Category Archives for "Budget"

Small Business Loans for Women

By Randall Orser | Budget , Personal Finances , Small Business

Businesses owned by women account for about 38% of small businesses in Canada and they are the fastest growing segment of entrepreneurs.  Just like other small businesses they need borrowed capital to purchase inventory and other business needs and to grow their business.  Despite the growth traditional funding sources give fewer loans to women than men despite all businesses sharing the same challenges.

Here are some financing tips for women owners that might help them to prepare and qualify for a small business loan.

1.  Do not use your personal credit to pay for business expenses - although many small business owners use their own personal credit to start their business it is not a good long term strategy as the business grows.  While your personal credit might be sufficient to get you started when your expenses are low as your need for capital increases using your personal credit can become a problem and it does not help your company to build it's own strong business credit score.   It is a good idea to open business accounts with companies such as Staples, Home Depot and Lowes to help your business credit score.

2.  Ask your suppliers if they offer payment terms - although this maybe not as good as getting a business loan but in the early stages of your business establishing a strong credit profile with your suppliers will help you to secure a loan down the road.   Many suppliers offer a credit account to their customers and this is one of the best ways to start building a strong credit score, however it is important that they also report your good credit history to business credit bureaus. As this is so important you should always encourage your suppliers to do a report for you.

3.  Look outside your bank - most business owners will try to secure a loan from the bank where they already have their business account or personal account.  Although this seems to make the most sense those banks often have more stringent requirements for loans that new businesses cannot meet.  It makes sense to look into other options for loans from lenders who are will work with younger businesses and measure the health of the whole business rather than the personal credit score of the owner.  One suggestion might be the Business Development Bank of Canada.  Visit the Canada Small Business Financing Program for more information on loans for small businesses.

From an article by Ondeck.

Stay Alert and Recognize Signs that your Business may be in Trouble

By Randall Orser | Budget , Business , Small Business

As a business owner closing your company can be one of the hardest things you ever have to do.  But especially in these financially difficult times it is important that you recognize the signs of trouble early and prepare to deal with these difficulties early. Here are some red flags that can indicate that it is time to consider your options and what these may be:

1.  Dwindling Cash Flow - a shrinking cash flow is the most important factor that determines if a business is failing.  Financial experts say that having a cash reserve and a 13-14 week projection of future cash flow is critical to the business.  The covid-19 crisis has shown that many businesses did not have savings for a rainy day but were basically living from one payroll and rent payment to the next.  In addition many of the both large and small businesses that have filed for bankruptcy or a Companies Creditors Arrangement Act in the past few months were already financially distressed long before the pandemic started.   Many familiar companies are working with their lenders and advisers and considering restructuring to determine if they can continue to operate as a going concern.  

2.  Leaning on subsidies vs strategy - Do not rely on government subsidies to keep your business open.  There are over 300 different programs available federal, provincial and municipal and all require different guarantees, covenants and future repayment commitments.  Qualifying for subsidies may be just delaying the inevitable instead they should be used to help you to carry on with your business without this extra support.

3  Pressure from Suppliers - When the income flow slows companies are forced to extend their payables and manage their cash flows.  However if your unpaid bills are piling up and your suppliers make you pay COD or cut you off this is a serious sign that your payables have stretched as far as they can go. This may have been the situation for many businesses prior to the pandemic and it may quite likely be the same once the pandemic is over if your cash flow has not increased.

4.  Support from Lenders - If you have a bank loan or secured creditors that have taken assets as collateral you will need to generate enough positive cash flow to keep them happy.  If that is not possible even though your bank has eased restrictions and is offering an interest only loan then it is time to say that you are done.

5. Commitment to using your personal wealth - Many small business owners put their personal wealth on the line to finance their business so if they run into cash flow problems they have to decide how much more of their personal wealth do they want to commit to the business.  Even though entrepreneurs are usually optimistic, in this current climate they need to take a hard look and decide if their business is still viable.  

