Financial, Community and Accounting Resources for New Canadians

Attending resources for new Canadians

In the year 2022, Canada welcomed 437,180 immigrants and saw a net increase in the number of non-permanent residents estimated at 607,782, a population growth of  2.7%. International migration accounted for 95.9% of all growth recorded. Much of this increase is related to efforts by the Canadian Government to ease labour shortages, drive our economy and help bridge the demographic gap. 

The decision to immigrate to Canada is a big step. Those arriving require advice and guidance from the time they decide to immigrate until they’re settled in Canada. They need to get familiar with financial institutions, navigate the education system, find housing and secure a job. It may be necessary to become informed about work and study permits, visitor and business visas, inadmissibility, permanent residence and citizenship. In short, they need to become aware of Canadian systems and the resources and tools available. So what financial, accounting and community resources are available to new Canadians?

Resources available to immigrants:   

There are many government and community resources and tools for new Canadians to help them navigate the laws and culture of their new home. Don’t forget CPAs! They can help newcomers and more established immigrants answer the many financial questions that arise when people come to this country.

New to Canada? Looking for 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.

How to Make your Business Taxes Easier Next Year

Two people sitting down sharing how to make business taxes easier

Business income taxes are a year-round experience, not a single event. Having just paid your taxes, you likely aren’t thinking of the next tax season. However, there’s no such thing as “too early” to think about future business taxes. So, how can you make tax preparation easier next year? How can you simplify the process? The following are some ways to make the next tax season less complicated and more relaxed: 

  • Stay informed: If you’re looking for useful tips, helpful resources and current information, check out the Government of Canada’s web page for small businesses and the self-employed. 
  • Establish a tax calendar: This essential tax-planning tool helps you keep track of important dates and deadlines. Find these dates and deadlines on the Government of Canada’s website for important dates for corporations/businesses. 
  • Classify your business correctly as this affects the taxes required. For information on Sole Proprietors, Corporations and Cooperatives, see the Government of Canada’s website. If you’re still not sure what classification your business comes under, consult your CPA. 
  • Keep accurate, detailed, and updated records: This makes it easier to organize, check and file your business taxes without missing possible deductions or increasing your risk of an audit. Invest in accounting software to simplify accurate record keeping. Keep all financial information (such as your profit and loss statement, balance sheet, etc.) up to date to make filing easier during next year’s tax season.
  • Track expenses: As the government allows credits and tax deductions for qualified business expenses, it’s wise to keep track of all business-related expenses throughout the year. As the CRA does not accept credit card statements as proof of expenses, in order to take advantage of these tax deductions you must collect receipts for all business-related activities including accounting fees, business advertising and promotional expenses, business licenses and memberships, use of home expenses, interest and bank charges, insurance premiums, meals and entertainment, office expenses, rent, repairs and maintenance, tools and equipment, vehicle expenses, and parking fees. Record and file them appropriately. You can keep physical receipts or digital copies.
  • 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 or your business card for personal purchases.
  • Get organized:  Place your tax return and tax documents in a safe place where you’ll be able to quickly and easily find them. Separate any documents you receive that might have tax implications into at least four different categories including income items, deductions, business changes and others. Organize documents into each file accordingly. Better yet, digitize. It’s stressful keeping receipts, forms and other necessary paperwork organized and easily available. There are cloud-based platforms you can use to take pictures of receipts and categorize the expense.
  • Hire a CPA: Most small businesses prefer to have a Chartered 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.

As a business owner, you have a lot to think about such as daily operations, growth strategies, building/maintaining your customer base, hiring/retaining quality employees, etc. Use these tips to help make your business taxes and tax filing easier next tax season. It’ll be one less thing to worry about!

Not sure what tax deductions your company qualifies for? Need help with tax planning strategies? Contact Cook and Company Chartered Professional Accountants. Whether you operate a sole proprietorship or a sizable corporation with multiple subsidiaries, we use our experience and expertise to assist you. Contact us for a complimentary consultation.

Strategies to Improve your Business’s Accounting

Business 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.

Should You Set up a Trust for Your Assets?

Set up a Trust

You probably know of others who have set up a trust(s) to protect their assets. Maybe you’ve heard mention of trusts on a TV special regarding inheritance and finances. Ever wondered what a trust is? Inquisitive as to how a trust might benefit you, your family and your business? The following is information regarding trusts and how they can protect assets. 

What is a trust?

