Tag Archives: structure

Steps After Incorporation

Step By Step

I am in the process of incorporating my company. I’ve also been talking to a few other clients about how it would be tax effective for them to incorporate their companies. The lawyers have been hired, the paperwork filed, so what’s next?

What needs to happen after you incorporate, and in what order, is top of mind for me and my clients in this same stage of their business adventure.

Step By Step

11 steps you need to take after incorporating your business:

1. Open a business bank account

As soon as I have my Articles of Incorporation, I need to go to the bank and open up a business bank account – even if I had a business bank account previously under the sole proprietorship.

This is my first step because I need to be able to pay for operating expenses and pay for them through the corporation immediately. Hopefully, they’ll give me a credit card as well.

2. Register your new corporation with the CRA

I’m going to register my new corporation with the CRA if it hasn’t already been done (if you incorporate federally it happens as part of the process). Note: I’ve already registered as a sole proprietor, that’s not useful for the corporation. I need to close my HST account and open a new one for the corporation.

I’m also going to register for a payroll account because I can put myself on the payroll along with a bookkeeper I employ. I want to be able to start paying us immediately.

3. Register with your applicable governing body

I need to register an accounting firm. This is a specific step for me as an accountant, but maybe you have to go and acquire a business license. Or perhaps you need to register with your own applicable governing body. This step to me comes after the CRA registration and the business bank account because I have to pay for this registration.

4. Buy insurance or switch insurance from Sole Proprietor to Corporation

Before I start operating this company, I need insurance. I have insurance currently for myself as a sole proprietor, but I need insurance specifically for the Corporation for liability. Because I’m an accountant, I have errors and omissions insurance; however, general business liability insurance is what I recommend immediately before you start operating your company.

5. Update your payment provider

I run all of my payments through Stripe because I have a monthly recurring business model. I charge clients’ credit cards every month. This eliminates having to send them an invoice and having them input their information every time. It just automatically charges through Stripe.

The contract that I signed with Stripe is with me as an individual and I need to make sure that I change the contract to be with the corporation. This is important because if later on I sell the company, the Stripe contract is with the company and not with me personally.

6. Update your supplier contracts with Corporation name

Along the same lines of changing contracts, I’m going to go through all of my current suppliers and make sure that I sign new contracts with them. This could be Microsoft because I have a subscription to Office 365 or Receipt Bank which allows me to upload and track all my expenses. I have a few others, but you get the idea.

7. Update your client contracts with Corporation name and have your clients sign

I have engagement letters that I send to new clients so that we understand the scope of work that’s going to happen. I have one for personal tax clients, one for corporate tax returns and one for a monthly relationship with a client like a retainer agreement. I need to rewrite these agreements and ensure they now state the Corporation’s name. I will also have a lawyer look over them just make sure they’re compliant, to protect both myself and my clients.

Then I will have to send a new agreement to each client and have them sign again. It will probably be the exact same agreement they signed before, but I need them to sign up with the Corporation because contracts need to be party to the entities that are actually in the contract.

8. Update your employee and subcontractor contract with the Corporation and have your employees / subcontractors sign

I need to redesign all of my contracts with my current employees and subcontractors. See my point above about contracts needing to be party to the most current people and entities.

9. Update your bookkeeping software with the new Corporation name and start a new file

I currently have a QuickBooks file for my sole proprietorship, but the corporation will be a completely separate entity. This means I need a new set of “books” for it.

This is the same whether you use QuickBooks, Wave, or another bookkeeping software.

10. Move your assets from Sole Proprietorship to the Corporation

I will need to move my assets into my Corporation. In my case, I only have a computer, so my assets aren’t significant. I’m going to have the Corporation buy it from me at the value it’s currently sitting on my books for.

If I had a large asset that I needed to roll into the Corporation, I would do what’s called a section 85 rollover. I’m not going to address it here in this blog as it’s dull for those that don’t study this kind of thing! However, if you need to do this, have your lawyer help you. It’s tricky.

11. New email address and website address if your company name has changed

Did you know, because I’m an accountant, I have to incorporate the URL of my business? This means I’ve incorporated Kirk CPA Professional Corporation even if I’m not thrilled about it. I had another name picked out I was really excited for, but sometimes you just do what you have to do. I’d much rather keep the URL I have then go with the name I chose.

