chartered accountants calgary Archives - Page 2 of 6

March 1, 2023March 15, 2023

Strategies to Improve your Business’s Accounting

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

Keep business and personal banking separate:

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

Recognize business vs. personal expenses:

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

Develop a budget:

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

Keep an eye on high-cost expenses:

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

Plan for major investments

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

Utilize bookkeeping software:

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

Organize and store source documents:

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

Read and understand monthly reports:

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

Reconcile bank statements

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

Keep on top of sales invoices

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

Ensure inventory data is accurate

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

Make accounting a joint effort

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

Know when to outsource:

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

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

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

February 1, 2023February 10, 2023

Looking to Hand Down the Family Business? Read This.

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

What is succession planning?

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

Why develop a succession plan?

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

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

How do you develop a succession plan?

There are three distinct phases of succession planning:

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

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

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

January 1, 2023January 19, 2023

Creating a Year-End Financial Statement

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

What is a year-end financial statement?

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

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

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

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

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

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

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

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

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

What is included in a year-end financial statement?

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

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

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

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

December 1, 2022December 8, 2022

What to Look for in an Accountant

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

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

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

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

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

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

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

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

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

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

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

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

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

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

November 1, 2022November 4, 2022

Tips to Prepare for a Business Audit

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

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

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

The CRA will consider an audit if they discover:

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

What is the procedure for a business audit?

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

What documents are required for a business audit?

The documents requested may include:

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

How can a business prepare for an audit?

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

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

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

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

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

September 1, 2022August 24, 2022

How to Establish a Budget for your Business

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

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

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

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

August 15, 2022July 27, 2022

Should You Set up a Trust for Your Assets?

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.

August 1, 2022July 27, 2022

The Best Strategies for Small Business Accounting

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

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

Recognize business vs. personal expenses: You need to know what type of expenses can and can’t be claimed against your profit for the purpose of reducing tax. An expense that is directly related to the operation of the business and towards producing income is tax-deductible. An expense that is for your personal pleasure is not. Mixing personal and business does not mean a full claim for business can be made. If you’re in doubt about whether or not to claim an expense, contact your accountant.
Develop a budget: Begin by coming up with revenue projections and a list of anticipated expenditures. Compare this budget to actual expenses and revenue. Adjust the budget as needed.
Keep an eye on high-cost expenses: Labour and inventory costs are the largest expenses for most small businesses. To reduce labour expenses, consider outsourcing work to contractors that bill at an hourly rate. They may not need 40 hours/week to complete your work and they don’t require benefits. Time-tracking software makes it easier to understand how much certain tasks cost your business, enabling you to find ways to control expenses. Track inventory carrying costs, inventory turnover ratio, amount lost to obsolete inventory and other key metrics.
Plan for major investments. Consider what expenses will arise in the next one to five years (upgrade of facilities, new office equipment, peaks in staffing costs, emergencies). By planning for major expenses, you can avoid taking money out of the company during good months and finding yourself short in slow months. Track expenses and revenue to help identify the best time for large investments. Business credit cards help establish a credit history giving you a better chance at qualifying for financing (lines of credit, loans) and they often offer perks such as business or travel rewards.
Utilize bookkeeping software: There are free bookkeeping software packages if you are on a tight budget (Wave, ZipBooks, Akaunting, SlickPie, GnuCash, CloudBooks). If you can afford it, purchase a good quality program that comes with occasional updates (Cashbook, Quickbooks, Xero, Sage, Freshbooks, Zoho). Choose one that is easy to use, customizable, produces charts for quick reference and combines different aspects of reporting from one period to the next.
Organize and store source documents: Quotes, orders, delivery dockets, sales and purchase invoices, credit and debit notes, payment/remittance advice, cheques, receipts, wage records and deposit slips need to be filed and archived for 5 to 7 years. Keeping source documents at your fingertips makes it easier to prevent fraud in your business, improve your accuracy and ease finding transactions when needed.
Read and understand monthly reports: Keep your bookkeeping system up to date and produce reports monthly. Learn to read and understand these reports, in particular the income statement and the balance sheet.
Keep on top of sales invoices: Late and/or unpaid bills hurt cash flow. As soon as a job is complete or a product is delivered, prepare and send out customer invoices. Put a process in place to track your billing carefully (issuing a second invoice, a phone call reminder, penalties or extra fees). Be organized.
Ensure inventory data is accurate. To prepare financial statements you need accurate inventory data. Track physical inventory either manually, by counting items on a regular basis, or by pairing counts with an inventory management system that automatically adjusts the numbers as sales happen (via integration with your point-of-sale system). Inventory management software makes it much easier to track inventory and the information will be more accurate.
Know when to outsource: If you find bookkeeping too difficult or don’t have enough time for it, outsource the task. This can be cost-effective and professional help will ensure accuracy. Professional bookkeepers often give great business advice and assist with many tasks (recommend good software, attend meetings with your banker, explain accounts you find difficult, prepare annual budget and cash flow reports, etc).

