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The Challenges and Joys of Working for Yourself – Tax Tips for Freelancers

By Randall Orser | Business Income Taxes

Working for yourself can be extremely rewarding in terms of both time and money. When you work as a freelancer, you have the freedom to pick and choose the projects you work on. You also have the ability to set your own hours and work around your schedule instead of relying on a rigid schedule set by a supervisor.

Of course there are a number of challenges involved in the freelance lifestyle as well, including uneven workflow, the difficulty of landing new projects and of course higher taxes. Those who work for themselves face a higher tax burden, and that means that freelancers need to make tax planning an integral part of their lives.

No Withholding – No Automatic Payments

One of the most difficult adjustments for new freelancers is moving from automatic tax withholding to a system where they must compute their own taxes and make the appropriate payments. When you work for someone else, your boss automatically computes how much you owe in taxes and withholds that amount from your paycheck. Since you never see that money, you may not even look upon it as part of your income, making taxes a relatively painless part of life.

Things are a lot different when you work for yourself. When you work as a freelancer, there are no taxes withheld from your payments, but that does not mean there are no taxes due. It just means you are now responsible for assessing how much you owe and making sure Canada Revenue Agency (CRA) gets their money on time.

Quarterly Payments

If you are successful in your freelance career, chances are you will need to make quarterly payments to the CRA. The CRA typically expects freelancers to make quarterly estimated payments if they expect to owe more than $3,000 at the end of the year. With taxes on the self-employed so high, it does not take a lot of income to reach that $3,000 threshold.

If you are new to freelancing, one of the first things you should do is run the numbers to determine whether or not you are subject to the quarterly payment requirement. If you are, you will need to use your best guess when determining what you expect your total annual freelance income to be. If you use tax software to prepare your return, that software will automatically prepare the payment vouchers for you. Otherwise, you can simply request those forms from the CRA website.

Saving Money on Your Taxes

One of the biggest challenges of working as a freelancer is Canada Pension Plan (CPP) contribution. This special tax is applicable only to those who are self-employed, and it consists of the combined employee and employer share of the tax that fund the CPP. When you are self-employed, you are considered both the employee and the employer, and that essentially doubles those two taxes.

That higher tax burden makes it even more important to plan ahead by setting aside a percentage of each client payment to cover the cost of taxes. Setting that money aside now is the best way to ensure it will be there when you need it. You can earn a bit of interest by stashing those funds in a high-yield savings account, but you cannot afford to take any risk with the money.

Health Savings Accounts

Finding affordable health insurance is a challenge faced by every freelancer, but there are some ways to make purchasing the coverage you need less of a burden. One strategy is to combine a high deductible health plan with a health savings account. High deductible plans are usually much less costly than traditional plans, and that can help you save a lot of money.

Opening a health savings account can save you even more, since you can deduct the amount you set aside from your taxable income. You do need to make sure the health plan you have is HSA-eligible, something your insurance agent can tell you. You can also write off the cost of your health insurance premiums, provided you are not eligible for coverage under a group plan.

Open a Retirement Plan

When you work as a freelancer, you are also responsible for funding your own retirement. Fortunately, the CRA has ways to make saving for retirement less costly and more effective. Freelancers can choose from a number of retirement plans, including the Tax Free Savings Account (TFSA) and the individual Registered Retirement Savings Plan (RRSP). Each of these plans has its pros and cons, but they can all save you substantial money on your taxes.

It is a good idea to start checking into the various retirement plans as early in the year as possible. Planning early gives you time to choose the right plan, and time to put money aside here and there. If you already have an account with a brokerage firm or mutual fund company, that organization can help you set up a retirement plan specific to your freelancing business.

No matter how much or how little you make from your freelance work, it is important to factor taxes into the equation. Taxes can have a huge impact on your earnings, and no self-employed individual can afford to ignore that effect.

Stand Out from the Crowd

By Randall Orser | Small Business

Your small business must stand out from all the others for you to succeed; however, what if you’re new and no one knows you? Are you stuck in that Catch-22 scenario? You need credibility, but it’s hard to get those kudos until you get customers. What do you do when clients don’t even know you exist? The six tips below will get you noticed and customers will find you attractive, even being the new kid on the block.

