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Audit Planning: Tips for a Successful Audit

tips for a successful audit

Your business file is chosen for an audit by the Canadian Revenue Agency. What does this mean? What happens next? How can you ensure a successful audit?  Read on to find answers.

What is a Tax Audit?

A tax audit is a detailed examination of a company’s records and books by the Canadian Revenue Agency (CRA). It’s intended to confirm that your records/books support your tax return. Audits ensure that the Canadian tax system is fair for all.

How is a Business Chosen for Audit?

11,328 small and medium-sized business audits occurred in 2020/2021. Files are chosen for audit based on a risk assessment; factors such as non-compliance with tax obligations, frequency of errors on tax returns, and comparison to similar files. If your company’s file is identified as high risk, a CRA officer reviews your information to determine whether the CRA should go forward with an audit.

What Issues Prompt an Audit?

The CRA may consider an audit due to any/all of the following:

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

What Happens During an Audit?

A CRA auditor contacts your company via mail or phone and sets a date, location, and time for the audit. A review is held at your business location, accountant’s/representative’s office, or a Canadian Revenue Agency office. Your company is given the CRA agent’s contact information and informed of the scope of the upcoming audit. You’re asked to provide supporting documents for the review. The auditor copies your records/books and/or borrows your documents. The agent discusses any questions and addresses any concerns that arise during the audit.

Tips for a Successful Audit

The following suggestions help smooth the audit process.

  • Provide all documents requested: This may include:
    • Business records (ledgers, invoices, bank statements, receipts,  journals, contracts, rental records)
    • Personal records (mortgage documents, bank statements, credit card statements)
    • Records of individuals related to the business (family members, spouses, corporations, partnerships, trusts)
    • Records from your accountant that relate to the books and tax returns of your company
  • Ensure books are accurate: 
    • Reconcile bank balances to ensure no mistakes have been made 
    • Review accounts  
    • Record every expense, categorizing expenses alongside cash flow tracking
    • Save and organize your receipts
    • Keep business and personal expenses separate
    • Backup your data
    • Use accounting software to increase accuracy and ease record-keeping
    • Consider outsourcing your accounting

  • Communicate with auditors: Keep auditors informed. Be courteous. Prep everything requested. Periodically request updates on the procedure. Ask questions for clarity.
  • Make yourself available to assist, to answer questions, and to gather further information. 
  • Review the findings: Ask for an explanation of any changes. Go over these changes with your Chartered Professional Accountant. Decide if you are in agreement or whether you wish to challenge the findings. 
  • Challenge the findings: If you disagree with the assessment, contact the auditor and explain your concerns. Provide documents to support your position. If you are unable to resolve the disagreement, you may appeal.

Filing taxes for a business is a complex and complicated procedure. A  Chartered Professional Accountant ensures your tax return is accurate/complete, you receive the deductions you’re entitled to, and the chances of your file being chosen for an audit are minimal.

Contact Cook and Company Accountants for all your tax needs. Whether you operate a sizable corporation with multiple subsidiaries or a sole proprietorship, we use our experience/expertise to make tax time a breeze. In the event of an audit, we’ll assist in dealing with the CRA. Contact us for a complimentary consultation.

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Estate Planning for Blended Families: Navigating Complex Relationships

estate planning for blended families

A blended family forms when two individuals come together (married or common-in-law) bringing a child/children from previous relationships. They may then have a child/children together. The dynamics of this family arrangement can be complicated, resulting in both rewards and challenges. Financial and/or emotional issues often arise when one of the partners passes, revealing a mix of expectations from the remaining partner, children, and the ex-spouse(s). To reduce conflict, mistrust, and/or discord, it’s important to have open discussions and to develop a detailed and comprehensive estate plan, particularly if ownership of a business is involved. Preparation and communication are key to easing family dynamics. So, what does estate planning for blended families in Canada look like? 

Estate planning tips for blended families:

The following are some estate planning tips to promote harmony in a blended family.

  • Keep estate documents updated: Be aware that separation/divorce does not affect pre-existing beneficiary designations. Ensure all documents are updated to reflect the blended status of your family (RRSPs, pension, insurance, will, etc.). 
  • Establish a mutual wills agreement: This contract between partners prohibits both from changing their will without the consent of the other. Mutual wills restrict the future testamentary freedom of the surviving spouse. 
  • Appoint a trustworthy, reliable executor, someone acceptable to all family members.
  • Consider a prenup: Creating a prenup presents the opportunity to begin communication and negotiation of difficult financial issues, providing protection and certainty for all involved/affected. Ensure the process is collaborative and based on mediation principles. 
  • Consider a trust: A trust (a fiduciary relationship that gives the trustee the right to hold title to property/assets for the benefit of a third party/parties) assists in the distribution of assets, solidifying a desired outcome. Tailor the trust to your preferences.
  • Communicate: Open, meaningful, ongoing dialogue with your partner and beneficiaries provides a means for making adjustments as circumstances change. 
  • Establish a power of attorney: If a partner is alive but unable to make decisions (personal care, property, business), a power of attorney may ensure that the new spouse/common-in-law partner is in charge of decision-making, reducing conflict with the ex-spouse and/or children. 
  • Seek advice: Obtain advice/assistance regarding the unique tax and law challenges of your blended family situation. Your chartered professional accountant can help guide you through the twists, turns, and pitfalls of estate planning (capital gains tax, estate-related taxes, and other expenses), particularly when ownership of a business is involved. 