A trust is a legal entity that allows you to transfer the legal title of an asset(s) to a person while assigning the benefit of the asset to another. The creator or original owner of the asset is called the grantor. The person who manages the trust is known as the trustee (often an attorney or accountant). The person who receives the benefits is known as the beneficiary. Depending upon the type of trust, the grantor can retain the right to make some or all decisions regarding the trust. A well-designed trust helps save time, paperwork and other challenges when settling an estate. It can reduce the amount of estate taxes beneficiaries have to pay when they inherit assets. 

Categories of trusts:

Trusts are either revocable or irrevocable and may take effect during your lifetime or after death.

Revocable trusts are most common and can be changed or revoked at any time. They instruct the trustee on how to distribute your assets to beneficiaries while you’re alive, after death or if you become incapable of doing so. Income from trust-held assets is taxable at Canadian trust tax rates.

Irrevocable trusts are set in stone the minute the agreement is signed. Only in rare circumstances may changes be made. Irrevocable trusts remove the benefactor’s taxable estate assets, meaning they are not subject to estate tax upon death. The benefactor is also relieved of tax responsibility for any income generated by the assets. The trust is protected from creditors and legal judgment.

What are the advantages of a trust?

There are a variety of benefits to the establishment of a trust. You can:

  • Control assets and provide security for both the grantor and the beneficiaries.
  • Provide for beneficiaries who are minors or require expert assistance managing money.
  • Minimize the effects of the estate or income taxes.
  • Provide expert management of estates.
  • Minimize probate expenses.
  • Minimize the time to accomplish probate. 
  • Maintain privacy.
  • Protect real estate holdings and/or a business.

What are the disadvantages of a trust?

There are a few issues to be aware of when considering the establishment of a trust(s).

  • Cost: An estate attorney usually does the paperwork involved in setting up a trust and transferring your assets into the trust.
  • Time: You’ll need to spend time dealing with paperwork. You may need to have uncomfortable conversations about who gets what.
  • May not be necessary: Some people can indeed save on estate taxes with certain trusts, but most estates aren’t subject to estate taxes in the first place.

Reasons to set up a trust:

There are a number of reasons that you may seek to establish a trust(s).  

  • You want to leave assets to minors or young adults
  • You have children from a previous marriage
  • You want a professional to manage your assets when you’re gone
  • You have a disabled or special-needs child
  • You want to support your spouse in the case of his/her incapacity
  • You want to save taxes

If you’re seeking to ensure that your finances are well managed as you pass your assets on, a trust is useful. A trust helps make sure that your assets are directed toward the people and causes that are important to you. 

Need help understanding the benefits of a trust? Want assistance setting up a trust? 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.

The Best Strategies for Small Business Accounting

Strategies for Small Business Accounting

The process of bookkeeping may seem complicated and daunting. Yet, it’s crucial that your small business has accurate books. Detailed financial records reduce problems; unpleasant financial surprises, forgotten paperwork, missed goals, large bills from your accountant, and payroll and tax challenges. Accurate and efficient bookkeeping helps a business make and keep long-term goals, smooth out the ups and downs of seasonal cash flow, improve profits and alleviate troubles with the CRA. The following are some strategies for effective small business 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. 
  • 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 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.
  • 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 small business. Try these bookkeeping tips 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 bookkeeping 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.

Common Problems with Business Succession Planning

Business Succession Planning

Operating and growing a business is engaging and demanding. Business owners often become consumed with the day-to-day operations of their company, leaving little time and energy for planning for the future. Eventually, companies change hands; through retirement, transferring of ownership or death. Succession planning is a way to prepare for the future, making transitions smoother and maximizing financial rewards for business owner(s) and/or their heirs.  

What is succession planning?

Succession planning is the process of identifying the critical positions within an organization and developing action plans for individuals to assume these positions. It’s a business strategy used to pass leadership to an employee or group of employees. Succession planning ensures the continuity of a company’s success in the future.

Why do you need a succession plan?

Planning for the future of a company has many and varied benefits. Succession planning:

    • prepares the way for the change of leadership in a company. The right leaders make a difference in the success of an organization. Succession planning ensures the stability of a company and prepares it for growth and change by planning who will lead the organization in the future. 
    • helps a company survive unforeseen events such as death, illness, personal problems, abrupt resignation, arrest, etc. It puts a strategy in place for filling important leadership roles.
    • encourages company owners to think long term. Rather than focusing only on weekly meetings and quarterly earnings, succession planning forces you to think about your company’s future. 
    • motivates communication. Talking about the future promotes communication between departments and/or employees, improving how everyone works together on a daily basis. 
    • saves money. Being unprepared for a sudden vacancy risks incurring significant costs to lure qualified people to your position, on short notice. A documented succession plan saves the costs of hiring outside people for key leadership roles.
    • keeps staff motivated. Succession planning sends a positive message to staff as they are considered for future leadership positions. It increases confidence in a company and motivates the best efforts of employees. 