Quality

Your hard work in your business isn’t the main characteristic, but it is important. How do you expect to succeed without a product or service that is excellent? You need to do everything you can to ensure your work is above the average and your efforts won’t go to waste. Yes, customers haven’t found you yet, but when they do, they’ll never forget you.

Go the Extra Mile

Is going that extra mile crucial to standing out? Take it from the customers’ point of view, and you’ll think differently. Wouldn’t you want to deal with the company that goes that extra mile and provides better value for the money? Going the extra mile, that your competitors aren’t, makes your clients feel that they’ve made the right decision to work with you.

Gain Exposure

You need to get your business noticed to attract customers. To get the attention you need use social media, advertising, websites, testimonials -- when you get happy customers, press releases, and media events. I can’t stress enough that you need to use first-rate marketing materials to allude that your business delivers high-quality merchandise or services. There’s nothing worse than meeting someone who’s done the DIY business card with the fringe from being torn apart showing; no one is going to take you seriously.

Branding

Establish an iconic brand that people associate with your business to raise your profile and gain visibility. Know your offering, what makes you unique in your industry, and accentuate this in your story about how the business started.

Embrace Originality

You want to study your competitors, but don’t copy them. Take note of those areas that they excel in, but don’t copy them too closely. Copycats seldom come out on top because the established brand usually has the edge. Nonetheless, learn from others mistakes in order to avoid making the same mistakes.

Work with Establish Brands

Are there any established, successful brands in your industry? Linking your business with them lets you gather prestige for your business. Piggyback on their creditability and people will associate the exceptional qualities connected to that reputable company to yours. You can do this by forming a joint venture, by which you help each other. You could write a guest blog post for that credible company’s website and include a short bio with a link to your business.

It takes time to get your business recognized, however, this process can be sped up by producing superb work and going that extra mile. Make your company as visible as possible and create an iconic brand. Be original too and connect with reputable businesses in your industry and you can’t help but stand out.

Seven Tips to Make Tax Time Less Stressful

By Randall Orser | Business Income Taxes

If you took the time to make a list of all the tasks you need to do to manage your business and then ordered them in terms of how much you liked doing them, where would record management come in? Two hundred and seventy? Or even lower?

But while most of us definitely consider business record management to be scut work and tend to give it a low priority, good record management not only makes our working lives easier, but can give us real stress relief at tax time. Here’s what you can do to make record management easy:

1. Keep your business and personal expenses separate.

Sounds easy, doesn’t it? But this is the part of record management that trips up most people. If you take a potential client out for a round of golf, for instance, is that a personal expense or a business expense? (The answer is personal, because green fees are not a deductible business expense.) Vehicles that you use for both personal and business reasons are another perennial problem.

You need to know what qualifies as legitimate business expenses and what doesn’t, and be sure that your business record management reflects this accurately.

2. Get sufficient documentation for all business expenses.

Many business people make the mistake of thinking that “lists” are good enough for record management purposes. For instance, they have a list of purchases on their credit card statements, and think that that’s good enough in terms of claiming those purchases as business expenses.

Unfortunately, the CRA (Canada Revenue Agency) is more demanding. They do not accept credit card statements or cancelled cheques as sufficient documentation for expenses when an invoice or receipt would normally be issued.

In terms of good business record management, there are two points to bear in mind:

a) Always get a receipt. Get in the habit of asking for a receipt whenever you make a purchase – no matter how small. Little expenses add up, too, and you need the documentation for your business records.

b) Label your receipts, if necessary. There are still businesses around that hand out receipts that don’t have anything on them except the date the item was purchased and how much it cost – which isn’t very helpful when you’re staring at a receipt trying to figure out what the item in question was and which business expense category it fits into.

When you get a receipt, look at it and write the missing/relevant information on it, such as what the receipt is for and the expense category.

3. Get a separate bank account for your business – and use it.

While the fees for business bank accounts are notoriously high compared to personal accounts, a business bank account is absolutely necessary for good business record management. A business bank account helps you keep your business and personal expenses separate. You will deposit all your business revenues into the business account, and withdraw any business related expenses or payments from the business account only.

