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5 Reasons a Bookkeeper Can Save You Money - Small Business BC If you’re a small business owner, chances are that you’re a fan of the do-it-yourself lifestyle. After all, you went into business for yourself. But while many small business owners love the freedom that owning their own business brings to them, it also means that expenses need to be kept to a m...

DIVIDEND VS SALARY

A commonly asked question from business owners is “What is the difference between salary and dividends?” If you own a business through a corporation, you are eligible to pay yourself a salary or dividends or a combination of both.
This following documentation will look at the difference between salary and dividends and the main advantages and disadvantages of both. You will also see common scenarios for when a business owner may choose one method over the other.

Salary / Wages

TYPE OF TRANSACTION

If you are paying yourself a salary or wage (same thing), the payments become an expense of the corporation and then employment income for you personally - you will get a T4. The expense reduces the corporation’s taxable income which reduces corporate taxes owing.

HOW IT’S DONE

To pay yourself a wage, the corporation will need to register a payroll account with CRA. Each time you are paid, the corporation will need to withhold source deductions (CPP and Income Tax) from your pay. These source deductions are then remitted to the Receiver General (CRA) on a regular basis. In addition, each year the corporation must prepare and file T4s for any employees that earned wages.
If you don’t already have a business number registered for your business, then the first step is getting one. You can select one of the businesses below or you can do a search online for other options to register your business.

OWNR - https://www.ownr.co/ca/en/business-structure/type (or)

ARVIC - https://www.arvic.com/

Once you have your business number you can register for a payroll account by calling the CRA at 1-800-959-5525.

WHY CHOOSE SALARY

Paying yourself a wage can be a way for you to earn a steady and predictable personal income. Some key advantages of using this method include:

• RRSP Contribution Room - Paying yourself a wage will allow you to build RRSP contribution room, whereas paying yourself via dividends does not.

• CPP Contributions - This is a double-edged sword. Wages will allow you to contribute to the Canada Pension Plan (dividends do not). This means you will benefit in the future when you collect CPP, but it also means that the CPP contributions are a cost for you and for the corporation. Less cash now, more cash later.

• Fewer Surprise Tax Bills - Income tax is withheld from each payment and remitted to the Receiver General. When you file your personal tax return you will have already paid income tax and will avoid a surprise personal tax bill. When paying dividends, income tax is not withheld and remitted which often creates personal taxes owing in April.

• When Applying for a Mortgage - When you are attempting to qualify for a mortgage, banks like to see steady, predictable income. Earning employment income like this will help show that steady income, whereas dividend income may not be looked at as favorably.

Dividends

TYPE OF TRANSACTION

Dividends are payments to shareholders of a corporation that are paid from the after tax earnings of the company. This means that dividends are not a corporate expense and do not reduce the corporate taxes paid. The flip side is that dividends carry less personal tax liability than wages because they come with a dividend tax credit (more on tax differences below).

HOW IT’S DONE

In practice, paying dividends to shareholders of a corporation is fairly easy. Dividends are declared and cash is transferred from the corporate account to a shareholder’s personal account in one or many transactions. Each year, the corporation must prepare and file T5s for any shareholders who received dividends.

The tricky thing with dividends is that they are issued and paid based on share ownership. For example, if Pied Piper Ltd. wants to issue $100,000 in dividends to the owners of its Class A common shares, it must do so based on percentage of ownership. So, if Dinesh owns 30% of Pied Piper’s class A shares and Richard owns the other 70%, then Dinesh would receive $30,000 and Richard would receive $70,000. This can make it difficult to allocate different amounts of income to multiple shareholders if they all own the same class of shares.

WHY CHOOSE DIVIDENDS

Paying dividends can be a simple way for business owners to withdraw money from their corporation. Some key advantages include:

• Lower Cost - Paying dividends removes the need to contribute to CPP, which reduces corporate and personal costs. The downside is that it does not allow
you to contribute to the Canada Pension Plan. More cash now, less cash later.

• Simplicity - If you own 100% of your corporation, you can just declare a dividend and transfer cash from the company to your personal account. No need to register for payroll and remit source deductions.