Common problems with business succession planning:

There are a number of issues and problems to be wary of when planning for the succession of your business. 

    • Lack of Strategy: Make sure you identify your company goals and priorities and that your succession plan lends itself to achieving these. Your plan needs to be a cohesive, overall strategy. 
    • Ambiguity: An effective succession plan provides clear, well-defined guidance for a smooth transition. It identifies key positions and how they will be filled. If it is to be functional, it must be detailed.
    • Procrastination: Many business owners find it difficult to find the time and energy to create a succession plan. Thinking about their mortality, disability and/or future sale of their company seems impossible. Get the process started by bringing in outside help to coordinate the complicated factors associated with preparation for the future. Let the experts (accountant, lawyer, banker, advisor, etc.) help formulate the plan. 
    • Choosing successors by gut rather than data: When choosing successors for key positions in your company, consider performance scores, number and quality of projects completed, engagement survey scores and supervisory/leadership experience. Be careful of making succession decisions solely based on your attitudes and beliefs. These are formed by experience and the experience of any individual is limited. 
    • Making assumptions about your talent: Make a point of understanding the skills, talents and goals of those in your organization. Empower employees to chart their own career development within your business, giving them a sense of control over their careers. Steer clear of assuming you know what they want and whether they’re interested in taking over a leadership role in the future.
    • Forgetting company morale: Discussion of succession can have a negative impact on morale, lead to fear regarding the future of the company and create jealousy and competitiveness. Be straightforward about the process of planning for the future of the company. Encourage discussion and collaboration. Allow employees to air concerns and give them time to get on board with the plan. Make the process simple and open.  
    • Ignoring retention of candidates: It’s important to retain those you are training to lead one day. To fend off head hunters and motivate future leaders to stay with your company, offer development opportunities, training incentives and mentoring. Be clear about why and for what role you have selected them.
    • Considering only executive positions: If you are advancing an internal candidate to an executive position, you will need a competent employee to fill the vacancy you produce. Create a comprehensive strategy to fill executive and middle management positions. This helps avoid issues, making your plan stronger. 
    • Thinking succession planning is complete: Because companies are constantly changing (new products/services, new employees, new markets, additional layers of leadership), the succession plan you have in place will need to be reviewed and tweaked periodically. 
    • Failing to support succession planning with technology: Succession planning software (SAP, Succession Wizard, Cornerstone OnDemand, Plum, UltiPro, TalentGuard, etc.) supports a company by providing insight into the capabilities of employees and their succession potential. It empowers HR to identify skilled employees and accelerate their development and enables them to evaluate, monitor, engage and develop existing talent. 
    • Not maintaining a current, accurate business valuation: Though the succession plan is a means of readying for the future, be prepared to make sudden and challenging choices by keeping a current, accurate valuation of your business. This serves as a benchmark, giving you control and secure data on which to base decisions.

Succession planning is critical to ensuring access to a talent pool for future vacancies. It makes tackling future changes and challenges easier. Align your plan with your goals. Revisit it periodically and adjust as needed. Utilize software to provide data for decision-making and let the experts help ease the process. If you haven’t already formulated one, get started on your succession plan today.   

Need help creating a succession plan for your business? Want to avoid the common challenges of succession planning? Contact Cook and Company Chartered Professional Accountants. Our expert staff will help you navigate the complex maze of succession planning, with ease. 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.

Tips for Effectively Managing Business Debt

Managing Business Debt

Debt is a necessary part of running a business, allowing a company to purchase inventory, invest in equipment and finance growth. If not handled carefully, debt can cause serious problems. It’s important to develop methods for debt management so that a company’s credit rating may be preserved and operations sustained. The following are strategies and tactics for effectively managing business debt. 

