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April 1, 2023March 27, 2023

What to Remember for This Tax Season

Tax season is upon us and it’s a busy time! Each business must undertake the process of reporting earnings and paying income tax on business profits. It’s important to report income in the fiscal period you earn it, no matter when you receive it. It’s crucial to deduct business expenses but only if you incur them to earn income and if you are able to back up the claim. With filing deadlines approaching, what do you need to remember for this tax season? The following are some reminders for your business in this hectic time.

File on time: If you wish to receive the benefits/credits your business is entitled to and avoid penalties, it’s important to file your return on time. File your return no later than six months after the end of each tax year. The tax year of a corporation is its fiscal period. If your business’ tax year ends on the last day of a month, file the return by the last day of the sixth month after the end of the tax year. If your tax year ends on March 31, your filing due date is September 30. If your tax year ends on August 31, your filing due date is February 28. If your tax year ends on September 23, your filing due date is March 23. When a filing due date falls on a Saturday, Sunday, or public holiday recognized by the CRA, your return is considered on time if the CRA receives it or if it is postmarked on or before the next business day. For more information, go to Important dates for corporations.
File online: To receive your refund faster, sign up for a direct deposit and file your return online through NETFILE-certified tax software or the services of an authorized service provider who can use the CRA EFILE service.
Claim all benefits, credits and deductions: Your business may be able to claim tax deductions, credits and/or expenses on your return. Top deductions for business owners include advertising expenses, business-use-of-home expenses, meals and entertainment, office expenses and vehicle expenses.
Remit GST: You may be required to register and file a GST/HST return. Your GST due date depends on your tax filing period. Some businesses choose to pay their GST/HST quarterly or annually. For more information on how to (pay) your GST/HST, the CRA has additional guidance here.
Reduce adjustments: To reduce the number of changes made to your business return each year, find information about common adjustments, including how to get forms, guides and other publications.
Pay on time: To avoid interest charges, pay any balance owed by the deadline. If this is not possible, work out a payment arrangement with the CRA.
Keep receipts/documents: In case you are selected for review, keep all receipts/documents for at least six years. If you’re self-employed or a sole proprietor, you may need to keep some of your business records for a longer period of time.
Claim non-capital losses: If your expenses exceed business income in any year, use this loss to decrease your income tax bill. The loss can be carried back three years or carried forward up to 20 years. Your Chartered Professional Accountant can help you decide if it makes sense to use the non-capital loss in the current tax year, carry the non-capital loss back to recover income tax you’ve already paid or carry it forward to offset a larger tax bill.
Strategize your capital cost allowance: Instead of deducting the cost of the depreciable property you’ve acquired in your business in a particular year, deduct this cost over a period of years through a capital cost allowance claim. You can use as much or as little of this claim in any year and carry any unused portion forward to help offset a larger income tax bill in the future. Also, consider buying and selling your assets at the right time. Buy new assets before the end of your fiscal year and sell old assets after the current fiscal year.
Manage RRSP and TFSA contributions: Registered Retirement Savings Plans and Tax-Free Savings Accounts are excellent income tax deductions for small-business owners. Since some or all of your allowable RRSP contributions can be carried forward into subsequent years, you’re better off saving RRSP contributions for years in which you expect a high income. If you’ve maxed out your RRSP contributions and need a tax-free place to put cash or investments, the TFSA is a good choice. TFSAs allow you to shelter savings and investment income from taxes. Income and capital appreciation from stocks, bonds, or other interest-bearing instruments are tax-free inside a TFSA. Your Chartered Professional Accountant can help you maximize savings using RRSPs and TFSAs.

Business taxes are complex and complicated. Consider hiring a CPA. Most businesses prefer to have a certified professional accountant complete their Canadian income tax returns. This saves time and effort, provides assurance of accuracy and increases your chances of efficient tax planning.

Need help with your business’ tax returns? Looking for business advice? Contact Cook and Company Chartered Professional Accountants. We are based out of Calgary, Alberta, serving clients across Canada and the United States. We provide high-quality tax, assurance and succession planning services for a wide variety of privately-owned and managed companies. Contact us for a complimentary consultation.

March 1, 2023March 15, 2023

Strategies to Improve your Business’s Accounting

If you want to weather the current economic climate and encourage growth for your business, you need a well-planned and implemented accounting strategy – an approach that tracks revenues, expenditures and profits, systematically. Being on top of your financial situation enables you to make decisions best suited to your circumstances. The following are some strategies to improve your business’s accounting.

Keep business and personal banking separate:

Open a dedicated bank account for your business, preferably one with online access as this makes it easier to make payments and do bank reconciliations. If you need business money for personal expenses, do a regular transfer to your personal account. This will make bookkeeping much easier. Don’t use your personal credit card for work purchases and vice versa.

Recognize business vs. personal expenses:

You need to know what type of expenses can and can’t be claimed against your profit for the purpose of reducing tax. An expense that is directly related to the operation of the business and towards producing income is tax-deductible. An expense that is for your personal pleasure is not. Mixing personal and business does not mean a full claim for business can be made. If you’re in doubt about whether or not to claim an expense, contact your accountant.

Develop a budget:

Begin by coming up with revenue projections and a list of anticipated expenditures. Compare this budget to actual expenses and revenue. Adjust the budget as needed.