• Less Chance for Payroll Penalties - Payroll remittances are relentless. Usually they must be paid each month and late payments come with high penalties. Paying dividends eliminates the chance of late or missed payroll remittances however you will have to a T5 once per year when paying dividends.

Which Method Creates Less Tax?

Unfortunately, it is not as simple or straight forward as that and the answer is - "it depends"

The most common question about salary vs. dividends is “which method allows me to pay less tax?”. This is an important question, but changes to legislation that took effect at the beginning of 2018 have made it more difficult to reduce taxes by choosing one method or the other.
I have listed this question down here instead of at the top because I think it is more important to first understand and consider the issues listed above before comparing various wage and dividend models for tax savings. Often, the results of calculations show minimal tax savings one way or another, and there is a reason for that.

INTEGRATION

There is a tax concept called integration that legislation aims to implement. The idea is that there should be little to no difference in the overall income tax paid (personal tax + corporate tax) when comparing dividend payments and wage payments of the same amount. How this works:

• Wages reduce corporate taxes but create higher personal taxes than dividends.

• Dividends do not reduce corporate taxes but create less personal taxes than wages.

DIVIDEND SPRINKLING

In the past, corporate shareholders could skirt the issue of integration and tip the scales of tax savings in their direction by using a technique called dividend sprinkling. This was accomplished by spreading out dividend payments to a lower income earning spouse or adult family member. Because the spouse or adult family member are in a lower tax bracket than the person operating the business, there would be less personal tax to pay on their dividend income.
Now that it is more difficult to implement dividend sprinkling, it is especially important to consider the qualitative factors discussed earlier when deciding which method of payment to use.

CALCULATING AND COMPARING TAXES

Although there may not be as much in tax savings to be had as in the past, we can still do some simple calculations to help determine whether dividends or wages are more tax efficient.
The idea is to calculate the total taxes (corporate + personal) that would be paid if dividends were used and compare that with the total taxes that would be paid if wages were used. You can use a tool like:

-Simple Tax Calculator - https://simpletax.ca/calculator to calculate personal tax estimates, and

-For your Corporate tax rate - https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations/corporation-tax-rates.html

Common Scenarios

A few common scenarios that might consider as a business owner.

• Bad at Administrative Tasks - If making payments on time is a weakness that you have, then it may be easier and less costly to pay yourself using dividends. Wages require the regular, on-time payment of source deductions. If source deduction payments are missed or late, the penalties can add up quickly.

• Qualifying for Financing - If you plan on purchasing a home in the near future and know that you will need to qualify for a mortgage, it may be better to pay yourself as an employee (wages / salary). Banks like to see the steady income more than sporadic dividend payments.

• Having Children / Parental Leave - If you plan on having children sometime soon and you would like to earn Maternity or Parental Benefits, then it may be better to earn income through wages. This is because withholding and remitting employment insurance premiums can enable the employee to collect maternity or parental benefits.

• Paying Bonuses - Sometimes tax can be reduced or deferred by paying wages in the form of a bonus to business owners. This is a bit complicated and isn’t applicable in every scenario, but it’s important to know that the technique exists.

• Working Income Tax Benefit – The working income tax benefit is a refundable
tax credit intended to provide tax relief for eligible working low-income individuals and families. It may be beneficial to pay yourself a small salary from your business to trigger this tax credit on your personal taxes. Consider this if you have low personal or family net income for the year.

Register Your Business with Ownr Have an idea for a new business? Ownr makes it simple to register your business by removing the clutter and guiding you through the process.

Revisiting salary versus dividends in light of federal tax changes | Advisor's Edge New considerations for incorporated small business owners

EMPLOYEE VS CONTRACTOR

EMPLOYEES
The relationship is an employer-employee relationship in which the employee is a subordinate

Provide an adequate employment contract stating the terms, pay, policy, reviews etc.

The employer then controls schedules, tasks, workplace etc.

The employer must pay and remit CPP, EI and Income tax (CPP employee portion, EI employee portion and Income tax come off the employee’s pay cheque, however there is an employer portion of CPP and EI that the employer must pay) – typically would run this through a payroll system

Employer would provide equipment etc.

