Are You Unknowingly Part Of The Underground Economy?

"Can't I just pay my employees with cash?" We still hear some version of this question now and then.

Moonlighting or "working under the table" is the basis for the underground economy in Canada. According to the Canada Revenue Agency (CRA), this can include:

bartering, failing to file tax returns, omitting an entire business activity from your tax return, skimming a portion of business income from what you report on your taxes, and not reporting a portion of employment income, like tips and gratuities.

CRA is actively searching for and fighting these activities. Click here to read more about this important topic.

If you aren't sure if your small business might be unknowingly contributing to the underground economy, stop now and give it some serious consideration.

Do you have questions about how to set up your small business so you can keep yourself safe? Get in touch.

Beyond Data Entry

It’s good you’ve invested in having someone (an employee or a contractor) dedicated to doing your routine entry of invoices and vendor payments. You’re too important to your business to do that stuff yourself.

Now that you aren’t seeing all the details, though, you might be finding it more difficult to make decisions about day-to-day operations and expenses.

Perhaps there’s another role you need to fill: someone to do your payroll, reconciliations and monthly financial statements. If you have a qualified, experienced person looking after these activities, they can help get your head out of the trees and help you see the forest… with valuable insight on how your business is doing. A good person in this role will notice concerning trends and bring them to your attention before they become a problem.

Where can you find such an experienced person? Ask me... or your accountant.

Does Your Bookkeeper Provide these Essential Services to You?

Whether you choose to work with us or to go elsewhere, these are qualities to look for when seeking a bookkeeper. (Of course, we’d rather you work with us!)

Communication
A good bookkeeper keeps you informed about progress (or delays) and is easy to reach when you have questions. She needs to keep you organized by taking the initiative for following up and keeping you on track to meet deadlines. A little nagging can be very effective.

Organization
Aside from a tendency toward perfectionism and an excellent filing system, your bookkeeper also needs to know the best technology to use to streamline your accounting processes. She is exacting in reporting the appropriate details and reconciling accounts.

Liaison and Relationship Building
A good bookkeeper will act as a go-between for you and your accountant, able to bridge the terminology and jargon communication gap. She will also be able to source appropriate accounting services if you’re in need. As well, she’ll be accomplished at working as part of a team with your own staff.

Problem Solving and Tenacity
You don’t want someone who’s going to flee as soon as they see your shoebox filing system. Ideally you want a bookkeeper who enjoys a challenge and will stick with it when things get rough. Bookkeeping work is tedious and can be frustrating – you want someone to stay the course (and to make the course better).

Flexibility
Accounting is complex and you want a bookkeeper who can evaluate options and select the best for you. Flexibility may be important for other reasons, too, such as if you need someone to work at your location, or to work odd hours, or to work long hours to meet deadlines.

Trustworthiness
You want to feel your bookkeeper has your best interests at heart, that when she is working for you, she is treating your money like it is her own. Trustworthiness can be easier defined by what it is not: unresponsive to inquiries, secretive about pricing, missing deadlines, and murky practices.

If you're looking for a bookkeeper with these qualities, please get in touch.

Don't Mix Business with Personal

Here are 3 reasons why keeping your personal and business finances separate will also help keep you and your business healthy.

Finding, tracking, posting, filing, and reconciling your bank, credit card, and PayPal accounts - paper and electronic - becomes much more onerous and time consuming. You'll often have to chase down personal statements and dig through old purses for receipts to explain debits and credits. If you wait too long, the disappearing ink will confound your efforts even more. All of these things are guaranteed to make you feel overwhelmed.

Accurate information about your expenses on a regular basis will help you make better business decisions, otherwise you're flying by the seat of your pants. When your business and personal finances are muddled, you won't have a clear picture until tax time. Once a year is not the only time you need to make decisions. Inaccurate information can cause insecurity and indecision, detrimental to small business success.

If you keep your finances separate, you'll also find tax season much less stressful. Since less stress is good for your health, keeping personal and business systems separate also contributes to a healthy lifestyle. The impact of "tax stress" can be more than you might think.

If you are already suffering from these accounting ailments, get in touch. Untangling messes is one of my specialties.

File HST Returns even for Zero Sales

After you register for an HST number when setting up your business, you are required by law to send in your remittances even if you have zero sales.

When you start a business, unless you are expecting sales right away, or under $30,000 in sales for the first year, you do not need to register your business to collect HST. When you do decide to register, here's a story you should know about.

