Starting a new business can be a very daunting process. You may have a comprehensive knowledge of what your core business is about but now you also need to know about the business of running a business. We may be able to help with some aspects of this.
If you are looking for finance to get started or to buy an existing business we can assist you to develop a financial plan as part of your business and marketing plans. You may be considering several options for financing your business or leasing plant, equipment and premises and need some clarification about the pros and cons of these options. If you are hiring staff we can answer your questions on payroll matters. We can also provide information about your future financial obligations and reporting requirements.
Good planning and information can be a major contributor to the success of your business at any stage. Call us for an appointment and we’ll be pleased to help you get started.
If you own a small business, how do you pay yourself? Do you take home a pre-determined salary, or maybe a percentage of the profits? What if your business is not yet profitable? It's important to have a plan in place, especially when you're just starting out, otherwise you might find yourself collecting whatever's left after the bills are paid, or nothing at all.
There are a few things you should consider when deciding what to pay yourself:
· Growth — When your business is growing, it needs cash flow, and you don't want to interfere with that too much. You can start off small, taking home a minimal amount each month, for example, and then pay yourself greater amounts over time, as the business becomes more established and profitable.
· Ownership — You are at the helm of your business, and the time you spend, along with the risk you take, has value. If your venture does well, you get the rewards, but you will also absorb the loss if it does not. Finding out more about wages and payroll, and studying current labour and employment data can help you decide what a fair wage for your work might be, relative to that of your employees.
· Financials — Paying yourself a salary gives a more realistic financial picture of the business for investors. If your salary is not included on the balance sheet, it can look like the business is doing better financially than it is. If you are just starting out, and can't afford to draw a salary, or if you have other income to support yourself, you can reinvest the money in the business after “paying yourself” on paper, so that those earnings are properly identified as part of the expenses of running the business.
As a sole proprietorship or a partnership, the income you receive is considered to be personal income for tax purposes. However, if you register as a corporation, you have other options for paying yourself, like wages, management fees, and dividends.
Because there are so many things to consider, you may want help managing your finances. You can seek professional advice from an accountant, financial planner or tax lawyer. Be realistic, but don't be afraid to reward yourself. A bit of sacrifice early on may allow you to enjoy greater success in the future.
The article above is from the Canada Business Network website
Are you starting a business and trying to decide on the business model that is right for you? You may be weighing the pros and cons of traditional business models such as sole proprietorships, partnerships, and corporations, but you may also want to consider starting a cooperative.
Cooperatives are owned by an association of individual members who work together toward common goals, and could be a good fit if you want to work with others to pool your resources, experience, and expertise. The cooperative ownership structure is based on democratic decision-making (one member, one vote), so every member has a vested interest in taking part in the management of the business.
Most cooperatives are formed when individuals decide to work together to meet needs that may not be available or affordable in the marketplace. You may want to consider forming one of these types of common cooperatives: · Producer cooperatives — producers (such as farmers or artisans) work together to process, market, and distribute their products · Consumer cooperatives — customers purchase shares in the business, resulting in lower prices or increased access to goods and services · Worker cooperatives — employees own and manage the company, giving them control their working conditions
Some advantages of cooperative ownership: · Control of the business is in the hands of the people who use its product and services · Pooled resources can be used to market products and services and increase distribution channels · Members bring diverse ideas and solutions that can strengthen decision-making · Limited liability means you will not be personally responsible for the debts, obligations, or actions of your cooperative
Some disadvantages of cooperative ownership: · The democratic nature of cooperatives can slow down decision-making · Conflict between members can be disruptive · Extensive record keeping is required
When starting a new business there are 3 structures you can use – sole proprietorship, incorporation or partnership. Considering the advantages and disadvantages of each will be an important aid in making your choice.
Corporations are taxed as separate legal entities. A sole proprietor’s income or loss is included on their personal income tax return and directed to the proprietor.
This gives the corporation some significant tax advantages such as:
· The potential to split income with family members by making them employees (so they are on the payroll) or shareholders (so they receive dividends),
· The ability to structure the amount and timing of your income in a way that gives you the most benefit,
· Access to the Canadian manufacturing and processing profits deduction,
· Tax deferral on business income eligible for the small business deduction or the general rate reduction,
· The ability to transfer future growth in business value to children for estate-planning purposes,
· Access to the $800,000 capital gains exemption on disposition of the shares of a qualifying small business corporation.
On the other hand, maintaining a corporation can incur high legal and administrative costs. If you are not eligible for the small business deduction, the Canadian manufacturing and processing credit or the general rate deduction and if you are not in the highest personal tax bracket, you must prepay your taxes.
One of the main advantages of a sole proprietorship, which isn’t available under the other structures, is the ability to offset personal income with business and capital losses.
Some of the specific benefits of a partnership include:
· No double taxation of income on the distribution of profits, which might happen in a corporation,
· The ability to flow through losses, investment tax credits and, where applicable, scientific research and development costs to the partners who can claim them against their personal income.
Some of the disadvantages of a partnership include:
· Not eligible for the small business deduction, the Canadian manufacturing processing credit or the general rate reduction.
· They do not have access to the $800,000 enhanced capital gains exemption on the disposition of the business.
· There are limited income splitting opportunities. (This does not apply to income splitting for seniors.)
Reporting requirements are also different for each structure. We can help you determine the best structure for your business, to minimize ongoing costs and tax liability.