Tips for Small Business Owners in Canada
There are a few key things that business owners should have managed by a CPA,
and one of those things is budgeting. Without an in-depth budgeting strategy, a business is likely to overlook small details that could cause big financial issues over time.
While some businesses may prefer to budget annually, choosing to budget monthly or quarterly is generally recommended and considered beneficial for most business owners.
A budgeting consultation and partnership with a Proledger CPA will provide you with the insight your business needs to stay on top of managing your revenue, expenses, profits, cash flow, and financial goals.
Create & Reassess
Budgets are most useful when engineered with precision and care. There are a variety of things to keep in mind when crafting a budget, such as the need to reassess along the way and make adjustments. It's vital that your Financial Manager has the most current skill set required to do an accurate assessment and forecast.
CPAs are the most experienced and trained to handle reassessments and budget management with trust.
If you track each purchase separately and on your own, it will make budgeting seem like a daunting task. Luckily, it doesn’t have to be difficult.
A skilled CPA will manage and group similar purchases together to streamline the efficiency of your record keeping.
Having a CPA control your budget is the most useful to any business owner.
INVOLVE YOUR WHOLE TEAM
When your team is aware of your budget, they’re more likely to support your initiatives and feel like a valued member of the company. This will help also help your staff or partners to be more connected to your goals, resulting in better overall results. You could also benefit greatly by hearing out the opinions of the people you’ve chosen to assist you in growing your business, as they may have tips or ideas not thought of previously.
If you’re self-employed and don’t have anyone working with you yet, that makes budgeting a lot easier. If however, you have partners or employees, your budget should be discussed with your team. It’s important to ensure that your team members understand your business's long-term goals, as well as the short-term strategy your CPA has in place to achieve them.
Some Expenses Don’t Qualify for ITCs
The only expenses that don’t qualify for input tax credits are goods and services that you purchased or imported for your own use (as opposed to being purchased for business consumption).
A few other purchases that don’t qualify are taxable goods and services that are purchased or imported to provide exempt goods and services, some capital property, and membership fees to any club whose sole purpose is to provide recreation, dining or sporting facilities.
Discuss registering for the GST/HST with your CPA to make a decision that will best suit your business and its operational structure.
For more information on input tax credits, visit the CRA website.
In Canada, there are certain services that are exempt from all sales tax. These services include child-care, music lessons, and used residential housing. If your business provides only exempt goods and services, then you don’t have to register for the GST/HST.
Small Supplier Rule Exemptions
You are required to register for the GST/HST if you are a taxi or limousine operator, or if you are a non-resident performer (someone who sells admissions to seminars and other events within Canada).
Registering for GST/HST
You don’t have to register for the GST/HST if you qualify as a small supplier, which the CRA defines as a business whose total taxable revenues (before expenses) do not exceed $30,000.00 for the accumulated last four consecutive calendar quarters and in any single calendar quarter.
You need to include the revenues of any of your associates in this total, excluding financial services, goodwill and sales of capital property. You must also register for the GST/HST within 30 days of your revenues exceeding $30,000.00.
It’s crucial for your CPA to diligently assess your revenues to ensure that you register when the time is right for you. Failing to monitor your profits and registration can result in larges fines and fees.
Although you don’t need to register for the GST/HST until the aforementioned criteria are met, it could still benefit your business to register early. No matter what kind of business you’re in, you’re still going to be paying GST/HST on the taxable goods and services that you purchase in the course of your commercial activities. If you’re a GST/HST registrant, you’ll be able to recover some of the GST/HST you paid out on business-related purchases through Input Tax Credits (ITCs).
Certified Professional Accountants
Since input tax credits are “stack-able” (meaning they can be carried over for up to four years from the end of the period when they could have first been claimed), you could end up benefitting from goods and inventory that you have on hand when you first register for the GST/HST.
The rules are very similar to the rules for claiming business expenses on income tax. According to the CRA, you are able to claim input tax credits for operating expenses such as commercial rent, utilities, office supplies, meals and entertainment expenses.
You can also claim input tax credits for expense reimbursements paid to employees and partners, as well as for capital property.
A Proledger CPA is best equipped to review your expenses as required to ensure you aren't missing any ITC's in your bookkeeping.
ALWAYS OVERESTIMATE YOUR EXPENSES
When considering your budget, it doesnt hurt to overestimate the amount of money you foresee being spent on expenses.
There Are Three Types of Expenses:
Fixed Costs (mortgage, rent, salaries, licenses, certificates, bank fees, insurance)
Variable Costs (sales commissions, transportation, travel fees, office expenses, legal fees, raw materials)
One Time Expenses (expenses purchased on a one-off basis)
If your business has many unique projects, predicting expenses on a project-by-project basis involves some uncertainty.
This could have a detrimental effect on a smaller business who may not have a financial cushion to fall back on.
Overestimating expenses will allow you to be prepared for unanticipated expenses.