The Many Hats of Self Employment

Being self employed comes with many benefits.  You can sleep in, work in your pyjamas and go shopping in the middle of the day.  You no longer have to report to a boss who doesn't really understand what you do or deal with mindless workplace politics.  It all sounds wonderful, but unfortunately there are also many challenges.  Small business owners have to deal with uncertainty and risk.  They need to be disciplined and deal with the many demands that being self employed can impose upon us.  In the early stages of self employment, most of us have to take on the responsiblity of fulfilling the administrative functions that you find in a more established business. Some of the skills that you need to develop are:

Read More

GST and QST Considerations For New Business Owners

The Goods and Services Tax or GST is a consumption tax that is charged on most goods and services sold within Canada, regardless of where your business is located.  Subject to certain exceptions, all businesses are required to charge GST , currently at 5%, plus applicable provincial sales taxes.  A business effectively acts as an agent for Revenue Canada by collecting the taxes and remitting them on a periodic basis.  Businesses are also permitted to claim the taxes paid on expenses incurred that relate to their business activities.  These are referred to as Input Tax Credits.

Does Your Business Need to Register?

Prior to engaging in any kind of commercial activity in Canada, all business owners need to determine how the GST and relevant provincial taxes apply to them. Essentially, all businesses that sell goods and services in Canada, for profit, are required to charge GST, except in the following circumstances:

Read More

How to Set Up a Small Business Accounting System

Many small business owners (including myself) tend to focus on the more glamourous aspects of their business like sales and marketing and product/service development.  As a result, accounting (poor misunderstood accounting) does not get the attention it deserve.  In addition to the perception that an accounting system does not necessarily add value, they can also be a little intimidating.  However, setting up an accounting system does not have to be complicated and should be considered essential for any small business or self employed owner (the reasons for which will be covered in my next post). A good software tends to handle most of the complexity of accounting as long as the data is entered accurately.

The primary steps in setting up an accounting system are represented below:

Read More

Deferred Revenue and its Impact on your Small Business

Most small business owners are familiar with the concept of revenues, which is essentially the total sales of their product or service, to customers and clients, prior to deducting any costs.  Revenues are a crucial component of business’ profit and loss statement and it is essential that they are accurate so that the business owners may effectively analyze the profitability of their businesses.  Additionally there are third parties for which the accuracy of the revenues, and corresponding financial statements, is essential for effective decision making.  Third parties include tax authorities, banks, partners and key employees (on which remuneration/bonuses might be based). 

At first glance the calculation of total sales/revenues seems fairly straightforward.  Add up your total sales (or ideally have your accounting software do it for you) and voila – you have your gross sales. There are, however, several types of adjustments that need to be made depending on the nature of the sale, including any amounts that might be construed as deferred revenues.  Essentially (and quite simply) deferred revenues represent sales that are invoiced their customers now for goods or services to be provided at a later date.   Revenue recognition principles dictate that, unless the sale has actually occurred, the revenue cannot be recognized.  In other words these amounts must be reflected as deferred revenues.  Once the product or service has been delivered or performed, the deferred revenue is then considered to be an actual sale/revenue.  To a non-accountant, this can sound like a lot of mumbo jumbo.  The examples of deferred revenue below should help illustrate the concept more clearly:

Read More
Comment

How to Update Quickbooks for the 2011 QST Rate Increase

On January 1st, 2010, Revenue Quebec will be in increasing the QST rate to 8.5% (yay!), bring the effective rate of QST to 8.925% and  total sales taxes (GST and QST) to 13.925%, since the QST is actually charged on the net price + GST.  This will affect anyone who charges QST including small businesses and self employed individuals.  More info on the rate increase can be found at Revenue Quebec QST Rate Increase page.

For those of you using Quickbooks you will need to update the QST being charged on both sales and purchases.  The goal is to make a copy of the already existing QST on Sales and QST on purchases items, which will maintain the old rate.  Once this is done the existing "items" should be updated with the new rate.  This will automatically feed into and update the sales tax codes, so that you do not have to re-create them.  Keep in mind that this should be done on January 1st, 2011 or first day back after the holidays, so that transactions prior to 2011 are not affected.  The following are the steps required to make the change:

Read More

10 Year End Financial and Tax Tips for Your Small Business

As the end of the year approaches, some of us find ourselves overwhelmed by top 10 lists, the shopping masses and endless renditions of Winter Wonderland.  Businesses, on the other hand, tend to experience a slowdown, which makes it the perfect time for small business owners (when not partaking in holiday madness) to take a closer look at their overall business, financial and tax situation.  A thorough review and analysis of your business will allow you to optimize your current financial situation as well as prepare for the future. 