What kind of business bank account should you get? A chequing account – preferably one that delivers monthly statements and returns your cancelled cheques to you.

Business cheques help make your record management easy because you can use the memo line on the front of each cheque to document the business purpose of the expense.

4. Have and use a separate credit card for business expenses.

Using your personal credit cards for business purposes will swiftly drop you into a record management quagmire. A business credit card greatly simplifies your business record management by helping keep your personal and business expenses separate. (It also helps make your business look more professional.)

5. Keep a mileage log of your business travel.

If you use any of your vehicles for business purposes, a mileage log will be a big help in record management. Note the mileage (or kilometer) reading on the odometer at the beginning of the year and then enter the mileage by date each time you use the vehicle for a business purpose.

Keeping your mileage log in the glove box of your vehicle will make this easy. If you have more than one vehicle that you use for business purposes, keep a mileage log in each.

6. Keep all your business records for a particular tax year together and in one place.

Having your business records scattered all over the place is a real time-waster when it comes to accounting or preparing your taxes, and organizing your business record management system by fiscal year will make it much easier to find the business records you need when you need them.

7. Keep your business records for the correct length of time.

For some reason, there seems to be a lot of confusion about how long you have to keep your business records. For tax purposes, “if you file your return on time, keep your records for a minimum of six years after the end of the taxation year to which they relate” (CRA).

This six-year period of time starts from the last time you used the business records, not from the time the transaction occurred.

The CRA also has rules about the destruction of business records; see Canada Revenue Agency’s website (www.cra-arc.gc.ca) for details.

These seven things you can do to make your record management easy aren’t difficult. Like a lot of the administrative business related to running a business, they just require establishing good habits and persistence. But if you apply these rules of good record management now and follow through, you’ll see a huge difference next tax time and your accounting will be easier all year long.

You Need to Implement These Four Things in Your Business

By Randall Orser | Small Business

For your small business to be successful, you need to be organized, otherwise, you’re just running around like a chicken with its head cut off. You face a huge struggle to just get one thing done when you’re unorganized. The following four items are what you need to be organized about in your business.

Time

Your time is valuable, and you need to treat it as such, as nobody else will. Your time is also limited so use it wisely. You need to commit your time to work, home, and yourself so you can run your business.

To-do List

Having a to-do list is crucial to getting things complete, and then continually updating it. A good thing to have is a weekly planner showing what you must get done, what you’re accountable for that week, things you’d like to get done, and even things you should stop doing. Your to-do list will allow you to get right to work when you start your day at the office (even if that’s a room in your home). You always know what you should be doing, even when you find that rare occasion with time to spare.

Office/Shop

Being organized in your office/shop is very important, you don’t want to spend an inordinate amount of time trying to find things. You end up behind in your work, and less motivated to start (it all just seems too hard).

Paperwork

This is THE business killer, not keeping track of your paperwork. Keeping up-to-date on your paperwork allows you to know who has paid you and who still owes you. Plus, you will know who you owe too. You should also ensure you have copies of any insurance policies, rental agreements, etc.

In order to know the health of your business, you need to be constantly up-to-date on your paperwork, as that can say a lot. The information provided via your accounting can make you realize you need to work harder or you are reaching your goals you had set for the business.

Organizing is very hard, and you need to be constantly vigilant, however, it’s totally worth the effort. Take the time now to rearrange your business, and you’ll notice a big difference. You get more done and make more money!

What Determines Tax Withholding Amounts?

By Randall Orser | Personal Income Tax

The Canadian Parliament and Provincial Legislatures establish federal and provincial tax-withholding rates. Procedures for determining your withholding amounts vary by tax. Sometimes withholding amounts depend on the type of wages being deducted.

TD1 Form

Your TD1 form helps your employer to determine the amount of federal income tax to subtract from your wages. For this reason, your employer must give you the form to complete when you're hired. Your withholding amount depends on the number of credits and filing status you claim on the form. Each credit gives you a sum that reduces your wages subject to taxation. The more allowances you claim, the less tax you pay; the fewer allowances you claim, the more tax you pay.

Note there are a Federal and a Provincial TD1, and you, the employee, must fill out both.