Keep an eye on high-cost expenses:

Labour and inventory costs are the largest expenses for most small businesses. To reduce labour expenses, consider outsourcing work to contractors that bill at an hourly rate. They may not need 40 hours/week to complete your work and they don’t require benefits. Time-tracking software makes it easier to understand how much certain tasks cost your business, enabling you to find ways to control expenses. Track inventory carrying costs, inventory turnover ratio, amount lost to obsolete inventory and other key metrics.

Plan for major investments

Consider what expenses will arise in the next one to five years (upgrade of facilities, new office equipment, peaks in staffing costs, emergencies). By planning for major expenses, you can avoid taking money out of the company during good months and finding yourself short in slow months. Track expenses and revenue to help identify the best time for large investments. Business credit cards help establish a credit history giving you a better chance at qualifying for financing (lines of credit, loans) and they often offer perks such as business or travel rewards.

Utilize bookkeeping software:

There are free bookkeeping software packages if you are on a tight budget (Wave, ZipBooks, Akaunting, SlickPie, GnuCash, CloudBooks). If you can afford it, purchase a good-quality program that comes with occasional updates (Cashbook, Quickbooks, Xero, Sage, Freshbooks, Zoho). Choose one that is easy to use, customizable, produces charts for quick reference and combines different aspects of reporting from one period to the next.

Organize and store source documents:

Quotes, orders, delivery dockets, sales and purchase invoices, credit and debit notes, payment/remittance advice, cheques, receipts, wage records and deposit slips need to be filed and archived for 5 to 7 years. Keeping source documents at your fingertips makes it easier to prevent fraud in your business, improve your accuracy and ease finding transactions when needed.

Read and understand monthly reports:

Keep your bookkeeping system up to date and produce reports monthly. Learn to read and understand these reports, in particular the income statement and the balance sheet.

Reconcile bank statements

to get a fair picture of your financial health. Make sure the figures in your accounts are registered on your bank statements and vice versa.

Keep on top of sales invoices

Late and/or unpaid bills hurt cash flow. As soon as a job is complete or a product is delivered, prepare and send out customer invoices. Put a process in place to track your billing carefully (issuing a second invoice, a phone call reminder, penalties and/or extra fees). Be organized.

Ensure inventory data is accurate

To prepare financial statements you need accurate inventory data. Track physical inventory either manually, by counting items on a regular basis, or by pairing counts with an inventory management system that automatically adjusts the numbers as sales happen (via integration with your point-of-sale system). Inventory management software makes it much easier to track inventory and the information will be more accurate.

Make accounting a joint effort

Educate new employees on how your accounting process works and how they can contribute to smooth operations. Ensure that staff are aware of deadlines and cutoffs for payroll, expenses and payment runs. Inform your team of key performance indicators and how they can provide financial information that would support your goals.

Know when to outsource:

If you find bookkeeping too difficult or don’t have enough time for it, outsource the task. This can be cost-effective and professional help will ensure accuracy. Professional bookkeepers often give great business advice and assist with many tasks (recommend good software, attend meetings with your banker, explain accounts you find difficult, prepare annual budget and cash flow reports, etc).

Don’t let accounting be the downfall of your business. Try these accounting strategies to help you improve your business, spend less time on finances, focus on growing your company and enhance your customer relationships. When it’s time, get professional bookkeepers and/or accountants involved.

Need help establishing a good accounting system? Looking for business advice? Contact Cook and Company Chartered Professional Accountants. We are based out of Calgary, Alberta, serving clients across Canada and the United States. We provide high-quality tax, assurance and succession planning services for a wide variety of privately-owned and managed companies. Contact us for a complimentary consultation.

February 1, 2023February 10, 2023

Looking to Hand Down the Family Business? Read This.

Ready to retire and relax? Want to hand down your business to your family members? This requires planning. Small business succession planning is difficult as it’s complex. People are often resistant to change and there’s potential for conflict, but no one stays in the same position forever. Illness, retirement, death and/or turnover are inevitable. If a company fails to plan, knowledge may be lost and opportunities missed. Succession planning provides a business with a framework that ensures continuity when change occurs. It allows you to hand down the family business.

What is succession planning?

Succession planning is the process of identifying and developing future leaders/owners of your company. This strategy prepares your business for all contingencies by training high-quality people for advancement. It ensures that your business continues to run smoothly after key people retire, resign, move on to other opportunities or pass away. This process involves the coaching and development of designated successors.

Why develop a succession plan?

There are multiple benefits and reasons for succession planning for your business.

- Lower hiring costs
- Stronger internal hires
- Shorter vacancies for key positions
- Better career development
- Increased employee engagement
- Higher performance
- Increased talent retention
- Higher job satisfaction
- Disaster-proofs the business
- Identifies the most-qualified future leaders
- Creates a structure for training and development
- Maintains brand identity
- Creates opportunities for career advancement
- Helps a company plan for the long-term
- Eases financing of transitions
- Provides an emergency plan
- Reduces risk of loss
- Enables you to hand the company on to family members, in good working condition

How do you develop a succession plan?

