Tag Archives: small business

Top 5 ways to make the most of your accountant relationship

Many small business owners only talk to their accountant when they absolutely have to. An accountant can be a business’ best friend! Here’s five ways you can connect with your accountant to help your business grow.

1. Ask Questions

Accounting and taxes aren’t intuitive, you shouldn’t “just know”. There’s no reason to be embarrassed for not knowing something. I didn’t know much at all about accounting until I began my studies. As a CPA I spent a long time in school and learning on the job before I received my designation. I’m here to be the expert for you, so please ask all the questions!

Two great types of questions are clarifying questions and specific questions.

Ask clarifying questions

If I’ve used a term you don’t understand, or we’re taking about a concept you’re not sure about, ask! It’s so important to understand what’s going on with your number because they have a big impact on the rest of your business (we’ll talk more about this later).

Get curious and ask about the “why” and not just the “what”. If you’re learning a term or concept, ask why we do it that way. It’s in the “why” that we learn out how all the pieces fit together.

If you don’t feel safe asking questions of your accountant, they might not be a good fit for you.

Ask specific questions

I know it’s tempting to ask “is there anything you can see that I should be doing better” but that doesn’t give me much direction. I can tell you about technical things I would change, like maybe a receipt wasn’t coded properly, but from a big picture perspective, we need to have a more in-depth conversation about your goals for the company.

You’re better off asking more specific questions, like “if I want to be able to spend $10k on a car in the next three months, what’s the best way to do that based on where I’m at today?” or “If I doubled my sales next year, would it double my income?”

These questions tell me your goal, your timeline, and what it is you’re not sure about. I can provide a specific answer to fit those parameters.

2. Build Processes and Workflows Together

As an accountant who sees many small business owners per day, I have a few tricks up my sleeve around process efficiency and how to help make your bookkeeping painless. However, there’s no one-size-fits-all solution.

If you like taking pictures of your receipts as you get them, great. If you’d prefer to have a weekly email reminder to submit your receipts for the week, that’s great too. However you work, your accounting process should be made for you. If there’s a major pain point somewhere along the line, the work probably isn’t going to get done, which isn’t good for either of us. Rather than feeling like you’ve failed, let’s build a process to set you up for success.

3. Communicate Regularly

Communicating with the people who have a key role in your business is so important. I have weekly meetings with each of my team members because those people are critical to the business. If waited to check-in with them once per year, we might be WAY off track by then and it might be too late to fix it.

Book regular check-in meetings with your accountant, or at the very least send an email. I touch base with my customers at least quarterly, but in some cases I have weekly calls. Communicating regularly means we’re able to be proactive about tax planning and business decisions. I also get to know the business better so I’m able to make more informed recommendations.

When you find yourself staring at confusing reports, or pulling your hair out, that’s the time to reach out for help.

4. Include Your Accountant in Business Decisions

If you’re thinking about a big change to your company, make sure to include your accountant in the conversation. It’s never fun to find out you’ve created a bigger tax bill or more administrative work by accident.

Let me tell you a story…

Taylor (not their real name) decided to switch their business from app development to selling products. Instead of reaching out to their accountant, they decided the best thing to do would be to incorporate a new company which cost $499 (unnecessary cost).

Taylor now has two corporations. Old Corp funded the start up of New Corp (intercompany loan) with every dollar in the bank account. New Corp has been losing money in the start-up phase and can’t repay the loan. Old Corp owes the CRA ~$40k in taxes but can’t pay because it doesn’t have any revenue.

We now must administrate two corporations, instead of one, and the losses generated in New Corp can’t be used to offset the income in prior years from Old Corp which means no tax savings.

All of this could’ve been avoided with a 15-minute call with their accountant

5. You Lead The Way

Accounting and taxes are never “set it and forget it”. Yes, an accountant can support you and do the tough, technical pieces. Yes, an accountant can provide guidance and strategy to help you grow your business, but it’s you who drives the bus.

I know that’s not what you wanted to hear, and it sucks. There are pieces of business we don’t like and we wish would go away, but that’s unfortunately not how being a small business owner works. We can outsource the pieces we’re not good at or don’t have time for, but we still need to be the manager.

If it were easy, everyone would be in business for themselves!

If this article inspired you to ask more questions and have some big conversations about your business, I’m happy to chat! I’m always willing to share 15-minutes with any Canadian small business owner and answer any questions.

Ask me Anything! Book A Chat

How to Pay Yourself

 

You run your own business and want to pay the least amount in taxes, so what’s the smart way to pay yourself? 