Taxable Wages

Federal income tax withholding is also based on your taxable wages. The more you earn, the more tax you pay; the less you earn, the less tax you pay. To arrive at your taxable wages, determine your gross pay, which is your entire pay before deductions. Then subtract nontaxable wages, such as qualified business expense reimbursements, and pretax deductions, such as qualified health insurance, from your gross pay.

CRA Guide T4032 Payroll Deductions Tables

Once taxable wages have been determined, withholding depends on CRA Guide T4032 Payroll Deductions Tables. Apply the withholding table that goes with your filing status, taxable wages, pay period and number of allowances. The table gives the exact amount that should come out of your paychecks. The CRA updates its tax tables periodically, typically semi-annually, so use the tax rate that applies to the tax year in question.

Flat Percentage Rates

Canada Pension Plan (CPP) and Employment Insurance (EI) are federal payroll taxes that are withheld at flat percentages of your wages. These rates are subject to change, usually annually. For 2018, Canada Pension Plan tax is withheld at 4.95 percent of your taxable wages, up to the annual wage maximum of $55,900. Employment Insurance is withheld at 1.66 percent of taxable wages to a maximum of $51,700.

Supplemental Wages

Supplemental wages are payments you receive from your employer that are not regular wages. They may include overtime pay, bonuses, commissions, severance pay, sick pay, awards, prizes and retroactive pay increases. For federal income tax purposes, if supplemental wages are paid in addition to regular wages, they’re taxed as though the total were a single payment for the regular payroll. If supplemental wages are paid separately from regular wages, federal income tax may be subtracted at a flat 25 percent. If supplemental wages exceed $1 million for the calendar year, the excess amount is taxed at 35 percent.

Provincial Taxes

Every province has an income tax rate and the amounts differ from Province to Province. If you are using CRA’s tax tables then both the federal and provincial amounts will show and are added together. Some Provinces do have additional taxes, such as Ontario’s health tax. Quebec has different rates for CPP and EI.

Are you Winning? Using the Figures to Boost Your Home Business

By Randall Orser | Small Business

The main indicators of success for your business are ‘work’ and ‘finance’.  

Work is a straightforward measure of how much work you have on at any time.  How many orders have you completed?  How many are there in the book that haven’t been started yet and how many are in progress?  A regular view of the value of orders in the book and the value of work finished each month will provide a trend.  

Finance is measured in many ways.  For the small business, it can be simply ‘what’s in the bank?’ and ‘how high is the overdraft?’    As with the work, however, a regular review for trends is extremely valuable.  For both, a trend upwards is a good sign that business is good and getting better.  Downwards is almost always not good.

Finance

The most obvious measure that everyone watches is simply ‘how much money is in the bank?’  A credit balance is good; an overdraft can be a challenge.   The balance will be the difference between money paid out and money taken in.   If you have more money going out than is coming in, you will not be in business for long.  The trick is to identify it early and find out what’s going wrong.

If you have a lot of orders coming through and being completed but are still not making money, first confirm that the invoicing and receipt processes are running smoothly.  No one will pay if you don’t ask them for it! 

Next, review what you are charging for your product against what you have to spend to make it.   Be sure to include your overheads in the cost calculations.  If it costs you £20 per month for the telephone services and during that month you can produce 100 of your product, then the cost calculation for each item must include 20 pence to cover the telephone overhead.  Similarly, electricity, premises rent and rates, insurances, any employees (and your time), and any other charge that you pay, will all have to be covered by what you charge people for your product.  The basic calculation is simply to divide the annual cost by the number of items you can produce in a year.  The price at which the item is sold must include the complete cost for producing it.  A small extra amount added into the price on top of the cost is your ‘profit’.  Too much and people won’t buy.  Not enough and you won’t be making enough to stay in business.

If it is costing you more to make than you are charging for it, then you have two avenues: put up the price you charge and/or cut down the costs for making the product. 

I’m Charging Right but Still Not Making Money

If the charge for your product already covers the item production and you are selling and invoicing successfully but still not making money, then you may be building up a stock of materials or parts.  This is easily done if your practice is to order slightly more than you think you will need, but never go back and use the extra that is sitting in the stock cupboard.  If you have built up a high stock, you need to consider how to reduce it and maintain it at a more appropriate level.   There may be quite a lot of money sitting in that cupboard that could be working better for you.  You also require a system for using up what’s in the stock cupboard.  Perhaps you order less.  Better still, you may include a current stock check into your routine when pricing a job and ordering materials.