Employer must abide by employment laws (breaks, scheduling, holiday pay etc.)

Employer and/or employee must provide adequate notice when terminating employment

Must provide/file ROEs and T4s

CONTRACTORS
The relationship is a business-business, contractor works independently

Provide an adequate contract stating the terms, duration, pay etc. of their work

The contractor controls schedules, tasks, workplace etc.

No withholding tax responsibilities (CPP, EI, Income tax)

Contractors would provide invoices to payer for work done and payer would pay that amount however is agreed upon

Some contractors may charge GST/HST, in which the payer could claim ITCS

Contractors typically are responsible for own equipment & operating expenses

Contractor and/or payer can terminate the contract at any point without notice

In some cases, can provide/file a T4A

The most important piece of hiring a contractor or employee is establishing the boundaries of the relationship. Maintain consistency and know your obligations to avoid any rulings from CRA.

TIPS TO MAKE SMALL BUSINESS BOOKKEEPING A LITTLE LESS STRESSFUL

Are you one of those small business owners who just love poring over spreadsheets? Probably not! Your business’s books are a scorecard of how well you’re doing—but if you’re not a “numbers person,” doing your bookkeeping may sound as appealing as a root canal. Still other business owners mean to go over their business finances but get caught up in the day-to-day and never get around to it. No matter how you feel about bookkeeping, it’s one of those tasks no business owner can avoid forever

1. Separate business and personal finances

Co-mingling expenses and income is a common mistake in small business bookkeeping—and one that will cause huge headaches for your business in the future. Open a business bank account as soon as you decide to go through with your startup. If you can get a business credit card you should do so and only use it for business use, if you cannot get a business credit card try to use one of your personal credit cards only for business. If you don’t have a separate bank account or credit card it is important to go through your statements every month, highlight the business expenses and attach the receipts for the business to your statement. This not only separates your accounts.

2. Automate whatever you can

Entering data into spreadsheets and reconciling numbers manually is so old school. Use cloud-based bookkeeping software and do your business banking online. That way, you can sync your bookkeeping software with your business bank account, so you always have accurate, up-to-the-minute records. Plus, with the cloud, your critical financial data is backed up safely off-site.

3. Accounting Software Requirements

Talk to your bookkeeper to figure out if you can use off-the-shelf accounting software or if you’d benefit from customizing it. Your accountant should be able to not only offer advice but also set up the software for you and show you how to use it. Many bookkeepers and accountants can offer you discounts on software so be sure to ask before you purchase software on your own.

4. Perform regular financial checkups

If you put off bookkeeping too long, you end up with bounced checks, overdue invoices or figures that don’t add up. Go over your books weekly to make sure everything is ship-shape.

5. Do a quarterly review.

At the end of each quarter, take an in-depth look at your bookkeeping and accounting records. Look for trends, such as growing or declining sales, year-over-year revenues, or an increase in late-paying customers. .

6. Keep records of business expenses

Tax codes change from year to year so be sure talk to your bookkeeper for guidance on what kinds of expenses you can deduct next year. For anything you think you’ll be claiming, maintain detailed records; save time by scanning and digitizing receipts.

7. Monitor your employees’ hours with time tracking software

Cloud-based time tracking software allows employees to clock in and out on their smartphones, tablets or computers. But it doesn’t just save them hassles—it also makes your life easier by automatically tracking overtime. You can find time tracking software designed for just about any industry. Before you purchase the software make sure it will also work with your bookkeeping software.

8. Keep a close eye on accounts receivable

When customers don’t pay on time, your business’s cash flow will decrease. Pay attention to when your receivables are due and contact late-paying customers right away to nudge them along. Even if a customer is having financial problems, you may be able to set up a payment plan to get at least some of what you’re owed.

9. Stay on top of tax deadlines

To avoid getting caught short of cash, set aside money for any anticipated tax bills and, if possible, set up a separate savings account for the upcoming payment requirements. Pay on time so you don’t face fines and penalties. Put reminders in your cloud-based calendar and set up a reminder for two weeks prior to when your payment is due, and you will never miss a deadline.

