All Posts by Randall Orser

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President/CEO Number Crunchers® Accounting Inc. Learn how to just say stuff it to this bookkeeping thing with our 'Just Say: "Stuff It" To Bookkeeping program.

What is Inventory and why is it Important to your Business?

By Randall Orser | Business Income Taxes , Small Business

Your company’s inventory is what you sell to your customers.  It can either be purchased from a wholesaler and sold on-line or in your store, or it can be the raw materials that you use to manufacture products to sell.  It can also be component parts that you put together to make a product to sell. 

Inventory has value so it is an asset to your business and once you sell it you will be making money.  It also has value as collateral if you need a business loan.   The cost of selling your inventory (called cost of goods sold) is important for your business as it includes the cost of the items to make your product as well as the costs for storing inventory in your warehouse, shipping products to your customers and hiring people to work in the warehouse. 


Keeping Track of your Inventory – in both your accounting system and its physical location is important for your business:

  • To know how many items are in your inventory and their value as an asset on your balance sheet.
  • To know the costs associated with buying and selling inventory which are deductible business expenses that can reduce your business taxes.
  • Inventory costs and gross profit from sales are a major part of your business tax return.
  • The value of your inventory can be used as collateral for a loan.

Different Types of Inventory -  inventory can be divided into two categories:

  • Supplies – items sitting on the shelf waiting to be used.  These include office supplies, cleaning supplies, computer supplies and accessories.
  • Product inventory – this can be either items you buy wholesale to sell to customers or items manufactured and ready to sell, as well as components and raw materials.

Inventory and Cost of Goods Sold – Inventory is essential in calculating the cost of goods sold, which in turn is used to determine gross profit for a business that sells products whether it is a sole proprietorship, partnership or a corporation.  The cost of goods sold is calculated by:

  • Beginning inventory (your inventory at the beginning of the year, or the beginning of your business.
  • Add net purchases (calculated after discounts, allowances and returns).
  • This equals the Cost of Goods Available for Sale.
  • Less ending inventory, which is the value of your inventory at year end.

The closing inventory at the end of one year becomes the opening inventory at the beginning of the new year.  Businesses take physical inventory to make sure that what they have on record is correct.  At the same time, they can check for spoilage of obsolete goods and theft or bad record keeping which costs the business money.

From an article by Jean Murray

What is the Difference Between Office Supplies and Office Expenses on Your Business Taxes

By Randall Orser | Small Business

It is important to know the difference between Office Supplies and Office Expenses for your business because these costs are handled differently on your tax return for Canada Revenue.  The CRA allows any reasonable business expense in that the expense must be appropriate to your business and used in an attempt to make money. 

Office Supplies – are traditional office items such as pens, staplers, paper clips and printer ink cartridges that aid in the operation of your business.  Also included in office supplies are:

  • Invoices and receipts used for record keeping purposes
  • Cleaning and janitorial supplies including toilet paper
  • The cabinets and storage lockers where your supplies are kept
  • Kitchen supplies such as plates, utensils and paper towels
  • Beverages such as water and coffee
  • Postage


It is very important that you keep all your receipts pertaining to office supply purchases to prove to the CRA that that you did in fact purchase the supplies.

Office Expenses – are the other expenses of running an office, they are used for the operations of the office and are sometimes called office operating expenses.  They include:

  • Website and cloud services such as iCloud
  • Internet hosting fees and website maintenance, domain names, monthly costs for apps
  • Software including web-based software such as QuickBooks and Adobe
  • Merchant account fees 
  • Desktop computers, laptops, ipads and tablets
  • Office phones, smartphones and most software and hardware.  Cellphone expenses can also be included in office expenses
  • More expensive office expenses may become business equipment and are categorized as assets and are depreciated over time. This would include computers, furniture, fixtures, office machines and other electronic devices.  

For more information on office expenses visit the Canada Revenue website at:  

https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/business-expenses.html

Pros and Cons of Reverse Mortgages

By Randall Orser | Budget , Personal Finances , Retirement

The number of seniors taking out a reverse mortgage is increasing year by year as retirees are finding that they do not have enough money to fund their retirement.  If you are thinking about taking out a reverse mortgage, as with any other big decision it is important to make sure that you know exactly how such a loan works and whether it is a good decision for you.  

Pros:

  • You continue to retain the title and live in your home.  You still have to pay your property taxes, insurance and maintenance.
  • You receive the proceeds of the loan as tax-free cash and you can use it however you wish such as pay off debts or travel.
  • You do not make any monthly mortgage payments until you decide to move or sell then the full loan becomes due.  You have the option to pay off the full amount of the principle and interest at any time though you may be charged a fee to pay off your loan early.
  • A reverse mortgage is a non-recourse loan.  You and your heirs are not responsible for any amount of the mortgage that exceeds the value of your home as long as you have paid all the property taxes and insurance.
  • You can usually decide how you want to receive the funds, all at once or to advances over time.

