personal tax account Archives

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.

May 1, 2021May 17, 2021

Growing a Small Business During the Pandemic

Now, more than ever, small business owners need to make wise decisions to help grow their companies. The pandemic has created the toughest challenge businesses may ever face. From employee training to marketing, every aspect of a business needs attention. Companies need to adapt to withstand economic pressure and constantly changing needs. The following are multiple strategies for growing your company during the pandemic.

Make a plan: Come up with a plan of action, one that you can execute. A clear strategy is the best way to grow a small business at any time and even more necessary now.
Pay attention to your customers: Consumers are the lifeblood of a business and the pandemic has made it even more essential that you maintain core patrons. You need a clear picture of the type of customer that uses/buys your product/services, what motivates their decisions and how their behaviour is evolving with the pandemic. Let your customers know you value their feedback. Provide multiple opportunities for them to communicate with you. Use this feedback to develop products and services that are suitable to the current demands of the market. Ensure your customer service is exceptional. Address problems and answer questions quickly.
Maximize social media and online presence: The pandemic has us spending more time online; working remotely, taking virtual classes, participating in business meetings, hosting family gatherings and making household purchases. Make sure your company is easy to find online, your website is simple to navigate and your social media is generating interest. Monitor social media channels for mentions of your brand, your product and your competitors. Read comments, answer messages and build your social brand. Find out what customers are saying about you, gain insight into their behaviour, identify keywords and trends that appeal to your target market. Use this information to improve your customer service and provide what your users want.
Manage your costs: Pay close attention to the costs associated with running your business and getting your products/services to customers. Analyze your balance sheet, profit and loss account and cash flow statements to keep business expenses under control. Lower these costs where you are able. Liquidate low-earning products and/or eliminate low-performing services.
Invest in employees and company culture: In uncertain times, you need qualified and dedicated employees. A smart, diverse team is a company’s greatest asset and one that deserves protection. Adapt employee work duties to accommodate shifting needs. Provide the resources employees need to do their work remotely. Allow flexible work schedules so that working parents and those with increased home stresses can better manage their work-life balance. If you’re hiring, choose experienced professionals who can work with minimal help and supervision.
Be open to funding: The pandemic has adversely affected the global and local economy. The government has developed programs to cushion small businesses against these pressures. Consider accessing this funding to boost your working capital, respond to the crisis, refinance debt, and finance growth. Available assistance may ensure your company’s survival and growth.
Undertake strategic marketing: The pandemic has had a huge impact on household incomes and consumer spending. A solid marketing plan is essential. Use marketing technology to actively measure and track results. Determine which posts are performing, which products and services are selling and how your customers are responding. Pay attention to bounce rates, page visits, average time on site, and how your audience is arriving at your website. Use this information to drive your decision-making. Offer greater convenience by delivering products to your customers. Consider hiring an agency/consultant with marketing expertise in your industry to help boost your profile and drive up customer interaction across your social media platforms.

Make the changes needed to ride out the storm. Keep goals and measurable results in mind and implement your plan systematically and consistently. Find initiatives that address your company’s specific needs. Keep searching for growth opportunities. Be creative and your company may do more than survive. It may thrive!

Need advice to help grow your company during the pandemic? 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.

References:

April 1, 2021April 14, 2021

Tips for Selling Your Small Business

Selling a business is a complex process. It’s time-consuming, stressful and can seem overwhelming. If you want the sale of your small business to be a smooth transition, there are some things you need to consider. The following are some tips for preparing your business for sale.