A blended family often results in complicated estate planning challenges, particularly when a business is involved. Open and honest communication with all involved helps ensure harmonious relations. Keep beneficiary designations and documents current. Obtain advice to ensure that your estate plan meets your needs and desires. Consider tax and family law obligations. Contact your chartered professional accountant for assistance. 

Need help with business estate planning? Looking for advice and/or guidance? Cook and Company Chartered Professional Accountants (based out of Calgary and Edmonton) serve clients across Canada/United States, providing quality assurance, succession, and tax planning services for privately owned and managed companies. A detailed, tactful understanding of estate planning assists your company. Contact us today for a complimentary consultation.

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Succession Planning: Preparing Your Business for the Future

Succession Planing

All business owners/managers strive for a stable, growing, profitable company. They plan, innovate, create, and organize in pursuit of their goals. But, what about the future of the company? Who will take over when the business owner/management retires, sells, or passes? How can owners/managers ensure that the business will survive and thrive? How can they be sure the outcome meets their needs and desires? Succession planning is a large part of the answer.

What is succession planning?

When people hear the term succession planning, they often think of personal wills and handing down money and/or property to family members. But what is a succession plan in business? Business succession planning refers to an exit strategy for business owners/managers, the steps taken to shape the future of the company in ways that meet the owner’s desires and/or needs. If a company owner plans on selling, succession planning enables a successful transition of ownership. If retirement is what an owner chooses, succession planning is aimed at finding the person(s) best suited to take over and identifying and developing a future leader(s). Business succession planning typically involves: 

  • Assessing current/future business needs according to the company’s strategic plan and their priority goals, projects, and/ or programs
  • Identifying individuals whose potential, skills, and talents best help the company meet its needs/goals
  • Developing plans to manage gaps in skills and/or capabilities that may occur if a key leader/leaders leave the company
  • Cross-training employees/managers to assist in the development of skills, knowledge, and an understanding of the business
  • Preparing for future changes and/or emergencies (when the unexpected arises)
  • Ensuring smooth business operation should owners/managers/employees retire or leave the company

Business succession planning focuses on more than the senior manager/executive, encompassing all key positions and all functions that require experience, skill, and/or seniority. 

What is the importance of succession planning?

The following items illuminate the importance of business succession planning. 

  • Ensures survival of unforeseen events: Abrupt resignation, illness, death, personal problems, and/or arrest may result in an unexpected vacancy in an important company position. Though you can not foresee these events, your company can plan, prepare, and strategize possible responses to ensure the smooth operation of the business. 
  • Forces long-term thinking: It’s easy to focus on weekly meetings, quarterly earnings, and yearly reports. Business succession planning forces a company to consider the future, helping plan and create a wise course for the company. 
  • Promotes communication: Succession planning requires the cooperation and participation of all department heads and senior management members. This promotes communication, improving day-to-day work. 
  • Saves money: Being unprepared for vacant positions risks your business incurring considerable costs as you search for suitable replacements. Attracting qualified people from their current positions can be an expensive undertaking. Succession planning can save you the cost of hiring outside employees for key roles as you have access to employees prepared for promotion from within. 
  • Motivates employees: A succession plan informs employees that you are planning for the future, committed to business growth/survival, dedicated to stability, and interested in internal promotion (developing staff for leadership positions). This creates confidence and motivates employees to give their best.  

What are the benefits of succession planning?

There are many advantages for employers and employees to having a well-developed succession plan in place.

  • Awareness that there is a chance for advancement/ownership empowers employees and results in higher job satisfaction
  • Succession planning reinforces employees’ career development
  • Commitment to succession planning results in supervisors mentoring employees to develop knowledge and expertise
  • Planning promotes tracking of employee value/skill/knowledge/loyalty with the intention of internally filling positions that arise
  • Promotes sharing of company values/vision with leaders/employees
  • A new generation of leaders is prepared for eventual need(s)
  • Reassures investors/shareholders during times of change

The steps of business succession planning:

There are a series of logical, beneficial steps that assist with successful business succession planning.

  • Identify possible serious business challenges for the next one to five years.
  • Identify employment positions that are critical for supporting business continuity.
  • Identify skills, competencies, and knowledge that are critical factors for success.
  • Consider high-potential employees, assessing possible future positions.
  • Select the skills/knowledge/competencies employees need to be successful in their positions and to meet the business challenges identified.
  • Capture the knowledge possessed by individuals before they depart the organization (mentorship programs, personal productivity tools, knowledge maps, manuals, storytelling, interviews, etc.).
  • Use targeted career development strategies to create a talent pool of individuals/employees to step into critical positions.