Making the Most of Trends - a Case Study

 The other process for useful information is comparison.  Comparison of this month with the same month last year will show whether things are getting better or worse but will also provide clues to what might be causing the trend.

In the following case study, Martin started his hairdressing business in January 2010 and in mid-2011 is analysing his receipts for the first 14 months he has been in business.  He can see some important trends:

Month

   Receipts

Jan 2010   

£400

Feb   

£900

Mar

£950

Apr

£1200

May

£880

Jun

£650

Jul

£590

Aug

£675

Sep

£1700

Oct

£2030

Nov

£2300

Dec

£2950

Jan 2011

£900

Feb

£1200

At the beginning of 2010, receipts were very low.  This was the beginning of business and people did not know him or his work.  He didn’t have much advertising working for him and his main custom came from family and friends and a few people who transferred with him from his previous salon.  It is common for new businesses to struggle for a couple of years while they get known and build up a clientele.

There is a steady growth from the beginning as the figures show an upward trend, although June, July and August seemed low and January 2011 showed a big drop from the months on each side.  In comparison, November and December 2010 jumped upwards very satisfactorily.

When Martin compares the two Januaries they both show low takings, so it may be that the starting low figure was affected by more than just being a new business.  It may be that January will generally always be slow.  He will need to take that into account when planning for future years.   It’s not a good idea to just charge a little more to cover the drop in work as it will alienate customers who have become used to the charges and expect them to stay the same.  Changing charges requires advance notice and extra publicity.    It is better to identify why the sales are down and encourage more people to come in.  If he offers a ‘post-Christmas discount’ he may be able to attract more customers in during that month.

In contrast, his sales immediately pre-Christmas have jumped upwards.  He reviews who came in during those months by checking his appointments book, remembering he was run off his feet, and finds that his older female customers flocked in to ‘have their hair done for Christmas’, while the young children and teens were less in evidence.  The customer mix, and the type of hairdressing that was required by them, would account for the increase in sales.  He can continue to expect a pre- Christmas boom if he maintains satisfaction for these customers and can keep them coming back. 

During summer his sales fell slightly.  His appointment book reveals more white space than usual, showing that he had times when no one was in the salon.  He remembered hearing a lot of holiday stories in the following months and realised that many of his regulars had been away and missed having their hair done with him.

In reviewing his expenses, Martin found high expenditure in December compared with the other months.  His invoice file showed that he had ordered in extra quantities of shampoos, conditioners, waxes and hairsprays.  He remembered that with all the extra business, he had run out of some products and had been forced to shop around for emergency supplies.  This had been more expensive than his usual suppliers, on top of being extra orders.  He made a note to stock up more in October so to be ready for the rush this year.

Overall, Martin was able to conclude that the business was generally good, although there was still plenty of room for more growth.  He would introduce a post-Christmas discount to see if he could entice more people through the door in January.   During the summer period he probably would still have a drop-in business, but he might be able to run a promotion for new customers.  He could also try attracting his regulars – and perhaps others – with a ‘look good for the holidays’ promotion just before they go away.  He would order in extra stocks of his consumable items ready for the pre-Christmas rush.  If he doesn’t sell as much as he expects, he could use the leftover extras for his post-Christmas promotion and sell them at a discount.

In this case study, Martin is identifying, and dealing with, seasonal trends that will affect his profitability.  By looking at the year as a whole, and comparing the months between years, he can see where his ups-and-downs relate to the time of year and plan accordingly.  Seasonal trend is only one factor among many that make a difference to your sales.  Depending on what you are selling, you may need to deal with fashions, new technologies, an event in the celebrity world, the impact of a new television program or film, a new law or regulation, an unusual weather pattern, a faulty product that lets you down, major job losses in your area limiting people’s spending, or something new that has never happened before.