There are three distinct phases of succession planning:

- First Phase – Identification: Establish who you are as a company and what you want. Then, consider all key roles in your organization determining the day-to-day import of each position and the impact that would occur if that position was suddenly vacant. Identify multiple candidates for each position (a short list) and teach them the values, guidelines and vision of the business.
- Phase Two – Selection: This is where a specific candidate is chosen for each role. The successor may be the person next in line in the organizational chart but may also be a promising employee from another position or a family member. Look for those who display the skills necessary to survive and thrive in the new post. Objectively consider your shortlist for performance, skills and emotional intelligence. Choose a candidate who is a lifelong learner and both self and socially aware.
- Phase Three – Training: This phase involves scheduled professional development for the chosen successor(s). This may include job rotation (for knowledge and experience), mentoring in soft skills (communication, interpersonal relations, empathy, diplomacy), position shadowing and/or taking over when the person presently in the role is on vacation.
- Phase Four – Transition: This involves the present position holder retiring/stepping down and the chosen successor formally taking the role.

Succession planning keeps a business moving forward, prepares a company for inevitable changes, assists in retaining strong performers, supports the continuity critical to a company’s future and allows you to hand down an optimally functioning company to family members. A succession plan is a good idea at the start-up, growth and maturity stages of a company. It’s worth the investment of time and effort.

Want to hand down your company to family members? Need help with succession planning for your business? Contact Cook and Company Accountants. Whether you operate a sole proprietorship or a sizable corporation with multiple subsidiaries, Cook and Company use their experience and expertise to help you. We assist you in making your business a success. Contact us for a complimentary consultation.

January 1, 2023January 19, 2023

Creating a Year-End Financial Statement

Public companies, small businesses and non-profit organizations prepare a yearly report to provide information about past performance and to determine future goals. This year-end financial statement is an annual financial document that’s provided to shareholders, potential investors and analysts. It’s a good source of information about business performance and financial well-being.

What is a year-end financial statement?

Financial statements are records that communicate the activities and the financial performance of a business. They generally include a balance sheet, an income statement and a cash flow statement. They indicate:

How much money is made
How much money is spent
What the company owns
What the company owes
The net value of the business
Where the money came from and where it went
The amount of money kept in the company

Why does a business need a year-end financial statement?

Companies generally hire an accountant to prepare their financial statements and then use the reports as a management tool to affect positive change within their organization. There are several reasons why a business needs financial statements:

For performance measurement: Financial statements provide a gauge of performance that helps you review the success of your business and communicate your past, present, and future prospects to stakeholders. It allows you to assess management’s stewardship of the company, the viability of the business and is a starting point in forecasting future performance.

For loan applications/investors: Many lenders will not consider a loan application without up-to-date financial reports. The information in a financial statement forms the foundation of a bank’s decision on whether to fund a venture or a company. A business can use financial statements to persuade an investor to buy into the company, or to attract a venture partner who can put money into a new project.

For the CRA: In order to file corporate tax returns, Canadian corporations are required to produce financial statements. To avoid penalties, a company needs to have financial statements prepared on a yearly basis.

For regulating cash flow: Financial statements help a business anticipate borrowing needs. Reviewing your statements can reveal trends your business can use in its cash flow strategies.

For decision-making: Financial statements provide decision-makers within a company with the up-to-date information necessary to make effective choices. Financial reports are used to provide shareholders, partners and/or potential investors with key business metrics.

What is included in a year-end financial statement?

Financial statements are a set of documents showing a company’s current financial status. They communicate what your business owns, what it owes at a fixed point in time and they provide details about your assets, liabilities and equity. There are three reports that all businesses require for tax, financing and investing purposes and therefore are included in a year-end statement.

- Balance sheet: The balance sheet is a snapshot of a company’s performance at a given time. It identifies the company’s assets (inventory, equipment, vehicles, furniture, property, cash), liabilities (short-term debts, long-term loans, accounts payable) and equity (what would be left if assets were sold and debts paid). The balance sheet is an indication of the health of a business and helps business owners make decisions regarding how much inventory to order, if assets should be sold and whether a cash infusion is called for. Lenders use a company’s balance sheet to evaluate collateral and risk.
- Income statement: The income statement, also known as a profit and loss statement, summarizes a company’s revenue and expenses for a given period of time. This report shows a company’s bottom line. The income statement consists of four sections; revenues (net sales), cost of goods sold (inventory, freight, labour, indirect expenses), expenses (wages, advertising, depreciation, payroll taxes, office expenses, utilities) and other income (assets sold, interests on loans/investments). The income statement is the document you show to potential lenders/investors and is necessary during tax season. It indicates the profitability of a business’s current operations and guides management in how to expand or cut operations for greater profits.
- Cash flow statement: The cash flow statement reports the cash and cash equivalents that flow into and out of a company in a given time period. It measures how much cash a company has on hand. Your income statement shows your company’s bottom line while the cash flow statement shows how your business earns cash and where it goes. The information in this report is used to project how much revenue can be expected in the future, estimate upcoming expenses and make judgments regarding revenue gaps that may result in non-payment of business liabilities and debts. There are three activities documented in a cash flow statement; operations (accounts receivable, accounts payable, wages, merchandise expenses), investments (equipment and merchandise purchased, purchase of an asset, loans made to vendors, payments related to a merger or acquisition) and financing (bank loans, shareholder monies, personal investments, dividend payments, loan repayments, sale of company stocks). This report informs management of how much cash is available to pay expenses and invest in the business. Large discrepancies between the cash flow statement and the income statement help identify problems in a business’s operations.