The goal is to keep the biggest slice of pie for yourself. The best way to do that depends on your business type, whether your business is a sole proprietorship or a corporation. 

Your Business Structure 

Sole Proprietor 

As a sole proprietor, you are your businessYou can’t be an employee of the business, which means you can’t draw a wage from your business. There’s no way to defer taxes by leaving money “in the business”. The business income and expenses are recorded as an additional schedule on your personal taxes, and all your income is taxed together. 

Having said that, I do recommend keeping the business money separate from your personal money. Make sure to open a business bank account to help with this separation (read this to find out why: https://www.kirkcpa.ca/do-you-need-a-business-bank-account/).  

How do you pay your personal expenses? Don’t do it from the business bank account. Transfer the money from your business account to your personal account and pay your personal expenses from there.  

*Pro tip, these transfers to your personal account don’t count as expenses for your business. 

Corporation 

Paying yourself from a corporation is little more complicated because it’s a separate legal entityI mean, logistically it’s the same in that you can transfer money from your business to your personal account, but the corporation will have to classify that payment as either dividends or salary (for the purposes of this explanation we’ll treat salaries and bonuses as the same thing).  

The biggest difference between the two methods is a salary is tax deductible for the corporation and dividends are paid out of after-tax income. 

What does that mean? 

A corporation is a separate legal entity from its owner(s) (known as shareholders). As a separate legal entity, the corporation is responsible for paying taxes on its income. If a salary is paid out to an employee, the corporation can deduct it from revenue before calculating taxes. 

The salary is then taxable for the individual. This bit isn’t news. Most of us have worked for someone else, where we’ve been paid a wage that we needed to pay taxes on. 

Paying a wage seems like the better option because you only pay tax once – on your personal taxes. Payroll has its downfalls though. It’s administratively more work because the corporation needs to deduct income taxes and CPP from the salary (just like if you worked for someone else), match the CPP contribution, and remit it to the CRA every month. It can also be more expensive because CPP isn’t paid on dividends, so if the CPP is more than the corporate tax bill it might not be worth it. 

Dividends 

Dividends are not tax deductible for the corporation, so the money paid out has already been taxed at the corporate level. You might be thinking “sweet, if tax has already been paid, does that mean it’s tax free for me to withdraw?” Nope, unfortunately not. You still need to pay personal tax on dividends, which means you’re effectively paying tax twice.  

So why would you take dividendsFor you as an individual, dividends are taxed at a lower rate than a salarySometimes paying tax at the corporate level (usually lower than paying at the individual level) plus paying the lower individual tax rate on dividends is actually less than the individual tax rate on a salary.  

Let’s recap 

Salary 

Dividends 

Tax deductible for the corporation 

Not tax deductible – paid out of after tax income 

Monthly remittances of income tax and CPP deductions 

No remittances 

Taxed at a higher rate for the individual 

Taxed at a lower rate for the individual 

Corporation has a portion of CPP to pay 

No CPP payments (which means no CPP withdrawal later in life) 

Increases your RRSP contribution room 

No impact on RRSP contribution room 

More conventional personal income so it’s easier to get personal loans 

Tougher to get personal loans (like mortgages) with only dividend income 

More formal process for getting money into the hands of the individual 

Simple transfer between bank accounts 

 

Which one should you choose? 

As with every question asked to an accountant – it depends. Your specific situation will determine the best way to pay yourself from a corporation. If you have another source of employment income, maybe dividends are the way to go. If the corporation is your only income, maybe you pay yourself a salary of $60k and switch to dividends after maxing out your CPP contributions for the year.  

To make the choice, it’s important to calculate the total tax (corporate and individual) payable for a few different scenarios to see which one is the best fit for you. If you’re doing these calculations on your own, I would revisit your strategy every year to ensure you always have the best fit for your changing situation. 

If you’d like help with this calculation, let’s chat! You can get in touch with me here: Contact

Kaitlin

(In)efficient Apartment Hunting

Last week I went apartment hunting. Like full-on camo, survival gear, deep in the jungle hunting. I got a little obsessive about it. Looking back on that stressful week, I learned something about efficiency.

From the day we decided to move, I was neck deep in it. Our first apartment search after arriving in Ottawa was a frantic rush to get the first okay place. This time I was going to find our Goldilocks apartment. Just right in every way.

My home is also my office, where I spend a good part of every day, so it needs to be a good fit. Enough space, natural light, parking, and (surprisingly challenging) no creaky floors! On top of that I’m looking for the right place, in the right location, at the right price.