The most successful businesses keep an eye on what’s happening, analyse why sales are dropping or increasing, drill down into the documents that are part of the daily process (such as appointment books and invoices), and find answers that they can then use to continue reducing expenses and increasing sales.  It’s not difficult to do, but if you need help – or just another point of view – your accountant is a useful resource in analysing the figures.  It will need your valuable knowledge of the daily business, however, to understand the underlying reasons and what might be done to address a potential problem. 

 It is up to you, as the business owner and manager, to keep an eye on the numbers, to measure progress regularly, and to address trends that are affecting your sales.

What Is the Disability Tax Credit (DTC)?

By Randall Orser | Personal Income Tax

The disability amount is a non-refundable tax credit used to reduce income tax payable on your income tax and benefit return. This amount includes a supplement for persons under18 years of age at the end of the year. All or part of this amount may be transferred to your spouse or common-law partner, or another supporting person.

The disability amount is for those individuals who have a severe and prolonged impairment in physical or mental functions. You do have to file a form, of course, it is government and they thrive on paperwork. You file a T2201 Disability Tax Credit Certificate with Canada Revenue Agency (CRA); a qualified practitioner must fill out the medical portion of the form.

You are eligible for the DTC only if CRA approves the T2201 form. A qualified practitioner has to complete and certify that you have a severe and prolonged impairment and its effects. To find out if you may be eligible for the DTC, check out the self-assessment questionnaire which is on the T2201 form.

Do you receive Canada Pension Plan disability benefits, workers’ compensation benefits, or other types of disability or insurance? If so, this does not necessarily mean you will qualify for the DTC. These other programs have other purposes and different criteria for qualifying, such as your inability to work. You may not be able to work; however, your daily living may not be severely affected.

The DTC starts from the day the physical or mental impairment began. You can apply at any time and re-file any tax returns for years that the DTC would apply. For example, you apply for the DTC in 2013 for an impairment that began in 2010; CRA approves the DTC for 2010 and future years. You can now apply for an adjustment for tax years 2010, 2011 & 2012.

Some Definitions

Inordinate amount of time – is a clinical judgment made by a qualified practitioner who observes a recognizable difference in the time required for an activity to be performed by a patient. Usually, this equals three times the normal time required to complete the activity.

Life-sustaining therapy – You must meet both the following conditions: the therapy is required to support a vital function, even if it alleviates the symptoms; and, the therapy is needed at least 3 times per week, for an average of at least 14 hours per week.

Markedly restricted – You are markedly restricted if, all or substantially all of the time (at least 90% of the time), you are unable, or it takes you an inordinate amount of time (defined above) to perform one or more of the basic activities of daily living, even with therapy (other than therapy to support a vital function) and the use of appropriate devices and medication.

Prolonged – An impairment is prolonged if it has lasted, or is expected to last, for a continuous period of at least 12 months.

Qualified practitioner – Qualified practitioners are medical doctors, optometrists, audiologists, occupational therapists, physiotherapists, psychologists, and speech-language pathologists. The table below lists which sections of the form each can certify.

Significantly restricted – means that although you do not quite meet the criteria for markedly restricted, your vision or ability to perform a basic activity of daily living is still substantially restricted all or substantially all of the time (at least 90% of the time).

Type of impairment each qualified practitioner can certify:

Qualified practitioner:

Can certify:

Medical doctor

All impairments

Optometrist

Vision

Audiologist

Hearing

Occupational therapist

Walking, feeding, dressing, and the cumulative effect for these activities

Physiotherapist

Walking

Psychologist

Mental functions necessary for everyday life

Speech-language pathologist

Speaking

If you find yourself with any kind of a severe impairment, you need to look at the DTC. Currently (2017), the disability amount is $ 8113, which can be significant. Also, with the number of children being diagnosed with autism, you can have your child file a T2201 and will more than likely qualify for the DTC, which can then be transferred to one of the parents. Look at other potential disability credits that you may qualify for tax purposes too.

Automate Your Business to Grow!

By Randall Orser | Small Business

Mention "business process automation" and for most people, it’s the complex IT systems of the bigger business establishments that first come to mind. Yet the smaller businesses, even the start-ups and home-based enterprises, can make use of and benefit from business process automation.

What is Business Process Automation?