Financial statements are a key tool for operating a business. They’re a snapshot of a company’s finances, provide critical information about a business’ performance and are the foundation for planning a company’s future course. These statements are used by bankers, investors and others to assess the health and liquidity of a business. A year-end financial statement shows the sustainability of a business and allows directors to make educated financial decisions to ensure success. Ask your Chartered professional accountant for help creating year-end financial statements for your business. They have the knowledge, experience and skill to help your company make wise financial decisions.

Need help with your company’s financial statements? Looking for an accountant for your company? Contact Cook and Company Accountants. Whether you operate a sole proprietorship or a sizable corporation with multiple subsidiaries, Cook and Company use their experience and expertise to help your business. We assist you in making your business a success. Contact us for a complimentary consultation.

December 1, 2022December 8, 2022

What to Look for in an Accountant

You’ve decided it’s time to hire an accountant for your business. There are so many accounting firms to choose from! Which should you select? It’s in your company’s best interests to have an experienced, capable person(s) handling your finances. A good accountant provides tax advice, helps you strategize, is affordable, has strong entrepreneurial skills, communicates well, adjusts to your risk tolerance and saves you time and money. An excellent accountant is priceless! Choosing the right accountant can be a daunting task. This is a decision that requires time, careful research and thought. The following are some tips to help you choose the best accounting firm for your company.

Consider their location: Are you partial to face-to-face meetings? If so, choosing an accountant located nearby is important. Are you willing to collaborate online? If the answer is yes, your company can use cloud-based technology, email, video-conferencing and/or secure accounting software to review data with your accountant. This allows you to choose an accountant located anywhere in the world.

Pay attention to qualifications: When deciding which accounting company is right for your business, look closely at their designation. It’s wise to employ a Chartered Professional Accountant (CPA). These financial professionals work in various accounting environments (government, private companies, private practice) and offer services including tax planning, financial document preparation and business valuations. CPAs are highly trained. To become a CPA in Canada you must obtain an undergraduate degree, enroll in the CPA professional education program, complete 30 months of relevant accounting experience, finish four education modules and pass the three-day Uniform Evaluation exam. When deciding which accounting firm to employ, don’t be shy about asking for evidence of qualifications. Ask to see their CPA member number. Search the CPA Canada database for their name. Inquire regarding what training courses they have recently attended.

Consider experience: It’s important to have experienced people preparing your business’ tax returns and financial documents. Check to see if the accounting firm(s) you are considering has worked with companies in your sector. Ask what size of businesses they work with. Find out if their clients have grown and developed under the firm’s guidance.

Note their knowledge base: Ask questions regarding the services offered and pay attention to how the accountant(s) answer. A reputable accounting business has a deep base of knowledge to draw upon when supporting your business. A good firm will manage your finances, improve cash flow management, enhance business growth and work within your budget.

Notice how they answer questions: Can you understand the accountant? Do they overuse jargon and/or technical terms, making it difficult to comprehend their communication? Can they explain the tax laws in a way that you can grasp? Are they approachable? Choose accountants who are willing to ensure that you understand them.

Look closely at their team: Take note of the office staff. How do they interact with you? When working with an accounting firm, you often deal with more than the CPA. Choose a firm with cordial, kind, knowledgeable and helpful staff.

Get referrals: Take advantage of your network of business associates and advisors when choosing an accountant. Find out what firm other similar business owners recommend. Use your LinkedIn profile to search for accountants who are highly recommended. Consult with friends and family members regarding what accountant they use and why.

Do background checks: Talk to some of the clients of the firm you’re considering working with. This provides first-hand information about the accountant, their style, their effectiveness and the type of relationships they develop with clients.

Think about software: Accountants often have preferred accounting software. If your company uses a different type of software there can be difficulty in sharing information. Look for an accountant willing to use the same software as your business. Another option is to choose collaborative, cloud-based accounting software with encryption built in.

Interview several firms: Interview prospective accountants, comparing information regarding several accounting firms before making a selection. The similarities and contrasts between accountants help clarify the type of accountant that you need and want.

Always negotiate fees: Some accountants charge by the hour, others charge a monthly retainer while others charge a percentage of your turnover. Get written quotations from all accountants being considered. Negotiate the fee structure to acquire the style that works for your company.

Picking the right accountant for your business can be a challenge. A good accounting firm keeps track of your business’ income/assets/liabilities, examines financial records, assists with tax filing/bookkeeping/payroll, offers tax advice, prepares financial statements and helps with business decisions. An accountant is closely involved with the operation of your company making the decision of which firm to work with a serious endeavour. Choose wisely.

Looking for an accountant for your company? Contact Cook and Company Accountants. Whether you operate a sole proprietorship or a sizable corporation with multiple subsidiaries, Cook and Company use their experience and expertise to make tax time a breeze. We assist you in making your business a success. Contact us for a complimentary consultation.

November 1, 2022November 4, 2022

Tips to Prepare for a Business Audit

To ensure that Canadian businesses are following the tax laws, the CRA undertakes business audits. Though hearing your company will be audited may make you sweat, if you’re prepared, an audit need not engender fear. The best way to deal with an audit request is to understand the process and to provide the information to the auditor in a timely manner.