10. Know what is required to do Payroll

Payroll can be a complicated and time-consuming task and it can include anything from determining employee wages, calculating deductions, payroll remittance, tracking vacation and sick days, issuing ROE’s and maintaining a WBC account. Whether you have one employee or ten, talk to your bookkeeper and they can assist you with your choices of doing payroll utilizing payroll software or outsourcing to a payroll services provider.

SOME OF THE BIGGEST CHALLENGES FACING SMALL BUSINESS

Starting a business is a big achievement but maintaining it is the larger challenge. There are many challenges every business faces such as hiring the right people, building a brand, developing a customer base and so on. Some issues are strictly small business issues, issues that the large companies grew out of long ago. Some of the biggest challenges for small businesses are:

Being dependent on a single client

Finding the right balance between working long hours and business success

Creating a situation in which the business could not continue in their absence

Thinking they can do everything themselves when they should be focusing on growing the business

1. Client Dependence

If a single client makes up more than half of your income, you are more of an independent contractor than a business owner. Diversifying your client base is vital to growing a business, but it can be difficult, especially when the client in question pays well and on time. For many small businesses, having a client willing to pay on time for a product or service is a godsend.

Unfortunately, this can result in a longer-term handicap, because, even if you have employees and so on, you may be still acting as a subcontractor for a larger business. This arrangement allows the client to avoid the risks of adding payroll in an area where the work may dry up at any time. All of that risk is transferred from the larger company to you and your employees. This arrangement can work if your main client has a consistent need for your product or service. However, it is generally better for a business to have a diversified client base to pick up the slack when any single client quits paying.

2. Money Management

Having enough cash to cover the bills is a must for any business, but it is also a must for every individual. Whether it is your business or your life, one will likely emerge as a capital drain that puts pressure on the other. To avoid this problem, small business owners must either be heavily capitalized or able to pick up extra income to shore up cash reserves when needed and thus, many small businesses start out with the founders working a job and building a business simultaneously. While this split focus can make it difficult to grow a business, running out of cash makes growing a business impossible.

Money management becomes even more important when cash is flowing into the business. Although handling business accounting and taxes may be within the capabilities of most business owners, professional help is a usually a good idea. The complexity of a company’s books increases with each client and employee, so getting an assist on the bookkeeping can prevent it from becoming a reason not to expand.

3. Fatigue

The hours, the work, and the constant pressure to perform wear on even the most passionate individuals. Many business owners—even successful ones—get stuck working much longer hours than their employees. Moreover, they fear their business will stall in their absence, so they avoid taking any time away from work to recharge.

Fatigue can lead to rash decisions about the business, including the desire to abandon it completely. Finding a pace that keeps the business humming without grinding down the owner is a challenge that comes early (and often) in the evolution of a small business.

4. Founder Dependence

If you get hit by a car, is your business still producing income the next day? A business that can't operate without its founder is a business with a deadline. Many businesses suffer from founder dependence, and it is often caused by the founder being unable to let go of certain decisions and responsibilities as the business grows.

In theory, meeting this challenge is easy—a business owner merely must give over more control to employees or partners. In practice, however, this is a big stumbling block for founders, because it usually involves compromising (at least initially) on the quality of work being done until the person doing the work learns the ropes.

It is important to remember that GROWTH should never be the enemy of quality. A small business requires both.

5. Balancing Quality and Growth

Even when a business is not founder dependent, there comes a time when the issues from growth seem to match or even outweigh the benefits. Whether a service or a product, at some point a business must sacrifice in order to scale up. This may mean not being able to personally manage every client relationship or not inspecting every widget.

Unfortunately, it is usually that level of personal engagement and attention to detail that makes a business successful. Therefore, many small business owners find themselves tied to these habits to the detriment of the company’s development. There is a large middle ground between shoddy work and an unhealthy obsession with quality; it is up to the business owner to navigate the company’s processes toward a compromise that allows growth without hurting the brand.

The Bottom Line

The problems faced by small business are considerable, and one of the worst things a would-be owner can do is to go into business without considering the challenges ahead. We’ve looked at some ways to help make these challenges easier, but there is no avoiding them. On the contrary, a competitive drive is often one of the reasons people start their own business, and every challenge represents another opportunity to compete.