It is a big game of balancing trade-offs and I began searching day and night, looking through listings, hoping the next one would be the ideal apartment. 

Of course I never found the perfect listing, but I spent seven days trying.

Animals in the window

Surely there is a perfect home for me!

Monday: This Is Great

Apartment hunting? I got this! I’m good at this! This is my jam! It’s a game of listing criteria, sifting through data from multiple sources, and shortlisting the ideal candidates. It’s well suited to my accountant skill set.

I hop online, check out hundreds of listings, and send off a handful of requests for viewings. I’m feeling really good about taking action on this process, and feeling confident that one of those places will be our next home.

Done deal. Right?

Tuesday: Just To Be Safe

I wake up the next day and think I better check to see if there are any new apartment listings I haven’t seen. Just to be safe.

There isn’t anything new, so instead I take a second look at some I passed by yesterday. Just to be safe.

I end up spending the entire day doing this. Considering different areas in the city, widening the net, and submitting a few more viewing requests. You know… just to be safe.

Wednesday to Friday: This Is War

I wake up, I check on my phone for any new listings. I get to my desk and search deeper for apartment options. I’m questioning my search filters, what am I missing?

My partner and I begin going to showings. This one is a 30 minute walk to the nearest anything, that one has old wooden floors which makes our every step scream with the anguished souls of a thousand demons.

I feel like each day means the good places are getting stolen away, snatched up off the market. I respond by trying harder, looking at ever more listings.

On Friday we finally see an apartment that feels right. We like it, it feels like it could be our home. We submit our application, and we are told they will get back to us Monday or Tuesday. *crossed fingers*

One more showing late Friday only reinforces that the other place is the right fit for us.

Saturday and Sunday: Everything is Terrible

What if we don’t get approved for the place? I better keep looking.

At this point in the game, more than ever, it’s about compromises. What am I willing to give up to widen my search? Less walkable neighbourhoods? Fewer bedrooms?

I’m feeling ever more desperate, feeling like the next place I find will surely be the obvious solution, and that compels me to continue the hunt morning to night.

Monday Morning: Put Me Out Of My Misery

I wake up knowing I have three apartment viewings scheduled today. I reach for my phone to continue the daily ritual and… hold up… what’s this?

APPROVED!

In a rush of relief, I see we have been approved for that great place we saw on Friday.

With gleeful speed, I cancel the showings scheduled for the rest of the week, remove apartment apps from my phone, and close a whole lot of browser tabs.

It is over.

Testing the width of the room.

The Calm Without The Storm

The place we signed with was one of the very first picks, from day one. I had a brief feeling of peace thinking one of those would be our next home. I was right, in hindsight, but still spent the rest of the week trying to bury the anxiety with the busywork of digging through listings and scheduling more appointments.

As an accountant I’m always keeping an eye on efficiency, and this turned out to be a big fail in that department. A full week of my effort accomplished no extra benefit or result. I felt like I was racing against time, but without any feedback or results. How was I to know when I had done enough?

It turned out I spent 10% of my time on doing the thing, and 90% of my time on an unnecessary back-up plan. By that math I could have tried and failed nine times over and been equally well off.

All that wasted effort was responding to the worry that I was feeling, not on actual feedback. I could have booked those first few viewings, and then just waited to see them. I could have submitted the application, and just waited to hear the result.

I was driven by a fear of missing out, from a sense of scarcity that was mostly generated internally. Even if some apartments were getting “snatched up” there were an equal amount just becoming available.

Pareto Principle and Efficient Action

The Pareto principle tells us that 80% of the result comes from 20% of the cause, and it is certainly true of this story.

The tricky part is that you don’t really know which is the magical 20% that will yield the big return until after it’s all done. However, in most cases you don’t need to know.

What if you always did just enough to get by? Does that sound to you like a lazy attitude? Like it will lead to a sub-standard result?

Here’s the thing. If you do just enough to get by, and it turns out to be not enough to actually get by, then you can give it a second round of effort. Very few things have a hard deadline, or are stuck in their “finished” state. You can almost always fix it, or improve it, as needed.

The alternative is over-planning, over-thinking, and trying to fix things before they are broken – they likely don’t need fixing in the first place!

I’m super excited about moving into my new home, and I’m sure it won’t be perfect. However, I’ll be able to adjust what I can, and if all else fails I can hunt for a new apartment next year. It’s certainly good enough for now!

Kaitlin

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