Business process automation refers to the use of technology and software applications in operating a business. It is the complete or partial automation of repetitive tasks and regular business processes so that labour is better utilized and costs are contained.

Tools to automate a business are aplenty: tools for accounting, inventory tracking, email marketing, order taking, customer relations, and many more. A good example is the automation of inbound calls to a company. Do you remember years ago when a telephone operator was a must for most firms? These days, callers interact with a voice response system that takes care of standard calls or inquiries and routes specific calls to the right person or department.

Benefits of Automating Your Home Business

Automation has become necessary for businesses of all types and sizes. Consider the following benefits you are bound to gain by automating your business processes:

1. Business process automation will save you time.

If you are a one-person operation, you can be freed from handling the everyday routine tasks and devote your time instead towards marketing and growing your home business.

2. Business process automation will cut down your costs.

By automating many of your processes, you can streamline your operations so you will not need to hire as many employees as you would if your operations were run manually.

3. Business process automation will minimize errors.

Human errors can be costly and can lead to financial losses or poor customer service. Automated accounting systems, for instance, guarantee accuracy in computations, ensure timeliness of sending billing statements and improve the efficiency of your inventory management.

4. Business process automation will help you manage information better.

As business owner, you need to be informed about all aspects of your business operation. With automation, information is sorted, classified, and ready for your retrieval anytime you need it.

5. Business process automation will facilitate communication.

With correct and timely information, you get to know exactly what your customers want. You can communicate directly with your customers to address their needs or resolve their problem with your product or service.

How You Can Automate Your Home Business

If you are not yet sure which of your business processes to automate and what automation tools to use, you may want to take stock of your various business processes and learn which can be automated. Make sure to break them down where needed so you can decide on the appropriate software or application.

Take for example your marketing process. You can break it down to the following tasks: generating leads, distributing marketing materials, sending out sales letters, following up on leads, conducting surveys, and gathering feedback. For lead generation, you can design your website to include a subscription form or an opt-in box where visitors can submit their contact information. The pooled data go to your mailing list, which you then feed to your email auto responder that will in turn generate automatic responses to the email inquiries or send out pre-scheduled messages, newsletters, or sales pitches to those in your customers’ list.

With the right apps on your website, you can engage in e-commerce and run your online store where everything is automated from the order taking to receipt of payment and processing of shipment. If you have affiliates or if you advertise on other websites, you can also monitor their performance using a tracking system. Your accounting system can incorporate bookkeeping, invoicing, inventory management, payroll, voucher preparation, and so forth.

In the end, it is a matter of identifying the unique needs of your business and choosing the appropriate business process automation tools. Depending on your budget and the degree of automation that you want, you can hire an IT professional to develop an automated system for you or you can purchase one of the many canned programs that are readily available. A few solutions that you can download for free are available if your needs are simple and your volume is low.

When to Hire an Accountant to do your Taxes

By Randall Orser | Personal Income Tax

Do you fill out your own tax forms, use a software program to file your taxes, or have a tax service do it for you? Each of these methods is a good option, but sometimes it is better to work with a tax preparer. A tax preparer has specialized expertise and knowledge of tax rules making them the perfect candidate to accurately complete tax forms.  The more complicated your taxes are, the more likely you will need the help of an experienced preparer. 

If expense is not a concern for you, having a tax preparer file your taxes for you may be the best decision. You shouldn’t have to worry about your taxes being filed correctly if you are working with an experienced tax preparer. You also don’t have to spend any time calculating details and filing tax forms yourself. Whether you fill out a one-page form or you have a stack of forms to fill out, a preparer will be able and willing to do it for you. However, if you don’t want to throw away your money, simple forms can be done with software programs, through a tax service, or on your own much less expensively.

If you have several sources of income, such as a side business, stock investments, income properties, and other income sources, it is a good idea to have a preparer do your taxes for you. These types of income sources can be very complicated and require several extra forms to be filled out. A good preparer will have experience with it and can ensure that it will be done correctly and efficiently. Filling out a mountain of different forms can be tedious and confusing. One mistake can carry problems throughout the forms. Have someone who knows what they are doing complete it for you. On the other hand, if you only have one W2 form, you should be able to do it yourself.