What is a tax audit: A tax audit is a detailed examination of a business’ books and records by the Canadian Revenue Agency (CRA) to confirm whether that business is fulfilling its tax obligations (income tax, deductions, employee benefits, payroll remittances, GST/HST), following tax laws and receiving the benefits and refunds they are entitled to. It’s conducted after the business has received a notice of assessment and is intended to check that their records support their tax return. Audits are meant to ensure that the Canadian tax is fair for all and maintain confidence in the integrity of Canada’s tax system.

What are the most common issues that prompt a business audit?

The CRA will consider an audit if they discover:

Multiple or repeated errors on your tax returns
Major changes in income or expenses
Repeated losses
Expenses not in line with others in your industry
Under-reported earnings
Overly large charitable donations
Unsubstantiated home office deductions
Discrepancies between GST returns and Tax returns
Shareholder loans that should be considered income
Missing information
Audit of a related party
A lifestyle incongruent with your declared income
Real estate transactions
Vehicle expenses
Informant tips

What is the procedure for a business audit?

A CRA auditor contacts a business by mail or phone and sets a date, time and location for the audit. A review may be held at your place of business, your representative’s/accountant’s office or at a CRA office. You’ll receive the agent’s contact information and be informed of the scope of the audit. You’ll be asked to provide supporting documents for the review. The auditor may make copies of your records and/or borrow some of your documents. The agent will discuss with you any questions that arise during the audit and address your concerns.

What documents are required for a business audit?

The documents requested may include:

Business records (ledgers, journals, invoices, receipts, contracts, rental records, bank statements)
Personal records (bank statements, mortgage documents, credit card statements)
Records of other individuals related to the business (spouse, family members, corporations, partnerships, trusts)
Records from your accountant that relate to the books, records and tax returns of your business

How can a business prepare for an audit?

There are a number of steps your business can take to retain readiness for an audit and/or to prepare once an audit notice is received.

Keep accurate, detailed records: Well-kept records (business records, personal records, accountant’s records, records of individuals related to the business, minutes of meetings, organizational documents, transfers and deposits for bank/investment/credit card accounts) ease the process of an audit. Review your documents several times and work with an experienced business accountant. Be thorough. Accurate, detailed records are your best tool for surviving audit procedures.

Consider automated solutions: Expense-tracking apps serve as a record of transactions in case of an audit. Choose one that easily syncs with your accounting software. It saves time and makes for easy management.
Aim for consistency: The CRA values overall consistency in business tax returns. Your company’s return must be consistent with those of others in your industry. Abnormal income, compared to your peers and competitors, may cause additional scrutiny. Discrepancies between sales and the total reported on line 101 of your GST/HST return may also result in an audit.
Know the red flags: Become informed regarding the details that make a business prone to audit requests. Speak with your accountant about these indicators and how to navigate them.
Keep abreast of accounting standards: Accounting standards constantly change. Familiarize yourself with accounting developments that may affect your organization and the way you track data and/or operate.
Reconcile all accounts: If your business receives a notice of audit, pay all bills, remit employee expense claims and collect all invoices. Resolve administrative issues. This enables accurate projections and analysis during an audit.
Identify significant changes such as current projects, recent investments, new revenue streams, recent grants/government support received, changes in control systems and/or new processes introduced. This helps you prepare for the review.
Divide responsibilities: Break down the tasks required for audit preparation and assign them to competent employees. Set appropriate deadlines for the completion of the assignments. This makes the audit process manageable.
Ask questions: Once an audit notice is received, create clarity by asking the auditor for details regarding requirements. Be clear on when documentation is required. Transparency between your business and the auditor makes audit preparation and completion faster and easier.
Seek the help of a professional: If your business receives an audit notice, contact your CPA and arrange representation during the audit. Request assistance preparing the documents required.
Create ease for the auditor: Set up a quiet, comfortable workspace for the auditor and have all documents organized. Make it easy for the auditor to move quickly through your materials.
Know your rights: If you disagree with the CRA’s assessment, contact the auditor, explain your concerns and provide documents to support your position. If you’re not able to resolve the disagreement, you have the right to appeal. Your CPA can help with this process.

Filing taxes for a business is a complicated procedure. A Chartered Professional Accountant will ensure your tax return is complete and accurate, reduce the chances of your file being chosen for an audit and ensure you’re rewarded the deductions you’re entitled to. Should your business receive an audit notice, your CPA will support you through the process, ensuring it transpires as smoothly and quickly as possible.

For all your tax needs contact Cook and Company Accountants. Whether you operate a sole proprietorship or a sizable corporation with multiple subsidiaries, Cook and Company use their experience and expertise to make tax time a breeze. We will assist in dealing with the CRA in the event of an audit. Contact us for a complimentary consultation.

October 15, 2022September 28, 2022

Can Your Business Plan for Inflation?