Cons:

  • Interest rates are higher than other secured lending options as there are no monthly payments required.  
  • The balance of the loan increases over time as does the interest on the loan.
  • If you default on the reverse mortgage you will have to pay back the entire amount due on the loan.  Lenders may have their own definitions of defaulting on your loan but in general ways you can default include: 
    • Using the money from the reverse mortgage for something illegal
    • Being dishonest in your mortgage application
    • Letting your house fall into a state of disrepair thereby lowering its value
    • Not following the conditions that you agreed to when you took out the mortgage.
  • When you die, your estate will have to pay back the full amount of the loan.  If both you and your spouse own your home together the loan will have to be repaid when the last one of you dies or sells your home.
  • The amount of time that you or your estate will have to pay off a reverse mortgage will vary.  If you die then usually your estate will have 180 days to pay off the loan, but I if you move into long-term care then you could have one year to pay it back.  This is important information that you need to get from the lender before taking out the loan.

Costs involved in taking out a reverse mortgage vary depending on the lender but usually include:

  • A higher interest rate than for a traditional mortgage.
  • A home appraisal fee
  • A setup fee
  • A prepayment penalty if you pay off your reverse mortgage early
  • Legal fees for closing costs or independent legal advice

Costs may be added to the balance of your loan or you may have to pay them upfront.

Taking out a reverse mortgage greatly affects the equity that you will have left in your home when you sell or die, and how much will be left for your heirs.  It is usually a good idea to speak to your family, a financial advisor and even your lawyer to make sure that you are fully understand how a reverse mortgage works and whether or not it is the best decision for you.

Your financial advisor may suggest alternatives to a reverse mortgage such as:

  • Taking out a different kind of loan such as a personal loan, line of credit or credit card
  • Selling your home and moving buying a smaller one 
  • Selling your home and renting another home or apartment
  • Moving into assisted living or other alternative housing.

Thinking About Taking out a Reverse Mortgage? Have you Done Your Homework?

By Randall Orser | Budget , Personal Finances , Personal Income Tax , Retirement

If you are retired or close to retirement and finding yourself short of money then a reverse mortgage might be the answer, but make sure you do your homework before you take out this type of loan.

What is a Reverse Mortgage?

A reverse mortgage is a loan secured against the value of your home.  In Canada you have to be a homeowner’s aged 55 or over to take out a reverse mortgage.  You can convert up to 55% of your home’s value into tax free cash to use as you wish.  With a reverse mortgage you retain ownership of your home and there are no monthly payments required.  The loan is only repaid when your home is sold when you either move out or the last borrower dies.   

Reverse Mortgages are surging in Canada at about 25% per year as older people are finding themselves without the income that they need for their retirement and this is a source of additional income for them.  Outstanding balances on reverse mortgages have more than doubled in the four years up to 2019 and now stand at $3.12billion, although this is less than 1% of the residential mortgages that have been issued, they are growing at a much faster pace.  

At present the big banks do not offer reverse mortgages they can only be taken out with two lenders –  the leading provider is Canadian Home Income Plan (CHIP) from HomeEquity Bank which has offered reverse mortgages since 1986, the second is the PATH Home Plan from  Equitable Bank available in BC, Alberta and Ontario.  Some Credit Unions in BC and Ontario also offer reverse mortgages. 

In order to qualify for a Reverse Mortgage in Canada, these factors are taken into consideration:

  • Both you and your spouse must be at least 55 years old.
  • The home that you are using to secure a reverse mortgage must be your primary residence, and you live there at least six months of the year.
  • The location of your home.
  • The type of home – detached, condo, townhouse etc.
  • The appraised value of your home – it must be at least $150,000.
  • The condition of your home.
  • The equity that you have in your home.
  • If you have a mortgage, loans or a line of credit secured on the home, you must pay it off before taking out a reverse mortgage.  
  • The older you are and the more equity that you have in the home the more money you could get but the amount is also impacted by current market trends. 

How to access the money

You can usually take out the money from your loan either as a one-time lump sum or by taking some up front and the remainder over time.  You need to ask your lender what options are open to you and if there are restrictions or fees.  

A reverse mortgage may sound like a great idea but is it the best option for you?

Ideas for a Halloween Business

By Randall Orser | holiday season , Home Based Business , Small Business

If you are thinking of starting a seasonal business, statistics have shown that Halloween is a good time to do it.  Don’t bother thinking about trying to get into business selling candies or pumpkins, that Halloween business is already taken by bigger companies like Walmart so it would be pretty much impossible to compete. 

However, you there is scope with Halloween costumes and decorations to develop a business and cater to a niche market.  For example:

  • Providing Halloween music for parties
  • Creating “authentic” period costumes for adults
  • Providing Halloween decorating services for homes or businesses
  • Presenting in-house parties for children (a substitute for trick or treating.) or organizing adult Halloween events.