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

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

July 1, 2022June 22, 2022

Tips for Effectively Managing Business Debt

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

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

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

Need help with debt management strategies? Contact Cook and Company Chartered Professional Accountants. Our expert staff will help you navigate the complex maze of debt management, with ease. Whether you operate a sole proprietorship or a sizable corporation with multiple subsidiaries, Cook and Company uses their experience and expertise to help your business. Contact us for a complimentary consultation.

May 15, 2022May 18, 2022

Corporate Tax Planning Tips for Canadian Small Businesses

There are many legal strategies for reducing income taxes in Canada. Part of running a successful business is knowing these strategies and utilizing them. The following are some of the top strategies to lower your taxes and keep more money in your business.

Collect receipts: As the CRA does not accept credit card statements as proof of expenses, in order to take advantage of tax deductions available you must collect receipts for all business-related activities (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, parking fees). Record and file them appropriately. You can keep physical receipts or digital copies.

Consider use-of-home deductions: You can claim business-use-of-home expenses if your home is your principal place of business or you use a workspace in your home solely to earn your business income and use it regularly to meet with clients, customers or patients. Home-based businesses can deduct a portion of many home-related expenses (heat, electricity, home maintenance, cleaning materials, home insurance, portions of property tax, mortgage interest, capital cost allowance). The percentage you can claim is determined by the size of your office in relation to the total size of the home. You cannot claim business-use-of-home expenses if you are also conducting business elsewhere or because you sometimes work on business matters at home.

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 contribution 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.

Incorporate your business: Incorporating your business lets you take advantage of small business tax deductions. The income of qualifying Canadian corporations is taxed at a reduced rate. Incorporating your business as a tax strategy will only be effective if your business has grown enough for incorporation to be worthwhile. You can also take advantage of certain tax benefits that are not available to unincorporated businesses (income tax splitting, capital gains exemptions) when you sell the business. Talk to your CPA to determine whether incorporation is right for you.

Increase your charitable donations: Donations made to registered Canadian charities earn you tax credits. Consider giving more to the registered charities of your choice. Be aware that non-Registered Canadian charities, American charities and political parties do not count as charitable income tax deductions.

Split your income: This strategy takes advantage of the marginal tax rate disparities. The higher your income, the higher the marginal tax rate. Transferring a portion of your income to a family member (spouse, child) reduces the marginal rate on your income. Keep your claims reasonable, properly invoice for work performed and complete all the paperwork as you would when hiring any employee or contractor. As the rules for income splitting are complex, consult your CPA.

Balance your dividend salary mix: You’re entitled to withdraw cash from your corporation as a dividend or a salary. Ask your CPA to help determine what mix will maximize your earnings. The mix you decide upon is determined by current circumstances as well as future predictions.

Hire a CPA: Most small 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.

While not all corporate tax-saving strategies work for every small business, some strategies have proven useful for many companies. With planning, you can reduce your taxable income and keep more money working for your company. Consult a Chartered Professional Accountant to ensure that you save the maximum amount possible.

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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