  • Take inventory of your debt: List the money owed and to whom (business loans, lines of credit, business credit cards, outstanding amounts due to vendors). Include the total amount owed, interest rate and monthly payments. This information will help with the prioritization of payments.
  • Create a plan: Develop a budget and a plan for repayment. Decide which debts to pay first and which pose less of an immediate threat. Decide whether you wish to use the avalanche strategy (paying off your debts, starting with the loan with the highest interest rate) or the debt snowball strategy (paying off the smallest of all your loans as quickly as possible) to settle your outstanding balances. 
  • Improve cash flow management: Improving cash flow requires measurement and forecasting, improving the management of payables and receivables and being prepared for shortfalls.
    • Cut unnecessary spending: Review all costs (inventory, shipping, purchasing, rent, utilities, payroll, equipment, etc.). Look for costs that can be reduced or cut. Explore the possibility of alternative buying strategies. Negotiate with current suppliers in order to cut costs and/or find new suppliers with better pricing. Rewrite your budget.
    • Increase your earnings: Fine-tune your invoice collection, using collection strategies for a more predictable cash flow. Promote your business (social media, community events, etc.) to increase income. Bundle products to reduce selling price and improve sales volume. Provide employee training to enhance sales performance. Find ways to retain customers and attract new ones.
  • Renegotiate, refinance and/or consolidate debt: Reach out to your creditors to negotiate more favourable terms. Try refinancing as it often results in lower payment terms and interest rates. Consolidating multiple debts reduces the number of creditors to pay and payments you make, often allowing you management of debt through a single monthly payment. 
  • Plan for the long term: Establish an emergency business account. Put aside a portion of business profits each month as a reserve against the ups and downs of business. 
  • Get professional help: There’s no need to confront your small business debt alone. Consider working with your CPA. They are available to answer questions and have knowledge, experience and skill with debt management. 

Managing debt is a necessary and important aspect of operating a business. It’s fundamental to business success. Debt management allows a business to manage cash flow and capital for growth. Tackling debt may seem tricky and stressful but, using these tips, you can make headway. Though these strategies aren’t solutions, they provide opportunities for relief of the risk that comes with debt. Remember that your accountant is on your side and is an essential source of help and support in debt management for your business.

Need help with debt management strategies? Contact Cook and Company Chartered Professional Accountants. Our expert staff will help you navigate the complex maze of debt management, with ease. 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.

Estate Planning Questions to Ask Your Accountant

Estate Planning Questions

When you hear the phrase “estate planning” you likely think of death, taxes and a will. These are important parts of estate planning but they’re not the full picture. 

What is estate planning?

Estate planning involves setting up a plan that establishes who will eventually receive your assets and makes known how you want your affairs to be handled in the event you are unable to handle them on your own. Estate planning is about people; who they love and how they wish to provide for them. It’s not only about death but also about preparing for the possibility of becoming dependent through age, disability or injury. 

What is the role of your accountant in estate planning?

Intricate knowledge of taxes allows your accountant to keep you informed regarding the tax implications of your estate plan. They ensure that your plan minimizes taxes and maximizes the portion of your estate that can be passed on to your beneficiaries. Your accountant works together with your lawyer to help:

  • Clearly define your estate planning goals.
  • Organize and create your estate planning team (experts on law, finance, and taxes).
  • Evaluate and recommend estate planning options.
  • Prepare, organize and review your estate planning documents including current wills, trusts, health care and power of attorney.
  • Decrease the problems and expenses associated with probate.
  • Lessen taxes at the time of death.
  • Arrange for management of your estate in the event you are incapacitated.
  • Draft a working plan for conserving and effectively managing your estate after death.
  • Transfer the assets of your estate to heirs the way you want.
  • Organize fair and adequate liquidation of estate to cover taxes and other expenses.
  • Amend your plan as needed.

Your accountant is as helpful as your lawyer when planning your will, discussing accounts, debts, and assets, determining bequeathals, deciding who you’d like to have as executor of your estate/joint bank accounts and who you’d prefer as Power of Attorney for your affairs if you become incapacitated. Both professionals guide you in making the best decisions for you and those you leave behind.

Who needs estate planning?

If you wish your estate distributed according to your wishes as opposed to statutory guidelines, you need an estate plan. If you have assets that are susceptible to high taxes, estate planning is beneficial. If you own a business, estate planning is essential. If you want planned distributions of benefits for your descendants, estate planning is helpful. If any of your heirs need financial assistance upon your passing, estate planning is for you.

