💼 Thinking of Going Solo? Practical thoughts for navigating your finances through the transition to independent contracting/consulting practice.

Working independently in service-based businesses is growing in both popularity and accessibility. We will focus on some of the financial considerations, but this is much more than a financial decision. This process can feel daunting, but it’s totally possible—and it can have some amazing benefits.

*As always, this information is for education purposes only and is not intended as tax, legal, accounting, or investment advice. Your unique situation will vary!

Big Question #1: Can I afford to go independent now?

• What is your personal “burn rate”? How long could you live comfortably if you had zero revenue? Money stress can stifle creativity and push you toward non-ideal clients and contracts.

• Is your family on the same page? Early entrepreneurship can mean sacrifices—financially and personally. It’s critical to go in with an aligned front.

• What is your end game? How you set up your practice and finances is intricately related to your goals. A lifestyle practice has very different investment needs than a multi-person boutique.

Pro Tips:

• Test the market: For your services long before you take the leap. Starting with a signed contract gives you clarity, validation, and early momentum.

• Build a runway: If you can generate solid leads, aim for 6–9 months of personal financial runway. You can shorten this by firming up engagement(s) prior to taking the plunge

Recommended Resources:

📘 The Irresistible Consultant’s Guide to Winning Clients by David A. Fields — a practical and entertaining guide to building a client pipeline based on relationships and “Right-Side-Up” thinking. I should have a referral fee from this author by now :).
🌐 Staffing platforms like Catalant, Toptal, Umbrex, or Upwork can help you find first projects as can working your network of past clients and boutique consulting firms working in a similar space.

Big Question #2: Should I incorporate — and if so, when?

• Are your revenues and retained profits sufficient to justify the costs and complexity? Incorporation can unlock significant tax deferral (12.2% small business corporate rate in Ontario vs. 53.5% top marginal tax rate) but costs $2,500+ per year and adds administrative work. The financial benefits to incorporation are greatest if you’ll have excess savings in your corporation after paying yourself enough to covering personal expenses and contributions to your tax-sheltered investment accounts (TFSA & RRSP).

• What is the risk profile of your business and how will you manage it? Incorporation creates a separate legal entity and can protect your personal assets. Errors & Omissions insurance can further increase protection.

• Do your clients play a role in the decision? Some clients require incorporated contractors. It’s also easier to sell an incorporated business. On the flip side, if your revenue is concentrated with a single client, be cautious of CRA’s personal services business rules, as non-compliance can be very costly.

Pro Tips:

• Avoid premature incorporation: Sole proprietorships are simpler, less costly, and allow you to deduct most business losses personally. You can incorporate later once your business has matured.

• If you do incorporate, seek advice: Consider professional advice for things like share structure, whether to include a spouse, accounting setup, payroll, and fiscal year-end timing.

Recommended Resources:

🎥 Financial planner Jason Pereira explains this trade-off well: YouTube: Should You Incorporate?
🏢 RBC’s Ownr can be a cost-effective alternative for simple incorporation and annual filings—but professional advice is still valuable (and can be used in parallel).

Big Question #3: How to best manage your cashflow and compensation in year 1?

• How will you pay yourself in Year 1? As a business owner, you decide how and when to pay yourself. For your first year, dividends can reduce admin, offer a one-time personal tax deferral, and may avoid “double-paying” the employer CPP portion if you already had T4 income earlier that year.

• When to register for HST/GST? You must register once you exceed $30K in revenue over four consecutive quarters, once you register you begin collecting sales tax on behalf of the CRA, you also start the clock on deducting input tax credits (ITCs). When you purchase inputs and supplies or hire subcontractors who charge HST you get input tax credits for the HST you paid, you ultimately will remit the net amount of sales tax collected less input tax credits to the CRA. If your taxable inputs are low it makes sense to explore the “Quick Method” of HST accounting (more below).

• Are you forecasting your tax bill? Early income without source deductions feels great—but plan ahead. Example: earning $150K net in Year 1, paying yourself $100K in dividends, and skipping installments could lead to ~$45K in taxes and HST due within the first 3–4 months of the following year.

Pro Tips:

• Consider dividends in Year 1 if your CPP was maxed by a prior employer: You could otherwise make up to $4.4K in duplicate employer CPP contributions that don’t add anything to your CPP benefit.

• Consider the Quick Method of HST accounting: If HST paid on input costs is less than 1/3 of the HST you collect, ask your accountant about the Quick Method of HST accounting as it could save you time and allow you to keep a portion of the HST you collect.

• Plan ahead for taxes: Ask your accountant or financial planner to project your total Year-1 tax bill (personal, corporate, and HST) and set aside the funds in advance.

Recommended Resources:

📘 CRA Guide RC4058 — Quick Method of Accounting for GST/HST — short, clear, and surprisingly useful.
💻 CRA’s Payroll Deductions Online Calculator: Visit here can help you estimate your payroll deductions if you choose to manage this.

Over the longer term, how you pay yourself—and whether you invest inside your corporation—can have a massive impact on your financial future (Salary has many underrated benefits). These decisions should be grounded in a comprehensive long-term financial plan and re-visited annually. I’ll dig deeper into this topics in upcoming posts.

Closing thoughts:

Gosh that was a lot for a single post, and it truly feels like we are just scratching the surface on each of these important topics. If you are thinking about the financial planning considerations of independent consulting drop me a line at chaz@gybefinancial.ca so we can discuss your unique circumstances.