Historically, inflation has plunged countries into long periods of instability and politicians have won elections on promises to combat it. Inflation is currently at a high not felt for decades. Canada’s annual inflation rate rose to 8.1% in June of 2022, the highest since January 1983. Businesses are paying more to find and retain talent. Supply costs are escalating. Companies are feeling squeezed as the costs of goods and services continue to rise. Inflation is expected to remain elevated until 2024. It’s necessary for businesses to take decisive action to strengthen their growth plans and deal with the pressures of an inflationary period. The following are strategies to plan for and deal with the impact of inflation on your business.

What is inflation?

Inflation is the rate of increase in prices over a given period of time. It represents how much more expensive a relevant set of goods and/or services has become. It can be translated as the decline of purchasing power over time and is expressed as a percentage. Essentially, inflation means that a unit of currency effectively buys less than it did in prior periods. When inflation rises, consumer spending declines as people can’t afford to buy as much as previously.

How does inflation affect a business?

Inflation means that a company’s cash reserves are worth less. Labour expenses rise. Consumers buy less of a business’s goods and/or services. The value of some assets (real estate, steel, lumber) increases. Supply chain issues often occur, affecting scheduling, pricing and estimation. The shifting nature of the economy during an inflationary period is unnerving for many business owners. The answer? Be prepared!

How can a business plan for and address inflation?

Normal economic cycles include four stages: expansion, peak, contraction, and trough. As a business owner, it’s wise to have contingency plans for navigating each stage. A company’s plan for a period of inflation should include metrics to measure success and actionable steps to take. The following are tips for dealing with inflationary pressure as a business.

Be aware of real income: Track net income against the rate of inflation (real income). As the rate of inflation increases, profit decreases, reducing value and equity.
Adjust the length of contracts: Lock in pricing for materials and/or expenses with a long-term contract. This protects your budget and guarantees revenue for your supplier.
Time your purchases: Make large purchases before the price rises, particularly for equipment, land or other assets. This allows you to borrow cash when it is worth more and pay off your debt with money that is worth less.
Optimize pricing: Create value for your product/service through marketing and an improved customer experience. This will allow you to raise your prices with less difficulty. Tie your price increase to the PPI (producer price index) or the CPI (consumer price index). Consider targeting less price-sensitive customers.
Understand your cash flow: Cash flow and working capital are essential parts of a plan to deal with inflation. Do a financial modelling exercise to map out your situation. Look at ways to improve cash flow:
- extending payments to vendors
- tightening up invoicing and collection policies
- divesting underperforming divisions or assets
- prioritizing your resources in areas that are performing well
Reduce your tax burden: Talk to your accountant about ways to reduce your tax burden. Take advantage of losses.
Review your debt and capital needs: Assess your ability to meet current debt obligations. Reach out to lenders if you’re considering expansion, the purchase of new technology and/or refinancing existing debt.
Consider your strategies for growth: What worked in the past may not work now. Reevaluate and refresh your strategies.
Assess your technology: Do you have access to real-time data regarding your business? If not, it may be time to upgrade your technology. Consider a cloud accounting system, an enterprise resource planning system (ERP), a warehouse management system (MHS) and/or a customer relationship management system (CRM). The information provided can guide your decision-making.
Simplify operations: Look for ways to streamline complicated processes, run leaner, reduce cost and increase profitability.
Prioritize high-profit margin products: Many companies give priority based on the date of the order regardless of profit margin. Tell customers purchasing low-profit items/services that delivery will be slow. Ship goods/deliver services that are most profitable first.
Differentiate between strategic and nonstrategic cost cutting: Selectively trim costs to improve the return on operating expenses. Boost growth through greater investment in the strategic capabilities needed to achieve differential results. Deploy scarce resources to reinvigorate strategy and maximize shareholder value.
Eliminate work: Scrutinize what activities are performed and how those activities are performed. Eliminate unnecessary work and automate when possible.
Keep morale high and prevent attrition: Losing key employees results in lost productivity and requires time and effort to find and train a replacement. To avoid this, openly communicate with employees. Be aware and accommodating of personal needs.

Inflationary pressures and supply chain issues are real and complicated. It’s important to develop a plan that addresses the rapidly evolving situation. Utilize the wisdom and leadership available to your business by talking to your accountant. They have the knowledge and experience to help you weather current circumstances.

Does your business need help weathering current inflationary conditions? Contact Cook and Company Chartered Professional Accountants. We can provide you with powerful financial planning solutions. Whether you operate a sole proprietorship or a sizable corporation with multiple subsidiaries, Cook and Company use their experience and expertise to help your business. Contact us for a complimentary consultation.

October 1, 2022September 28, 2022

Financial Planning, Where to Start?

No business can expect to make money without also managing it effectively. Establishing and achieving key financial milestones is essential to the health of a business. Every financial decision you make can have a significant impact on the overall strength of your company, ultimately defining the future of your business. This is why financial planning is crucial.

What is financial planning for a business?

Financial planning is the task of determining how your business will finance its strategic goals and objectives. The plan is a document that describes the activities, resources, equipment and materials needed to achieve these objectives. It sets time frames for your goals and strategies for achieving them. It helps you be in control of your company’s income, expenses and investments and is essential to building a successful business. A good plan includes an assessment of the business environment, company goals, resources needed to reach these goals, team and resource budgets and risks that might be faced. It ensures a company is equipped in advance to deal with changing circumstances at both personal and business levels.

Why create a financial plan for your business?