Questions to ask your accountant regarding your estate planning:

  • Can you help with probate? Your accountant will have a thorough understanding of your assets and tax liabilities enabling him to deal with the probate process quickly. Much of the work involved in probate is familiar to an accountant.
  • Can you handle my accounts when I pass? An accountant can manage a deceased’s accounts while the estate is being settled. This ensures heirs that money is being managed and spent properly. 
  • Who will prepare my final tax return? Accountants can handle final income tax returns, as well as the estate tax return. They understand what taxes need to be paid at the provincial and federal levels, exemptions that exist for particular circumstances and how to help your estate save money.
  • Can you help my beneficiaries? A CPA is able to help heirs with their individual tax filing (at provincial and federal levels) avoiding costly government fines and reducing family discord. 
  • Can you help with the tax obligations of the estate? Estates have many tax obligations especially if your estate has several assets. Your accountant can handle these tax matters, help calculate the value of your estate and determine the impact of the tax laws. An account makes sure you fulfill your tax obligations, avoiding the risk of costly fees and penalties. 

Dealing with the loss of a loved one is hard. Simplify your heirs’ situation with estate planning so that they need not undergo a stressful ordeal. When it comes to the financial intricacies of your business and its future, consult a team of financial professionals who can offer a specialized set of expertise. Your accountant can help you prevent fines, fees and penalties. They can ensure all aspects of estate accounting are complete and accurate. Protect your legacy for your loved ones. Take charge of your financial endowments. Talk to your accountant today. 

Need help ensuring that the money and assets you’ve worked hard to build aren’t destroyed after you’re gone? Want help with business estate planning? Contact Cook and Company Chartered Professional Accountants. Our expert staff will help you navigate the complex maze of estate planning with ease. 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.

What’s the Difference Between an Auditor and a Tax Accountant?

Auditor and Tax Accountant

Accountants and auditors work with financial statements and ensure they are accurate, up-to-date, and in compliance with various regulatory standards. They require similar skill sets but subtle differences exist in their duties. Organizations and businesses often enlist the services of both tax accountants and auditors when preparing and submitting financial statements. What is the difference between a tax accountant and an auditor? 

Tax Accountant:

Tax accountants specialize in helping businesses and individuals plan for, minimize and file taxes. Accountants influence business practices, cash flow management and how businesses report their earnings to the government. Accounting requires a person who is detail-oriented and focused. Small mistakes can cost millions, particularly for large companies dealing with massive sums of money. An accountant can be a dedicated employee of a company or work for a third party hired by businesses to manage their books and prepare their taxes. An accountant:

  • prepares financial statements (balance sheet, income statement, statement of cash flows, statement of owner equity)
  • undertakes bookkeeping 
  • tracks expenses and revenues 
  • forecasts future profits and cash flows
  • evaluates and addresses tax liability
  • answers complex business tax questions
  • provides corporate tax advice 
  • does tax preparation
  • assists with change in the structure or nature of your company

Auditor:

Auditors ensure that accountants’ work is correct and follows the law. They work with organizations after they’ve made decisions regarding business practices, cash flow management and how to report their earnings to the government. They examine the financial statements prepared by accountants and ensure they represent the company’s financial position accurately. Auditors search for errors or problems. They require the ability to pay attention to detail, but also need strong investigative skills. While auditors sometimes uncover intentional wrongdoing (subterfuge, fraud, misstatements, tax evasion), they typically find unintentional mistakes. Like accountants, an auditor can work internally for a specific company or for a third party, such as a public accounting firm. Many auditors are employed by government and regulatory bodies. Auditors:

  • collate, check and analyze spreadsheet data
  • examine company accounts and financial control systems
  • gauge levels of financial risk within organizations
  • check that financial reports and records are accurate and reliable
  • ensure that assets are protected
  • identify if and where processes are not working as they should and advise on changes needed
  • prepare reports, commentaries and financial statements
  • liaise with managerial staff and present findings and recommendations
  • ensure procedures, policies, legislation and regulations are correctly followed and complied with
  • undertake a review of wages

The key difference between tax accountants and auditors is that tax accountants specialize in helping businesses and individuals plan for, minimize and file taxes while auditors ensure that accountants’ work is correct and following the law. Your business likely needs the services of both a CPA and an auditor.  

As one of Calgary’s most respected business tax and accounting professionals, the Cook & Company team is proud to empower the success of businesses both local and abroad. To learn more about our tax planning and audit & assurance services, give us a call at (403) 398-2486 today or fill out the request for meeting form.

What is Goodwill and How is it Calculated?

What is Goodwill

The value of goodwill becomes apparent when a business is being acquired or sold. The amount an acquiring company pays over the target company’s net assets accounts for the value of positive goodwill.

