us today at 1.877.766.2680 or email us at [email protected] RISK MANAGEMENT The next item that impacts a business’s cash flow is addressing the “what ifs.” This is the whole area of risk manage-ment as it pertains to the owners and key individuals in any firm. In the event of a disability, critical illness or death of a key person, the negative impact on a business can often lead to the dissolution of the business. The most cost effective method of providing the cash when it is required is through insurance, presuming that the individual or individuals are insurable. Further, in a partnership and in corpo-rations there is a legal liability to provide for money when an event occurs. In re-ality, so many businesses today have not addressed and/or reviewed their liability www.canadianchiropractor.ca Risk. Reinsurance. Human Resources. Aon Risk Solutions™ is a trademark licensed for use by Aon Reed Stenhouse Inc. June 2014 Canadian Chiropractor 35
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