There are a myriad of reasons to create a financial plan for your company.

To manage your risk and respond quickly to financial issues: A business must plan for a lot of risks (death or disability of central figures, illness, property ownership loss, lawsuits, interruption of business, lower than expected revenue, high overheads, etc.). By regularly reviewing risks and planning a response, a company is prepared to tackle issues quickly, before they become hard to manage.
To provide a road map for growth: It’s easy to focus on daily issues and neglect long-term planning. A financial plan helps a company focus on the future by providing clear goals for company growth and performance. It helps you analyze your current situation and project where you want the business to be in the future.
To help you develop a good tax strategy: Financial planning is helpful when it comes time to submit your tax return or if you sell the company.
To identify sales trends: A financial plan that includes quantifiable targets and sales records helps determine which individual products and which initiatives are most lucrative, making it possible to adjust your marketing strategy appropriately.
To prioritize expenditures: A financial plan sets clear expectations for cash flow and helps a business owner to consider spending priorities.
To identify necessary cost reductions: A financial plan helps you refer to past spending and identify unnecessary or over-inflated costs so you can adjust accordingly.
To create transparency with staff and investors by sharing key figures (revenue, costs, profitability, etc.).
To show progress: A financial plan is helpful in showing increased revenues, cash flow growth and overall profit in quantifiable data, encouraging business owners.

How to get started with your financial plan:

The following are the basic steps of creating a financial plan for your business.

Determine your financial goals: Are you looking to expand your business? Do you wish to increase your product/service’s market share? Are you interested in strengthening your customer service? Do you need more equipment and/or staff? The financial plan you build for your company largely depends upon your goals and your unique stage of business development.
Take stock of your assets: What is the balance of your business bank accounts? What are your accounts receivable, cash equivalents and short-term investments? How much stock do you have on hand? How many supplies are presently in storage?
Determine your income, expenses and debt: Where does all your money go? Examine your cash flow and track your spending. Look at salaries (including your own), rent or mortgage payments, communication expenses (internet, telephone services, etc.), utilities, storage, distribution, promotion, office supplies and general maintenance. What is your monthly, quarterly and yearly income? What debt do you carry (bank loans, lease payments, income taxes payable, etc.)
Develop financial projections: Create monthly projections based on sales forecast and anticipated expenses (labour, supplies overheard). Prepare a projected income (profit and loss) statement and a balance sheet projection. This is a crucial part of your business plan if lenders and/or investors are involved.
Arrange for financing (if needed): Use your financial projections to determine your financing needs. Approach your financial partners to discuss options. Well-prepared projections reassure bankers/investors that your financial management is solid.
Plan for contingencies: Decide what you will do if your finances suddenly deteriorate. Establish emergency sources of money (maintain a cash reserve or keep some room on your line of credit).
Monitor your progress: Periodically, compare actual results with your projections to see if you’re on target or need to adjust. Monitoring helps you spot financial problems before they get out of hand.
Get help: Consider hiring an expert to help you put together and monitor your financial plan. Your accountant is an invaluable resource. They can provide you with powerful financial planning solutions. By carrying out a detailed analysis of your current processes, bringing your objectives into focus, and developing viable strategies, they’ll help you utilize your company’s finances in the most effective ways possible. The result? Greater clarity, measurable results and long-term growth.

A financial plan affects day-to-day fiscal decision-making, defining the future of a business and shaping a company’s journey. A detailed financial plan brings a company’s objectives into focus and helps in developing viable strategies. Corporate financial planning demands a strong understanding of commerce and how companies operate fiscally. It also calls for attention and care for the immediate financial needs and specificities of your enterprise.

Need help preparing a financial plan for your business? Contact Cook and Company Chartered Professional Accountants. We can provide you with powerful financial planning solutions. Whether you operate a sole proprietorship or a sizable corporation with multiple subsidiaries, Cook and Company use their experience and expertise to help your business. Contact us for a complimentary consultation.

September 15, 2022August 24, 2022

Tips for Handling Charitable Donations

Many businesses look for ways to give to and/or be involved with their communities. They search for organizations they feel a connection to, then donate their time and money. This benefits the community and builds goodwill for the company. Charitable contributions from businesses to nonprofits qualify for a reduction of taxable income. The CRA considers a gift/donation to be a voluntary transfer of money or property for which you expect and receive no consideration. Sometimes the paperwork and/or tax requirements for these contributions are complicated. The following is information and tips for handling charitable donations.