What is goodwill?

Goodwill is an intangible asset that is built over time by the owner of a business. Tangible assets (buildings, equipment, land) are relatively simple to value. The calculation of goodwill is more complex and highly subjective, as goodwill doesn’t independently generate cash flow. The value of goodwill is determined by:

  • a company’s good name and positive reputation 
  • brand name 
  • solid customer base 
  • good customer relations
  • intellectual property/patents/copyrights 
  • domain name(s) 
  • licenses/permits
  • functioning consumer associations
  • good employee relations 
  • excellence of management 
  • proprietary technology
  • favourable contracts in place

Goodwill and Accounting:

Goodwill is an intangible asset that is listed under the long-term assets of a company’s balance sheet. It cannot be sold or transferred separately from the business as a whole. The value of goodwill is difficult to define as it doesn’t generate any cash flow for the business. Consequently, accounting standards require that a company regularly test its goodwill asset for impairment (a permanent decline in the value) and write down the asset if impairment can be proven. Companies must evaluate the level of their goodwill, at least once per year.

Types of Goodwill:

  • Purchased goodwill refers to when a business concern is purchased for an amount above the fair value of its net assets. It’s shown on the balance sheet as an asset.
  • Inherent goodwill is the opposite of purchased goodwill and represents the value of a business more than the fair value of its net assets. This type of goodwill is internally generated and arises over time due to reputation. It can be either positive or negative.
  • Business Goodwill is associated with the business, its position in the marketplace, and its customer service.
  • Professional Practice Goodwill relates to professional practices such as doctors, engineers, lawyers and accountants. It is classified as practitioner goodwill which is related to the reputation and skill of the individual professional and practice goodwill which arises from the practitioner’s track record, institutional reputation, location and operating procedures.

Factors affecting goodwill:

  1. Location of the business: A business that is located in a suitable area has a more favourable chance of higher goodwill than a business located in a remote location.
  2. Quality of goods and services:  A business that is providing a high quality of goods and services has a great chance of earning more goodwill than competitors who provide inferior goods and services.
  3. The efficiency of management: Efficient management results in an increase in profit for the business, enhancing goodwill.
  4. Business Risk: A business having lesser risk has a better chance of creating goodwill than a high-risk business.
  5. Nature of business refers to the type of products that a business deals with, the level of competition in the market, demand for the products and the regulations impacting the business. A business having a favourable outcome in all these areas will have greater goodwill.
  6. Favourable Contracts: A firm will enjoy higher goodwill if it has access to favourable contracts for the sale of products.
  7. Possession of trade-mark and patents: Firms that have patents and trademarks enjoy a monopoly in the market, which contributes to an increase of goodwill.
  8. Capital: A firm with a higher return on investment along with lesser capital investment will be considered by buyers as more profitable and have more goodwill.

How to Calculate It?

In principle, the goodwill calculation technique looks simple. However, it’s incredibly complicated.  Goodwill Formula = Consideration paid + Fair value of non-controlling interests + Fair value of equity previous interests – Fair value of net assets recognized.

Goodwill can be calculated by using the following five simple steps:

  1. Determine the consideration paid by the acquirer to the seller as part of the deal contract. The consideration is valued either by a fair valuation method or the share-based payment method. The consideration may be paid in the form of stocks, cash or cash-in-kind.
  2. Determine the fair value of the non-controlling interest in the acquired company. It’s the portion of equity ownership in a subsidiary that is not attributable to the parent company.
  3. Determine the fair value of equity in previous interests.
  4. Figure out the fair value of the net assets recognized in the acquired company. This is the net of the fair value of assets and the fair value of liabilities. It’s available on the balance sheet.
  5. The goodwill equation is calculated by adding the consideration paid (step 1), non-controlling interests (step 2), and the fair value of previous equity interests (step 3) and then deducting the net assets of the company (step 4). 

Goodwill encapsulates the value of the reputation of a company built over a significant period of time. It’s challenging to determine because it’s composed of subjective values. Transactions involving goodwill have a substantial amount of risk that the acquiring company could overvalue the goodwill in the acquisition and ultimately pay too much for the company being acquired.  

Need help understanding the complexities of calculating goodwill? Are you acquiring/selling a company and have questions regarding the determination of the goodwill value? Contact Cook and Company Accountants. Whether you operate a sole proprietorship or a sizable corporation with multiple subsidiaries, we use our experience and expertise to assist you. Contact us to request a meeting.