Entrepreneurs 101 – Planning with a safety net

What if you lost your job tomorrow?

Could you pay your next credit card bill?   Do you have money available if you needed to acquire legal advice to finalize your severance package? Could you go at least 2 months without income?  Could you go 5 months without benefits?

If you are one of nearly half of Canadians (48%) that are $200 or less away from financial insolvency1 then your answer to these questions would be “no”.  In general, it takes Canadians about 4 months to find new employment.  Depending on the amount or length of your severance package you may very well have to bridge the gap financially until you secure your next job.  Depending on your career you may be able to find work faster, but there are also many others that find it takes 8-12 months to land back in a job that is in line with their skills and experience.

Thankfully when I found myself holding a termination letter in my hand after 14 years of employment I was prepared, thanks to the plan we had been actioning with our financial advisor for the past 10 years.  I was not carrying debt other than my house mortgage and I had savings in the bank including some that were immediately accessible.  Ideally you do not want to start cashing in TFSA’s or RRSP’s to get by until you find employment again.  I also received some particularly good advice in this circumstance that I did not fully appreciate at the time!  Let me share that now…

First, it was suggested to me that I secure a HELOC (Home Equity Line of Credit).  I was not in immediate need of this money but remember that the best time to plant a tree was yesterday, and in this case, the best time to ask for a loan or line of credit is when you can show a recent paystub or your last T4 slip.  If time goes by and you find yourself in need of a loan, the amount and likelihood of being approved decreases, potentially dramatically.

Secondly, review what you are currently financing.  In my case, my mortgage was coming up for renewal.  If you stay with your current lender the process is usually pretty quick and easy, not requiring new confirmation of income.  However, if you are contemplating a change in lenders you may want to act on that sooner rather than later.  Similar to the point above, your financial position in 6 months may make it difficult to even secure a mortgage if you have not secured another job.  Thinking about financing a car?  This is an example of another transaction that may become more difficult with no proof of recent income.

Both of these suggestions in hindsight were excellent as I decided to take the opportunity to start my own business.  The HELOC has been instrumental in terms of funding my new business (in my case, it is more about paying the bills while income is growing).  I also have piece of mind that my mortgage is in place for another 5 years after renewing that without issue.

“Plan for a rainy day” as my grandfather used to say has become even more relevant than he probably ever could have imagined.  I write this article amid Covid-19 which has further impacts and ramifications, but for the purpose of this article, an increase in unemployment.  We also live in a time where downsizing or rightsizing happens more frequently than we would prefer they did.  Many people find themselves in the difficult position of being “between jobs” and most of them did not expect to be there.  What we can do is be prepared, and if the day comes, seek reliable advice as soon as possible to protect yourself and your family as much as possible while you search for employment.

Brent Stevens

Top Notch Promotional Products Inc.