Read More

How to Prepare a Business Budget

One of the primary challenges facing a small business owner is uncertainty about the future. (It is also what makes entrepreneurship exciting).  We may have an amazing product or service, but we can’t be sure whether this will actually translate into a profitable business model.  A budget is an excellent tool to manage uncertainty and, contrary to popular belief, can actually be fairly straightforward to prepare, particularly for small businesses that do not have to worry about different departments, product lines and geographic areas .

A budget, very simply, is a tool that helps you predict your sales, expenses and profitability as well as your cash flow needs.  It is based on estimates, which in turn are based on a combination of experience, history and industry knowledge. In terms of presentation, a budget should essentially mirror your financial statements and will include the following main categories:

Read More

9 Tips For Managing Your Customer Receivables

Having Accounts Receivable i.e. amounts owing by customers is both good and bad.  It's good because it means that you have sales and customers.  It's bad because it is cash that you don't have now, and there is always a possibility that you won't collect.  When you offer credit terms to your customers it is extremely important to have a system in place to manage your accounts receivable.  It is difficult to collect amounts due when you don't actually know how much you are owed or when it is due.  Having the information at your fingertips  (this really relates to any kind of information) also makes a great impression. Below are some steps to help manage and collect on your accounts receivable:
Read More

Excel for Small Business Owners

This is incredibly geeky, but there is something about large amounts of data, in a neatly organized table, that I find somewhat exciting .  I suppose it has something to do with an affinity for organization combined with a love of numbers.   As an accountant and financial consultant, I am constantly faced with the task of organizing and analysing data.  And although good accounting software is absolutely necessary for any small business owner, almost all of my financial reporting and analysis is done using excel.

Excel, for my purposes, is somewhat magical.  (Just to be clear, I have no connection to Microsoft. I will eventually write a post on how much I despise Word).  I actually like manipulating data in excel, just so that I can discover new features and find more efficient ways of doing thngs.  This, of course, often ends up taking twice as long as if I had just done it using the more manual, tried and tested methods.  What, continues to impress me, however, is that there is an easier way to do almost everything  in excel (involving data – unfortunately it will not cook you dinner).  And this does not even include macros.

If you are planning to updgrade to excel 2007 or 2010, keep in mind that the interface is quite different.  This takes a while to get used to, and can be quite frustrating in the beginning.  However once you have become familiar with the new structure, excel 2007/10 is vastly superior to 2003.

Excel is especially helpful for small business owners and employees who do not have customized financial reporting or accounting software but are interested in disseminating their data.  Below are some ways in which excel can add value:

Read More

4 Metrics to Help Improve Your Small Business Cash Flow

In a recent study by TD Bank Financial Group it was determined that one of the primary challenges facing small business was cash flow (The other two were managing clients and government red tape).  This probably comes as no surprise to most small business owners, especially in the early stages.  Of course, the simple answer to this problem would be a limitless source of cash.  (Of course if we had unlimited funds, we may not find it necessary to endure the trial and tribulations of business ownership).  Since this is usually not possible, we need to do the next best thing: analyze our cash flow requirements and find the most cost effective and easily available solution for any shortfalls.  Even the most successful business can find itself shutting its doors if it is not able to manage it's cash flow needs. 

Below are 4 financial metrics, which if monitored regularly, can actually help improve your business' cash flow:

Read More

NeatDesk Scanner: Effective Bookkeeping Tool?

As an accountant, I occasionally (literally) get shoeboxes of documents from my small business clients.  Receipts are stuffed in and scrunched up and comprise everything from gas (good) to toilet paper (bad).  As I contemplate the mind numbing exercise where I will have to sift through everything, identify missing information and worst of all, enter it all into an accounting software (usually Quickbooks), I often feel a sense of dread.  I've often fantasized about a tool that could do it all for me (of course I could outsource, but since I only have a handful of these types of clients, it is not worth it, yet...). So, when I saw an ad for the Neatdesk scanner (shown ad nauseum on CNBC), I felt a little bit of glee as I perceived a potential solution to (at least part of ) the problem. 

Read More

Accounting for Non Accountants : Debit, Credits and Financial Statements

When people hear the term accounting, there is an involuntary reaction whereby the comprehension centres (the medical term) of their brains tend to shut down, and sleep mode is activated.  This is unfortunate, as accounting, especially to a small business owner, can actually be quite interesting.  It is one of the primary tools by which business owners and other interested parties can gage the success of their business, as well as identify areas that require attention andneed improvement.  To understand accounting, business owners need to have a basic understanding of how it works (debits and credits) and it's results (financial statements), explained below:

Read More

What is your Net Worth?

There comes a point in many people's lives when they want to find out what they are worth.  This is much more difficult to quantify on a metaphysical level; however on a tangible level most people can figure out how much wealth they have created over time.  The definition of net worth is, very simply, the total of all your assets (what you own) less your liabilities (what you owe).
Read More