Also growing in popularity is visiting haunted houses.   Setting up your own could be expensive and turn out not to be as good as other ones nearby but providing tours of “haunted houses” and other spooky sites in your area could be a lucrative business.  Contact your local historical society to research the paranormal history of your area and you could uncover ghost stories that might surprise you and present them to your customers in an entertaining and exciting way. 

If you set up a decorating or party planning business for Halloween, it would not be difficult to turn this into a seasonal business for Christmas or even do the same for birthdays.  Once you are established and do a good job you might be surprised at how many clients you get and how much profit you can make.  

How Much do you Plan to Spend Celebrating Halloween?

By Randall Orser | Budget , Personal Finances

Did you know that according to retail statistics Halloween is growing in popularity as is the amount of money that people spend celebrating?  Halloween has become a bonanza for retailers because it has become a universal celebration and consumers are spending increasing amounts of money on costumes and all the things that go with Halloween.  

Surprisingly Canadians spend more per capita on costumes, candy and décor than their counterparts in the US.  In 2015 when Halloween fell on a Saturday according to the RetailMeNot.inc survey Canadians spent an average of $169 per person hosting a Halloween party and on the following:

  • Attending a Halloween party $77
  • Alcohol $55
  • Costumes $52
  • Entertainment (performers, music, bar cover, etc.) $48
  • Decorations $43
  • Candy $42

Value Village says that Halloween sales have increased more than 35% over the past five years and at Canadian Tire Halloween sales are the third most important seasonal category behind Christmas and summer backyard living.

Trick or treating for children is still a mainstay at Halloween but adults are spending the money on celebrating (letting their inner child out for a night of partying).  Large parties with elaborate costumes have become very popular.   Out of the adult numbers who are celebrating 70% are 18 to 24 years old, but people aged 25 to 34 accounted for 65% and 35 to 44 years old accounted for 60%.  According to the National Retail Federation adult celebrations involved many of the following activities:

  • 48% wore a costume
  • 16% dressed up their pets
  • 35% threw or attended a party
  • 71% handed out candy
  • 46% carved a pumpkin
  • 23% visited a haunted house
  • 49% decorated their home or yard

This increased spending on Halloween opens up many business opportunities for those who want to cash in by providing a service.  It also provides many seasonal work opportunities for those who are looking to temporarily increase their income.

What to do When you Can’t Pay Your Bills

By Randall Orser | Budget , Personal Finances

Not having enough money to cover your monthly bills is a scary situation.  There are many ways that this can happen, overextending yourself with too much debt, having an irregular income or losing your job.  There are many signs that tell you that you need to cut back on your expenses or earn more money but not being able to pay your bills is a huge red flag that you immediately need to take steps to deal with your financial situation. 

  1. Reduce Your Expenses:  You need to find ways to reduce your monthly expenses and you can usually do this in more than one area.  Find a roommate or a cheaper place to live, carpool to work, cut back on your food budget, shop around for a cheaper cell phone.  You can also cut out things that are not necessities such as clothes, eating out or vacations.  Most important is that you stop using your credit cards right away as more spending on them will make your situation worse.
  2. Find Additional Income:  Next you need to find an additional source of income or a new job.  You may be able to pick up an additional part-time job or sell off some things that you no longer need or use.  A second job should only be temporary, so if you find that you continually need the extra income from it you should consider getting a better paying full-time job.
  3. Find a Long-Term Solution:  Looking for a long-term solution may mean making a career change or going back to school for more training to enable you to get a job where you earn a good salary.  You should also get more serious about budgeting your money so that you can see where you are overspending and where you can cut your expenses.
  4. Remember your Priorities:  Back to budgeting, make sure that you are covering your basic needs before paying your creditors.  Your basic needs include housing, food, medical needs, and utilities.  Once you have covered all these necessities you can start to pay your creditors.  
  • Working with your Creditors:  See if you qualify for a reduced payment or if they can temporarily reduce your interest rate, though they may want you to stop using it.  Lowering your monthly payments will always help your financial situation even though your credit rating may be damaged.  You should document all calls with your creditors and debt collectors and send all letters regarding payments by certified mail to prove that you sent them. 

From an article by Miriam Caldwell

The Worst Financial Mistakes that you can Make

By Randall Orser | Budget , Investments , Personal Finances , Retirement

When people are working on their budget or long-term financial plan, they are making changes to their spending. There are some common mistakes that people make when handling their finances that can come back to bite them in the future, but there are steps that can be taken to fix these mistakes.

