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.
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.
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.
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.
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:
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.
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.
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.
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.
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.
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 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
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.