Whether or not you should have a preparer do your taxes depends on what forms you need to file and how confident you feel doing them yourself. If you like to speed through things and don’t like looking over your work, you could miss important deductions and make costly mistakes. A preparer will ensure things are done right. Precision and detail are important when filing taxes to avoid mistakes and penalties. The more complicated the forms are, the more precise you need to be. If you feel uneasy about it, hire a preparer to do it for you. With a preparer, you are paying for expertise, precision, and accuracy.

How Smart Entrepreneurs Manage Inventory

By Randall Orser | Small Business

Inventory management isn't exactly made for the highlight reel. When people think of entrepreneurs, they think of bold ideas, trailblazing, and making money, not counting how much of your product you have. But inventory management is as important as accounting or securing your patents. Not enough of your big product to go around? Too bad, you just lost a chunk of your customers. The two basic things that your product needs to be are "functional" and "available for purchase". Fail the second one and it doesn't matter how good your product is - you're going to lose money.

Proper inventory management involves more than good hiring practices and keep an eye on your products. There are a couple of problems you'll need to solve.

1. Tracking Your Inventory

The Problem: So you know how much you expect to sell. The problem then becomes figuring out how much you have available for sale. Human error can put the kibosh on your finances. Inventory miscounts can occur when they're sold, when they're received, or when someone decides to use their five-finger discount. You'll also have to take scrapped items into account.

The Solution: Bar codes and electronic data interchange can help make sure that everything is accounted for. While you can count your inventory daily, it can put your employees and your finances under severe stress. A good alternative is to count a few items at a time. Pick a few of your products and see if they match your records. Put more emphasis on your best sellers - count them more often.

2. Having Too Much

The Problem: Too much of a good thing can be a bad thing. Making too much product can result in storage and production costs eating into what could be your profit. Anything that sits on a shelf for long enough is at risk of being stolen, damaged, or even becoming obsolete. Old product is notoriously difficult to sell, which can result in unplanned discounts or hoping that the overseas markets have room for your old stuff.

The Solution: The first thing you should do is figure out how much you need to have and when you'll need to have it. Take a look at how your sales have been over the past year. Take note of any peaks and dips and figure out if those deviations are connected to specific events or seasons. You can also figure out if you have spikes during specific times of the month, such as at the end of the month.

3. Data Loss

The Problem: Your inventory is properly marked and recorded and you're ready to turn in when your computer suddenly shuts down and refuses to turn back on. You get the repair guy to come in, and he tells you that your hard drive is gone. What do you do?

The Solution: There are a lot of things that can compromise your data, from viruses to theft. So when the inevitable "bad thing" does happen, take a deep breath. Take a look at your backup copy, which you should have. When you update your main file, make sure to update the backup as well. Software is available to both automate the process and to make sure that your data is recoverable. You can also have another copy of the file available to someone who needs it regularly, such as your accountant.

4. Skewed Priorities

The Problem: Inventory checking, for the most part, is a manual task. Someone has to visually confirm the existence of your products and note it down. This takes a lot of time and effort, both of which increase as your company grows.

The Solution: Entrepreneurs know that the first thing to do when solving a problem is to figure out your priorities. In this case, the priorities should lie in your most important products. Figure out how your best items are doing inventory-wise. Make sure that they're always in stock and up-to-date. Then take a look at your second-best items and so on and so forth. While it is possible to cover all your bases, focus on making sure that the most important products are protected. Your resources and your personnel are not unlimited.

5. Misused Spreadsheets

The Problem: Spreadsheet programs are often used as a way to easily track inventory. Microsoft Excel and OpenOffice software are used as computer lists. The problem is that computer files can be lost or modified. Changes are difficult to track, and synchronizing files across multiple branches can drive you to insanity.

The Solution: Entrepreneurs know that you have to use the right tool for the right job. Go with accounting software that has built-in inventory management systems, such as Quickbooks Online (QBO); maybe use an app for inventory that links to QBO. They'll ensure that human error is minimized and even provide vital functions such as a centralized database.

Your inventory might not be the most exciting thing in your life as an entrepreneur, but it's no less important. Mismanaged stock can easily result in lost sales, lost customers, and lost profits. Keep an eye on your product no matter how boring it gets and it will pay off.

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