For your business, if you are changing the name, don’t forget this might mean a new web address, a new email address, and changes to directories and/or social media profiles.

This is my current list of steps to take after incorporation, but it certainly isn’t exhaustive. It sounds like a lot of paperwork (it is, I won’t sugar coat it), but it will be worth it in the long run as my business grows.

Have you recently incorporated your business? What steps did you take after you received your Articles of Incorporation? What challenges did you have? Let’s share our experience to make it easier for entrepreneurs walking the same path. Feel free to share and join me online at www.facebook.com/kaitlinkirkcpa

Why Hiring a Bookkeeper Might be the Wrong Choice for Your Business

When I tell a small business owner I believe they should do their own bookkeeping, I almost always get the same look. It’s a mix of terror and wide eyeballs that say “you’re f***in’ with me right?”

I’m serious though. Doing your own bookkeeping gets you elbow deep into the details of your financial information. You look at every little thing you spent money on, which forces you to think about your expenses in a head space that’s disconnected from the usual emotional high of buying something.

You have a chance to think about why you purchased it in the first place and, with objective hindsight, examine if you maybe should’ve left it on the store shelf. This assumes you’re bookkeeping in a calm and collected head-space. I understand this may not be the case right now. It may be closer to a fear and frustration tornado that’s raining overwhelm (I’ll come back to this).

As you review your expenditures you can catch errors before they become an issue. If you’re looking at your phone bills every month, and one month it goes up by $25, you’ll have a chance to call the phone company in that month to find out what happened. If it was all on auto-billing, it may have gone unnoticed and unquestioned.

Get ready to dig into your numbers! #elbowdeep

Let’s get ready to dig in to your business numbers. #elbowdeep

Doing your own bookkeeping also gives you an expectation for what your income statement should look like. If you know you’ve made the choice to put apps and other software in to Office Expenses, you can look at your income statement and know exactly what’s in the Office Expenses bucket (or line or account or category – whatever you want to call it).

If you outsource this job maybe the bookkeeper decides those items should go into Software Expenses, and only physical office expenses should go into Office Expenses. Now you’re looking at your income statement and you’re not really sure what makes up those amounts.

Your income statement is useless if you’re not sure what makes up the numbers.

How can you lower run-away utility bills if you’re not sure what’s classified as Utilities Expenses? Maybe you turn your heat off and shiver through the winter, trying to lower that expense, only to find out your phone bill was in there too, and the biggest cost was you kept going over your data limit – no amount of shivering will fix that.

Back to the Fear and Frustration Tornado

I understand the idea of doing your own bookkeeping is scary and not something you want to do, and I’m not suggesting you go it alone.

It’s important to have someone walk you through the basics of bookkeeping and receipt management, so you can setup a specific process that’s tailored to you and your business.

Think of it like hiring a bookkeeper as a coach instead of doing it for you. You’ll want to have a few lessons in the beginning to make sure you get started on the right foot (or left, if you’re left footed).

This person should be someone who creates a safe space for you to make mistakes and be honest about how the process is going. The more you can share with this person, the faster you’ll learn and grow.

As you gain confidence in your ability to sort, categorize and reconcile transactions, a lot of the negative emotions will start to ease.

Even the best dogs can get themselves into a mess. #gooddog

We tend to fear bookkeeping because we don’t know where to start, it’s difficult to understand whatever we can find on the internet (or know if we can trust it), and we worry that any mistake will have the Canada Revenue Agency (CRA) banging on our door.

The first two can be helped with a good bookkeeping coach.

The third? The CRA has a bad reputation for being mean and unyielding, and I don’t believe that’s totally accurate. I’m not here to advocate for them, but what I will say is this. You can always call and speak to an agent, who will explain the rules and how to correct whatever happened – you don’t need to be perfect.

No matter how big the mess feels, it can always be cleaned-up.

When’s the Right Time to Hire a Bookkeeper?

I don’t believe you should do your own bookkeeping forever. In fact you probably shouldn’t do it for very long. So how do you know when to hand it off?

1) Start by keeping track of the hours you’re spending on your bookkeeping. In the beginning it will be higher, but once you get the hang of it and it becomes part of your regular routine, you’ll have a pretty good idea of what it takes for you to do it consistently.