  1. Thinking that things will work out ok in the end – putting your head in the sand and thinking that things will magically work out means that nothing is going to change.  You have to create a solid plan to save and to follow a budget which will determine how and when you will spend your money.  It is important to know that budget and financial plan are not bad words! 
  2. Relying on your credit cards to get by -  if you do this a few times it might not be too difficult to get out of debt, but if you make it a habit then you are liable to rack up a lot of debt in a short period of time.  Emergencies can and do come up unexpectedly, so you need to be prepared by starting an emergency savings fund.   If you have that you will not need to use your credit card for emergencies.   You need to make a goal to pay off your credit card and to not use it for the next year.  If you do use it make sure to pay it off each month.  
  3. Failing to plan for retirement – you should be making regular contributions to your retirement plan even if you are in your twenties.  The earlier you start the longer you will have for your fund to grow and benefit you in the long run.  Contributing to  a Registered Retirement Savings Plan is also a good way to save on your tax bill.
  4. Giving in to pressure to take the next big step – milestones in your life will affect your financial situation, such as getting married, a career change, buying a house or starting a family.  Only you can decide when you are ready to take these big steps so do not let friends and family rush you into something that you are not ready for otherwise you might resent the step that you took.  

From an article by Miriam Caldwell

Do You Have a Spending Problem?

By Randall Orser | Budget , Personal Finances

If you have a spending problem it can severely affect your finances and lead to serious issues such as debt, bankruptcy, home foreclosure and marital problems.  

If you think that you have a spending problem, you need to acknowledge it and get professional help. If it is serious you will also need to start working to get your finances under control.  Here are some common signs of overspending.

  1. You hide your purchases from others – from your spouse to avoid arguments, from a roommate because you don’t have the money left to pay your share of the bills, or from your parents or friends.  
  2. You feel better after going shopping – if shopping gives you a high and you crave the experience like an addiction and count down the days or hours until your next “fix” then you may have a spending problem.  You don’t even have to buying expensive items, just buying everyday items can cause you to overspend.  You don’t even have to go into a store, many people get the same high from shopping online. 
  3. Maxing out your credit cards – if you have multiple credit cards and they are always maxed out or you continue to max them out after making a payment each month then this is a sign of a spending problem.  It is also a problem if you are constantly juggling between them to figure out which has enough credit left on it for you to spend more.  
  4. Continuing to spend, even when you don’t have the funds is a serious sign of a spending problem as is being in denial about the amount of debt that you are in or denial about the amount of money that you are spending each month.  You need to take a good look at what you spend each month and if you are buying luxury items or things that you do not need on credit then you have a problem.
  5.  You lose track of what you have – if you can’t remember what you already have or are running out of space at home with a lot of extra items or boxes being stored in your closet or spare room, this is a good sign that you have a problem.  You need to take an inventory of what you have and if you have duplicates of items then you have a problem and need to get professional help.
  6. You are a zombie shopper – if you go into a store and put random items into your cart this is not about what you are buying but just the act of buying something.  People who buy for the sake of buying or overspend on gifts for family and friends may also have a spending problem.

Once you recognise that you might have a problem it’s time to get help before it is too late.  Think about going to a counsellor to work through your issues, join a support group for people who are compulsive spenders.  Lastly and very important start working towards getting your finances back on track.

From an article by Miriam Caldwell 

Not Good at Tracking Your Expenses? – Try the 80/20 Budget

By Randall Orser | Budget , Personal Finances

One of the most popular budgets used is the 50/30/20 budget, which is based on your take home income.  This budget allows for 50% of your income to go to necessities such as housing, electricity, groceries etc, 30% to discretionary items such as entertainment, dining out, a new cell phone, and 20% towards savings or debt repayment.

The main problem with this type of budget is that it can be difficult for someone to decide what is a want and what is a need.  For example, bread and milk are needs, ice-cream is a want.  Not many people want to classify and track their spending this way or in fact any way at all, to them budget is a word to be avoided.

An alternative to this type of budgeting is the 80/20 plan.  If you use this budget, you put 20% of your income towards savings and spend the other 80% any way you want, and you don’t have to do any expense tracking.  It is recommended that you save the 20% in a different bank to the remainder of your money so that you are not able to see the balance when you log into your regular account and are therefore not tempted to dip into it.  

Although it sounds wonderful to have 80% of your income to “spend as you wish.” In reality you need to set aside money for your needs such as groceries, rent, utilities and loan or credit card payments before you start to spend as you wish or you will quickly find yourself in trouble or running out of money before the end of the month.  

If controlling your spending is a problem think about using the envelope method to set aside money for items such as groceries and gas and setting up direct deposit payments for regular bills such as car, life and house insurance, tv and internet service and cell phone. That way everything is already deducted from your 80% so you can see the true amount that you have left to spend.  

If the amount that you have to spend on wants is not as much as you would like, look at ways in which you can reduce your needs.  For extra income you could also consider taking on a second job for a while.  With a few months of practice in budgeting your money you will get used to living a lifestyle that is in line with your income and your savings account will be growing nicely.

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