Transferring the ownership and/or management of a business is a professionally and personally delicate process. Without careful planning, a number of issues and/or mistakes may arise. Updating and revising your company’s succession plan regularly is critical. Constantly amend your plan, making changes as your needs/desires change and to meet the current business environment. Smooth transitions are achievable when you’re well-prepared. Talk to your Chartered Professional Accountant. They have the expertise, experience, and knowledge to help create and maintain a successful business succession plan. 

Need help with business succession planning? Looking for business guidance and/or advice? Cook and Company Chartered Professional Accountants are based out of Calgary and Edmonton, Alberta, serving clients across the United States and Canada. We provide high-quality assurance, succession, and tax planning services for a variety of privately owned and managed companies. Our detailed and tactful understanding of succession planning and its many parts is available to assist your company. Contact us today for a complimentary consultation. 

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Common Errors in Accounting and How to Avoid Them

common errors in accounting

Keeping accurate up-to-date books helps a company make informed financial decisions and avoid mishaps that can affect financial health. However, tracking your business’ income, expenses, taxes and vendor payments is complicated and time-consuming. Including an item in the appropriate account, applying the correct description or code for the item and entering the correct amount takes time and attention. Accounting errors inevitably occur. The following are the most common types of errors in accounting that business owners make and suggestions on how to prevent accounting errors. 

What is an error in accounting?

Accounting errors are unintended accidents; inadvertent mistakes. Sometimes accounting errors are caused by transposing a number or hitting an incorrect key. Other times they stem from a misunderstanding of accounting rules and/or company policy. Accounting departments attempt to limit errors, especially in data that flows into financial reporting used by stakeholders. 

What are the most common errors in accounting?

  • Improper record keeping: Record keeping is the act or practice of recording important information for future reference. It involves identifying a transaction, recording it, classifying it, posting it and balancing the account. It may involve paper copies but can also be managed digitally. To avoid improper record keeping, implement a receipt capture, filing and backup system and enforce its proper use. 
  • Failing to do monthly reviews of your financial statements: A profit and loss statement provides a snapshot of a company’s sales, expenses and profit for a given accounting period. A balance sheet statement reports the ending balance of a company’s assets, liabilities and equity for a given accounting period. These statements provide insight into a company’s financial health. Financial statement analysis should be done on a regular basis (preferably monthly) to ensure all expenses have been categorized accurately and account balances have been reconciled. Add this task to the monthly duties schedule.
  • Neglecting to analyze budget vs. actual expenses: A budget versus actual expense analysis should be performed at the end of each month and each quarter to be sure your business is adhering to the budget. This analysis uncovers variances that require corrective action and helps determine areas where you can cut back. Schedule this analysis into your monthly duties roster. 
  • Neglecting reconciliations: When you reconcile your accounts at the end of the month, you validate the information in your books against an external document (the bank or credit card statement). Regularly reviewing business bank accounts against your books helps reduce the incidence of fraudulent transactions. It ensures you discover errors and thus prevents issues from developing. Put a note in your calendar to reconcile your bank and credit card accounts each month.

  • Failing to reconcile loan accounts: It’s important to reconcile your loan account each time you receive a statement as this is the easiest way to ensure the liabilities portion of your balance sheet is accurate. Put a note in your calendar to ensure your loan account is reconciled regularly.

  • Leaving undeposited funds on the books: Undeposited funds on the books means the payment has been posted but the deposit hasn’t been. This makes revenue look larger than it is, causing incorrect tax payments and inaccurate assumptions about business growth. This error can be avoided with proper workflows.

  • A lack of data backup: In case the device that stores your business’ financial information is lost, stolen or hacked, it’s important to have the information backed up. There are many backup options available.

  • Not utilizing accounting software: Investing in the right accounting software helps you avoid mistakes and makes it easier to handle your finances. Accounting software ensures you have all the historical data you need to manage your books, payroll and taxes. Choose accounting software that integrates with your bank account and has backup capability.

  • Inadequate checks and balances: No one person in the business should handle business funds without oversight. Ensure the person who does the bookkeeping in your business isn’t the same person making deposits for the company. Avoid giving employees signing authority on your business bank accounts. Make sure you review your business’s bank statements, including images of cancelled checks, on a monthly basis.

Accurate accounting information is critical for a business. Though there is no sure way to eliminate all accounting errors, understanding what errors are common and where to look for them is an important first step. Processes and controls help minimize their occurrence. Using good accounting software and preventive controls helps create a less error-prone accounting environment. Accurate books allow you to make informed decisions that will help improve your bottom line. Correction of errors in accounting is crucial.

Need help establishing a good accounting system and/or incorporating accounting software? 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 various privately-owned and managed companies. Contact us for a complimentary consultation.

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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.

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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.

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What to Remember for This Tax Season

What to Remember for This Tax Season - Cook & Company - Chartered Professional Accountants - Featured Image

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

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

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

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

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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.

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Tips for Handling Charitable Donations

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

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

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.

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How to Establish a Budget for your Business

Establish a Budget for your Business

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

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

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

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