Determine the value of your business: The value of a business is determined by cash flow, earnings (before interest/taxes/depreciation/amortization), industry trends, market demand and location. The asking price of your business needs to be comparable to the industry median in order to attract suitable buyers and open negotiations. It’s important to get a business assessment from an accredited business appraiser as a third-party valuation adds credibility to your asking price.
Hire legal experts: There are many legal documents required when selling a small business including an asset purchase agreement, the legal contract for the sale, a letter of intent and documents proving ownership of patents/trademarks and other intellectual property. Hire the necessary financial, legal, tax and business advising professionals to ensure the process goes as smoothly as possible. This guarantees that you are fully protected with a strong contract. Choose experts that specialize in dealing with businesses for sale.
Engage a business broker: While a lawyer structures the deal, a business broker helps you find a buyer. They will give you market visibility, contact potential buyers on your behalf, submit paperwork correctly, secure a favourable price, and fulfill any licensing and permitting requirements. Keep regular contact with them to discuss sale expectations, contracts, advertising, and other concerns. Brokers charge a commission of 5 to 10% of the sale price.
Prepare your paperwork: Potential buyers will want to see a profit and loss statement for the last 3 years, a current balance sheet, a cash flow statement, business tax returns for the last 3 years, a copy of the lease, any insurance policies, an executive summary of the business, supplier and distributor contracts, an equipment listing, your policy and procedures manual and employment agreements. Ensure a smooth process by taking the time to get these documents organized. Your professional chartered accountant can assist you with this task.
Pre-qualify your buyers: Many deals fall through because sellers enter transactions with buyers who are unable to secure financing. Ask your buyer what kind and size of business they desire, how soon they wish to purchase, how long they’ve been looking for a business, what business experience they have, how this experience will help run your business and what type of financing they have in place. Have the potential buyer provide a letter from their financial institution or accountant that shows they have the funds required to purchase your business.
Tidy up loose ends: Make good on all payments, late payments, defaults and promises. Have your professional chartered accountant audit your financial statements. Review crucial employment contracts. Have an intellectual property attorney review all of your business contracts.

Selling a small business is exciting! It also requires careful planning. Follow these tips to set yourself up for success, increase your chances of finding the right buyer, boost the sale price of your business and create a smooth transaction.

Need help preparing documents for the sale of your business? Need advice regarding the sale? 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 you. Contact us for a complimentary consultation.

References

February 1, 2021February 12, 2021

What you Need to Know About Estate Tax

After your passing and before your assets are distributed to your beneficiaries, outstanding debts are settled within your estate including income taxes, probate fees and possibly capital gains tax (on investments, real estate, trusts, etc.). Your legal representative will file a “Date of Death” or “Terminal” tax return resulting in possible taxes being payable from the estate as it is settled. Any assets not automatically rolling over to the surviving spouse/partner will be subject to a “deemed disposition” at fair market value possibly resulting in a potential capital gain or loss on the deemed sale. Careful tax planning, conducted ahead of time, can help you avoid a substantial tax hit to your estate and help you preserve more value to be distributed amongst your surviving heirs.

What can you do to minimize the taxes and other mitigations of your estate?

There are ways to protect your estate from current and future liabilities such as trust planning and estate freezes. These procedures work best when done in conjunction with other strategies.

Estate Freeze: A typical estate freeze allows you to exchange your common shares of your business for preference shares and have the company issue new common shares to a family trust or to your children and possibly yourself. The value of the preferred shares issued in the exchange will be “frozen” at the value ascribed to them at the date of exchange with all future appreciation and growth in value accruing in favour of the newly issued common shares; thus, capping or limiting any future tax liability on the disposition of the preferred shares.
Trusts are a particularly useful tool for mitigating tax because they create a unique legal relationship that maintains ownership of an asset on behalf of the beneficiary. A trust can assist a surviving spouse avoid an adverse marginal tax rate they might otherwise be exposed to while also allowing for a continued and orderly splitting of income amongst family members. Assets, like a family cottage, etc., can also be placed into trusts possibly deferring taxes for the next generation.
Charitable Donations spread your legacy, create a lasting social impact and are a powerful tool for lowering estate tax. The capital gains taxes can be substantially reduced and possibly eliminated altogether. When assets, having appreciated in value, are donated to charitable causes.
Transfer Property to Your Spouse: One of the easiest and most straight forward ways to defer taxes on death is to have your property rollover automatically to your surviving spouse. The surviving spouse would simply slip into the shoes of the deceased spouse in regard to the assets’ ownership and carrying costs, etc. thereby deferring any gain on disposition until the death of the surviving spouse.
Buying Assets in Your Child’s Name: A simple and legal route to reduce estate taxes is to buy the article (artwork/property/jewelry, antiques, etc.) in your child’s name. They own the article and any appreciation in the value already belongs to them.

Significant tax losses on your estate are an important concern. Pass on the rewards of your efforts to the next generation. If you want to maximize the wealth of your estate and minimize the tax burden, contact a CPA. They can help reduce and defer the tax on your estate.

Interested in reducing and/or deferring the tax burden on your estate? Contact Cook and Company Chartered Professional Accountants. Whether you operate a sole proprietorship or a conglomerate with multiple subsidiaries, Cook and Company uses their experience and expertise to help you. Contact us for a complimentary consultation.

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