SEVEN ESSENTIAL QUALITIES TO LOOK FOR IN A GOOD BOOKKEEPER

Excellent communication skills
Possessing good communication skills doesn’t just mean speaking clearly. It’s about being able to explain complex ideas in easy-to-understand ways, proactively following up on tasks, asking important questions about your business, and really listening to what you have to say. If your bookkeeper regularly uses accounting and bookkeeping jargon, the conversations you have can feel restricted and unproductive. Look for someone who’s willing to communicate key concepts at a pace you’re comfortable with, and don’t be afraid to ask questions!


Adept at accounting software and new technologies
When bookkeepers utilize the latest business software and technologies, it’s an indication that they’re committed to increasing efficiencies and providing a more robust service. If your bookkeeper knows how to leverage accounting software and other kinds of business software to streamline things like invoicing, payments, and payroll, you’ll know how every aspect of your business ties into the other – operationally and financially.


Organization and teamwork
Having stellar organization skills is basically a prerequisite to becoming a bookkeeper. But what about organizing a team and building a sense of unity? Do you feel like you and your bookkeeper work independently, or do you consider them a part of your crew? And does your bookkeeper have their own team of experts that work together to provide the best service for your business? These are some critical questions to ask yourself when you’re thinking about how you can get the most out of your bookkeeper.


Experience in your industry
Working with a bookkeeper who has expertise in, let’s say, the manufacturing or interior design would be very different than working with one who has tons of experience with retail. Good bookkeepers may specialize in a specific field or industry to be able to offer sharper services with a more informed approach. They can also provide reports on how your business is performing month-to-month and have an idea of what success metrics look like in your industry.


Integrity
No one likes shady people – especially if you must work with them. If your bookkeeper isn’t transparent with things like billing and pricing, or if they’re unresponsive, or if you’re constantly questioning what kind of value they’re adding to your business, maybe it’s time to call it quits with them. And if you’re looking for a new bookkeeper, be sure to have a thorough interview process, and ask hard-hitting questions to sniff out any crookedness as early as possible.


Flexibility to adapt to different working styles
Does your business have unusual operating hours? Or perhaps you only prefer to communicate via email. Maybe you’ve got a CPA but still need a bookkeeper for day-to-day operations. Whatever your situation might be, finding a bookkeeper who’s willing to be flexible with your working and communication style can make for a dynamic business partnership.


Relationship building skills
Finding a good bookkeeper needn’t be difficult. But when you do find one, you probably want to stick to them. Do they have good people skills that make you want to build a long-term partnership with them? A solid bookkeeper understands the value of every business relationship and will work to deliver high-quality services to ensure that expectations are met, if not exceeded.

Free accounting software. Serving Calgary and surrounding communities for all of your accounting needs with monthly and hourly rates available. We can work from your location or remotely from our office. Call or email for a quote today. Andrea 403.999.0548 or [email protected]

SEVEN HABITS OF A SUCCESSFUL BUSINESS OWNER

I’ve owned my business for more than twenty years and I’d like to think I’ve learned a thing or two about what it takes to survive and perhaps even thrive as a business owner.

I still have lots left to learn and even struggle with doing some of things I have learned, even though I know better, but I’ve also acquired a few traits and developed a few habits that I believe serve me well.

Some of these habits do not come naturally to many but one thing I will give us business owners is that we are very adaptable. Maybe we can be stubborn and even slow to change but change we will, in the name small business, succeed.

Here are seven habits that I have seen in most of the successful business owners I know.

GET UP EARLY
Successful business owners get a tremendous amount of focused work done from about 5 am to 7 am. Now, this may or may not be client work. It is just as likely to be writing in my journal, meditating or planning the week, but it is how they get a jump on the coming storm of the day. Quiet time is essential.

FOCUS ON IMPORTANT THINGS FIRST
This one is so hard because Twitter and Facebook and email just do not want you to do this. Successful business owners ignore distractions and focus on the highest payoff work first. This may include doing the grunt work they do not really want to do but the CRA has deemed important for some silly reason.