A recent client of mine had registered their business two years ago with the intention of proactively looking for business. This client had not had any sales in those two years. However, when they called CRA to register for HST, the start date was backdated instead of beginning when he called. We are uncertain why. This client was then responsible to file returns for the previous reporting periods. Because they didn't know this, CRA assessed him for what they believe they owed them. They received a bill in the mail they were expected to pay. When they finally realized they had to file all the returns backdated, they filed all of the zero returns so they could claim HST on expenses they had incurred for the start up. Because they hadn't filed previously, CRA took their credit and applied it to the outstanding amount. When they called asking why they owed money on a zero sales return, CRA said it was because of the penalties for not filing his returns!

Lessons learned?

1. Always file your HST returns, even if there are no sales!
2. When calling to set up an HST account number, ensure they date the paperwork for the date you are applying. Keep an eye on the mail and check for confirmation of the reports due.
3. Although it does look professional when you charge HST, unless you are over the $30,000 mark in revenues there is no point in registering before you are ready unless you want to claim HST for expenses.

It's Risky to Make Decisions without Financial Statements

A common question I’m often asked is, “Why do I need financial statements?” The answer impacts all types of businesses – in an office tower or in a basement.

Financial statements consist of a Balance Sheet and Profit and Loss (or Income) Statement. (And then there’s the dreaded Cash Flow Statement, the thing that really confuses people.)

A Balance Sheet shows you:

• How much cash you have in the bank
• How much money may be owed to you
• How much money may be tied up in Inventory
• Assets of your business
• How much money you may owe vendors
• Liabilities for things like loans or lines of credit
• How much equity you have in your business

A Profit and Loss Statement (my personal favourite) indicates the following:

• A breakdown of revenue streams and how much you are making in each
• The direct cost of goods to sell your products or services
• Costs of the operations of your business: payroll, administrative expenses, general costs

To understand how your business is performing on a month-to-month basis, or even quarterly, you need a set of financial statements. To make decisions, you need financial statements. If you are watching your financials, unpleasant things won’t be surprises.

If you simply want to pass over your shoebox full of receipts each year to have your returns filed, you don’t need financials. But, if you want to understand how to grow your business, financial statements are highly recommended.

This is Why Your Small Business Needs Revenue Streams

Have you ever taken the time to consider all that your small business has to offer? Different activities which generate revenue can be organized into revenue streams. Grouping your activities this way will tell you which are doing well and which are not - valuable information for you to use to make decisions about your business.

If a revenue stream is not doing well, you may want to drop this activity all together. Or you may want to place more focus on making it viable, such as by cutting costs, increasing prices, or doing more marketing.

Taking a new product or service to market? Include it as a revenue stream in your business plan. If you don't meet your revenue forecast in the period of time expected, it’s time to re-evaluate. Keep in mind most business plans cover a period of 3 to 5 years.

Ways to Manage Cash Flow

I've already written about the importance of a cash flow plan. So, did it make you run straight to your desk and start planning? Keep in mind, most cash flow plans are a forecast of what you see happening in the next 12 months, or even as little as 6 months in some cases. Base it on the goals you have set for your business.

There are many factors that dictate what will happen in the time frame you selected. There are few things we know for certain, such as the cost of employees, loans, how quickly your customers pay their bills, and what your turn around time is to pay your vendors. Factor in things like future purchases and supplies, new employees and any capital expenditures, and, of course, paying yourself!

Some of my clients use software that sends out automated reminders to their clients. This way they are always aware of payments coming into their account and how late they are. One such method is to use an accounting software linked to PayPal.

Other ways to ensure your cash is there when you need it are:

• Ask for deposits when receiving orders; generally people don't mind paying 50% up front.
• Manage your Receivables properly; if your terms are net 30 days, ensure you receive your payments when due by possibly offering early payment discounts.
• Ensure a quick turnaround on inventory by not purchasing an abundance before it’s required.
• Invoice on a daily basis.
• Analyze which methods of receiving payment work fastest for you. There are so many ways to get payments today. For those on the road, there is even Square for debit and credit card payments upon delivery. PayPal, cheque. You name it!
• Never pay your own vendors until the payment terms are up. If you know a vendor will accept payment terms past 30 days, use this opportunity.

Always update your business plan (hopefully you have one of those!) and include a cash flow plan.

Need help? Contact me and I can help you prepare one.

Does Your Small Business Have a Cash Flow Plan?

A key component of any business finance is a cash flow plan. Most entrepreneurs create this plan when they have to provide a business plan for capital funding for an unexpected large project that they require goods and increased staff to complete. But don't wait!

How about on a day-to-day basis? Do you know how to plan to pay your vendors and staff, or even yourself?

Yes, having a successful business certainly helps! But keeping track of how much money comes into your business and how much has to go out - and WHEN - is key. A proper cash flow plan will help you make decisions, such as:

• how you can afford new employees, and possible capital expenditures to grow your revenue
• how to prepare for fluctuations in revenue
• the best way to receive money from your clients
• how best to fund unexpected large projects