To make the most out of company donations, choose the right organization to donate to.
For a small business that’s tied to a community, it makes sense to pick a local group.
Put sufficient time, effort and energy into choosing the right organization for your support.
Ensure you’re supporting causes that are meaningful to you and allocate your giving to align with your values and ideals.
Set an annual donation budget.
Recurring or automatic monthly donations are easy and convenient.
For a donation to be eligible, the transfer of ownership has to be voluntary.
Contributions of services, such as time, skills and effort do not qualify.
Donations of cash, goods, land and/or listed securities to a registered charity or other qualified organization are eligible.
Businesses can only donate to qualified entities. Most of these are registered charities.
Donation tax credits vary by province.
Incorporated business owners have the choice to donate personally or via their corporations.
Securities are the most efficient way to give. Donating publicly traded securities (stocks, mutual funds, bonds, etc.) directly to a charity eliminates the capital gains tax as these securities are sold and you still receive a tax receipt for the fair market value on the date the security is received by a broker. Your charity gets the full value of the securities.
Before making a donation of securities, it’s important to contact the qualified donee and verify that they can accept in-kind donations.
Ask the charity for its registration number and confirm its status in the List of charities. You can also call the Charities Directorate at 1-800-267-2384.
To qualify for a deduction, ask for an official donation receipt that meets the requirements of the Income Tax Act and its regulations.
If an organization you donated to is no longer registered but was registered when you made your donation, you can still use your receipt to claim.
When a business donates to charity it can claim a tax deduction against income. By reducing taxable income, the corporation reduces its tax liability.
Canadian small businesses can claim deductions on charitable donations for up to 75% of their net income.
There are two charitable tax credit rates (federal and provincial) and any eligible amount you give above $200 qualifies for a higher rate.
When you donate over $200, you are automatically eligible to carry the donation forward and claim it on your tax return for any of the next five years. This flexibility means that the unclaimed carry-forward portion may qualify for a larger deduction in the future.
You cannot claim charitable donations to create or increase a loss but unused charitable donations can be carried forward and used in any of the five following tax years.
The tax treaty between Canada and the U.S. allows for a deduction of donations made to U.S. charities if your business has U.S. source income.
Qualified donees include:
- - registered charities (search the List of charities)
  - registered national arts services organizations (search the List of charities)
  - registered Canadian amateur athletic associations
  - registered housing corporations in Canada that provide only low-cost housing for the elderly
  - registered Canadian Municipalities
  - registered municipal or public bodies performing a function of government in Canada
  - registered universities outside Canada which ordinarily includes students from Canada
  - registered foreign charities that have received a gift from Her Majesty in right of Canada
  - Her Majesty in right of Canada, a province, or a territory
  - the United Nations and its agencies

Corporate charitable donations provide shareholders with a chance to support their community and receive tax incentives at the same time. The tax incentive for donating to charity is generous, reducing the effective cost of the donation and making the act of giving both an emotionally and financially gratifying experience. The rules for charitable donation by a business are many and complicated. Speak with your accountant. They have the knowledge and experience to help you fully leverage your donations.

Looking for an experienced accounting firm that can minimize your tax obligations and help with your charitable giving? Contact Cook and Company Chartered Professional Accountants. Whether you operate a sole proprietorship or a sizable corporation with multiple subsidiaries, Cook and Company uses their experience and expertise to help your business. Contact us for a complimentary consultation.

September 1, 2022August 24, 2022

How to Establish a Budget for your Business

A budget is a financial plan for a company’s future. It projects revenue and expenses, enabling a business to make confident financial decisions. Creating a budget for your business promotes accurate goal setting, assists in writing a business plan, informs spending decisions, unifies stakeholders, attracts investors and aids in determining staffing needs. It makes operating your company easier, more efficient, gives you the best chance of achieving your long-term goals and helps you reap rewards for your hard work. So, how do you go about preparing a business budget?

Tally income sources: Determine how much money your business brings in each month and where that money comes from. Tally sources for a 12-month period. Look for seasonal patterns.
Determine fixed costs: Fixed costs are expenses that don’t change. They may occur daily, weekly, monthly or yearly and include payments such as insurance, rent, website hosting, payroll, bank fees, accounting and legal services, supplies, debt repayment, taxes and equipment leasing.
Include variable expenses: Variable expenses are costs that change each month based on your business performance and activity such as usage-based utilities, shipping, packaging, sales commissions, travel costs, inventory, production costs, professional development and marketing.
Predict one-off costs: These costs fall outside the usual work of your company. They may be start-up costs (equipment, furniture, software) or infrequent expenses (business course, cost of moving to a new location, purchase of real estate, purchase of new equipment, large-scale facility upgrades, severance pay, etc).
Create a contingency fund: Prevent the problems associated with unexpected costs by keeping extra cash on hand for difficulties such as equipment breakage, inventory damage, a security breach, etc.
Put it all together: Tally the total income and expenses. Then compare the cash flow in to the cash flow out in order to determine profitability. Adjust the figures throughout the year. As projections change, alter how money is spent and allocated.
Create a budget spreadsheet: A simple spreadsheet provides you with all the information you need at a glance making summarizing and reviewing your finances easy. Make budget evaluation a regular habit. Monitor and adjust numbers as needed.
Consider using accounting software: If you wish to learn how to make a budget and stick to it, try using accounting/bookkeeping software alongside your newly created budget to help you stay accountable.

Creating a budget takes time and effort but it’s worth the toil. Budgeting gives you the insights you need to make good decisions regarding your company’s finances. It’s an essential process for all businesses and will help you grow your company, compete and ensure a solid emergency fund. It’s especially important for small businesses where being off on cost projections or estimated earnings can have a devastating effect on the company. Consider hiring a chartered professional accountant with expertise in business finance. They’ll help your business create a detailed and viable budget.

Need help preparing a budget? Contact Cook and Company Chartered Professional Accountants. Whether you operate a sole proprietorship or a sizable corporation with multiple subsidiaries, Cook and Company uses their experience and expertise to help your business. Contact us for a complimentary consultation.

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