When the amount you would be making by doing something else exceeds the amount you would pay a bookkeeper, it might be time to hand it off.

2) If your bookkeeping starts to become more complicated, and you’re asking more and more questions, it’s probably time to hand it off.

3) When you have the available resources to comfortably pay a bookkeeper, it’s definitely time to hand it off.

If you’re still not sure, talk to your bookkeeping coach. They’ll have a good understanding of your specific situation and will be able to advise you based on your needs.

When you do hire a bookkeeper, you’ll get far more out of the relationship because you have experience doing your own books. You’ll have an expectation for your income statement and will be able to ask your bookkeeper why your numbers are changing.

When your numbers are changing, it gives you questions to ask about operations, and that’s where the real value lies. What are the business reasons for the change?

All your financial reporting, be it monthly statements or year-end analysis, can tell you everything you need to know about the health and status of your business, but they are written in a different language. The language spoken by accountants and bookkeepers.

Immersing yourself into the process of making those reports in the early stages will help you learn the language and understand the story behind the numbers.

Kaitlin

Do You Need a Business Bank Account?

You’ve probably heard it before – “you need a separate bank account and credit card for your business.”

It’s true, you do.

But why? It makes everything harder! Money goes into the business account, but all your bills come out of your personal account. How are you supposed to pay for things like groceries if all of your money is in the business account?

I get it, I’m a small business owner too – my business income has to pay my personal expenses.

Whether you’re incorporated or a sole proprietor, you need a separate account.

As a sole proprietor, things are a bit simpler because everything you make goes on your personal taxes, so you can transfer money to your personal account without too much planning (besides some cash flow management, but that’s beyond the scope of what we’re talking about here).

Why does it need to be separate?

Having a clear line between your personal and business expenses, ensures you’re only claiming the business ones against the business income.

The Canada Revenue Agency isn’t going to let you deduct cat food if you’re a coach. Sorry about that.

On the other hand, you definitely want to deduct everything related to the business – if you don’t, you’re paying more in taxes than you need to. Nobody likes that.

Taxes are a huge reason to keep everything separate. Not only for the sake of compliance but also to save time. When the inevitable tax season comes around, you don’t want to be going through every bank statement for every bank account and credit card you have trying to pick out the expenses you think might be business related.

It’s time consuming, tedious, and honestly, it’s pretty unlikely you’ll make it through the whole exercise without making a mistake somewhere.

Trying to remember what you bought at Canadian Tire eight months ago is going to be a tough one, and if you can’t prove it was business related, you can’t deduct it for tax purposes.

Maybe you keep all your receipts and write on them to say what you bought and why. That’s great! That will definitely help to keep things separate. You’ll still have to go through and add up all of those receipts at the end of the year.

Pro tip: you can take a picture of receipts with your phone and toss out the paper. The CRA will accept digital copies as proof of purchase. Yay!

What if the business is incorporated?

Corporations are technically separate legal entities from their owners (a.k.a. shareholders), which means they for sure need their own bank account and credit card.

The corporation will need to pay tax on its income, and you’ll need to pay tax on what you receive from the business. When you have only one bank account, that makes things tricky. Where’s the line between business and personal?

Having a separate credit card makes life SO much easier. The fee on your bank account will be way less if you only have a few transactions every month, and you can use the credit card to pay for everything. I know it’s hard to get credit for the business, especially if you’re just starting out, but it can be as simple as just getting another card issued on your personal account. The important thing is to have another physical card that you only use for business. It will show up on your statement separately from the other card.

Are taxes the only reason?

Nope, it’s just the one with the biggest potential consequences.

Reporting will be difficult too if you only have one account. How much did the business make in net income? Will you have cash in the bank to pay your suppliers on time? If everything is in one account it will be tricky to know the answers to these questions, which makes it tricky to run the business efficiently.

If the business is a side-hustle and you still have a day job, you’ll have no idea if the business is making money if it’s not separate. You might be bankrolling the business and not even know it.

At that point it’s more of a hobby than a business, which is ok, but keeping your finances separate will give you all the facts.

What’s the take-away?

At the very least, the business should have its own bank account, and ideally a credit card too. It will be so much less stressful and time consuming when taxes inevitably roll around. Plus, if/when you start working with a bookkeeper or an accountant, you’ll save money because they’ll spend less time on your taxes. Win!

Kaitlin