This a mental win as much as a physical to do list win. There is something really freeing about realizing you have conquered the toughest thing you have to do that day by 9 am! On the days I achieve this I get so much more done in total because I don’t fuss around trying to figure out how to put off what I know I should do.

OBSESS ABOUT VALUE
A lot people preach the idea of obsessing over the customer, but I have found that real success comes from obsessing over value – valuable products, processes, communication, follow-up, service, content, connection and context.
When you obsess about delivering value, measuring value and increasing value in everything you do, you start to realize that everything matters and there are no small things – and there’s no better way to serve your customers than that.
This is a subtle thing – the best way to serve your customers is to obsess over value.

TAKE CARE OF YOU
Running a business is physically demanding and mentally stressful. Yes, it is also a pretty awesome ride, but only if you maintain the stamina to put in long, high energy days.

The most successful business owners I have worked with take time to recharge, re-energize and refuel through things like exercise, healthy eating, and rest. Once you have been doing this for a while you start to realize that the time you invest in these kinds of things pays some hefty dividends in terms of productivity.

This is easy one to develop bad habits around too, so finding ways to create accountability is essential.

FILL THE GAPS
Successful business owners seem to always be asking what is missing. This can develop into a distraction, but when you stay really, really close to your customer you can start to recognize gaps in what you have, how you communicate and what they want. There are few better ways to succeed in business than to find a need and fill it – all the better when that need exists in people who already trust you to serve them.

The key is to understand your customer’s world and journey to get the information, products and services they seek.

GET OUT OF THE OFFICE
These days you can run your entire business without interacting with other human beings, but human beings need to interact in order to live.

If you are to grow, feel, learn, and understand you have got to get out of the office. Go to a conference, grab coffee with a customer, mingle. It is how you find strategic partners, new perspectives and opportunities to learn and grow.

LOVE TO LEARN, LOVE TO TEACH AND MENTOR
Some of the most successful business owners are great at selling, but they do not sell so much as passionately teach. Here is the funny thing though, many do not actually like to teach. Just ask someone who works for a small business owner. They are rarely particularly good at teaching employees how and why to do things, but they are generally insatiable learners who realize they need to figure out how to teach and tell stories in order to succeed.

Meals and Entertainment
When Does it Become An Expense

Meals and entertainment can be a great deduction for many businesses. But what is considered a valid meals and entertainment expense? And to what extent can you claim this deduction? See below!

Generally, the meals and entertainment expense are food, beverage and entertainment expenses incurred by the business. To qualify, these outings must be with a customer, vendor or employee; or travelling for business. These outings should be well documented, with details of who you were with and what business was conducted.

Some examples of possible allowable meals and entertainment expenses:

-Meals eaten with customers, vendors and/or employees
-Tickets for events (theatre, concerts, athletic etc.)
-Private boxes at sports facilities
-Room rentals for entertainment (hospitality suites etc.)
-Cruises
-Entertaining guests at clubs

However, the rule is to claim 50% of these costs or 50% of what is reasonable in the circumstances. This also applies to the GST/HST associated. Taxes and gratuities are included in expenses.

Disallowed meals and entertainment expenses are recreation and club dues (ie golf club memberships), season tickets for sporting events and meals claimed while outside sales territory or on vacation.

There are exceptions to the 50% claim rules, the following are examples of meals and entertainment that could be claimed at the full amount and full GST/HST:

-Your business sells food, beverages and entertainment to customers for compensation
-You bill your client or customer for the meal and entertainment costs
-The expense for an office party or event where all employees (Limit of six of these events a year)
-You incur meals and entertainment expenses for a fund-raising event of a registered charity

Other exceptions:
-Long-haul truck drivers can claim 80% of food and beverages consumed while travelling
-Self-employed foot and bicycle couriers can claim 100% of extra food and beverages consumed in an 8-hour workday cause of the nature of their work. The daily flat rate that can be claimed is $17.50.

The most important part of meals and entertainment expenses, no matter the circumstances and extent of deduction, is to keep detailed and valid records of what the expenses were for because CRA may request them in an audit.

Visit us a AB Business Services and we will assist you with navigating your meals and entertainment expenses and all of your accounting needs.