Even if you are seeing an number of warning signs the solution is not always bankruptcy.  It is a good idea to consult an insolvency professional as soon as financial problems are anticipated.  They will help you to explore all your options before closing the business which could include, finding an acquisition partner, forming a strategic alliance leading to a merger, or filing a holding proposal under the Bankruptcy and Insolvency Act.  In this situation your existing creditors are held in abeyance until you are able to put together a plan to sell your assets, or change your business model to become able to repay your creditors in the future.

From an article by Margaret Craig-Bourdin

Incentives are Key During Salary Freezes

By Randall Orser | Budget , Employees , Small Business

As companies are struggling to survive under the grip of Covid-19 employee salaries have been mostly frozen and instead of pay increases different ways have to be found to keep employees motivated.   Companies are currently conservative with their profit projections and approach to changes hence the salary freezes.  In 2020 more than 36% of Canadian organizations froze salaries in 2020 compared to the pre-covid forecast of only 2%.  This trend will probably continue into 2021 as 46% of employers expect to freeze salaries in 2021.

As most companies are conserving cash and not increasing wages here are three ways that they can mitigate repercussions on business performance and employee engagement.

1.  Offer Incentives such as flexible work hours, extra vacation days, training opportunities and employee assistance programs.  This will deter talent from seeing new opportunities and encourage loyalty and promote the notion of teamwork and that the company will succeed if everyone works together to move the company forward.

2.  Communicate clearly with employees so that they are clear about the reason for the salary freeze, how long it will be in place and how it will affect their workforce.  Communications with employees should be on a regular basis especially with employees who are working remotely.  This helps employees to feel less isolated and increases transparency so that they know what is happening with the company so that there are no surprises.  

3.  Companies that do not keep up with salary increases run the risk of losing their talent to the competition.  Businesses able to increase salaries are going to try and attract the best talent and that will impact organizations that have to freeze or roll back salaries.   Pandemic support such as the Canada Emergency Wage Subsidy have enabled companies to furlough or give a temporary leave of absence that will keep employees in their jobs.  They can return to work instead of being laid off ensuring that talent is not lost and the employee will have a job despite the bleak labour market.

According to a survey by Morneau Shepell 76% of employers have reported that covid-19 has negatively affected their bottom line and in 2021 salary increases are going to be dependant upon how quickly these businesses can recover.

From an article by Sophie Nicholls Jones 

Personal Finance Resolutions for 2021

By Randall Orser | Budget , Happy New Year , Investments , Personal Finances , Personal Income Tax , Retirement

As 2020 disappears into our rear view mirror and 2021 is upon us once again it is time to think about  our financial New Year's Resolutions.  As always it is best not to be too ambitious with your financial plans for the new year or you might be unable to stick to them.  Instead take a realistic look at your current financial situation and focus on quick and easy ways to manage personal finance tasks that will help you this year and in the future.  Here are some things to consider:

Top up your Emergency Fund - Financial experts recommend setting money aside for emergencies but even so most of us do not have an emergency fund.  Many people will have dipped into their emergency fund during 2020 so now is a good time to start rebuilding it if you are able to.  You should aim to have enough to cover your expenses for 3 to 6 months should you lose your job, enough to cover unexpected vehicle repairs, house repairs or medical expenses.

Contribute to your RRSP - This is a good time to open a RRSP if you don't yet have one.  If you regularly contribute perhaps you can increase your contribution in 2021 if you have enough room without over contributing.  

Sign up for Automatic Bill Payments - This will help you to not miss payments on your bills.  Include a minimum payment on your credit card which will avoid late payment fees.  Consider an automatic payment to your savings account from each pay check, what you don't have you don't miss!  It is usually easy to set up automatic payments on your bank's website.

Switch from a Bank that Charges Monthly fees to one with no Monthly Fees - There are many banks and credit unions out there that do not charge monthly fees for regular personal banking transactions.  Switching your account could save you at least $100 a year and maybe more.  If you don't want to change banks ask if your current one will waive your monthly fees.

Make Calls and Lower your Payments - It could be worth spending time calling your service providers especially for internet and cable to see if there is a way to reduce your monthly rates.   You should also look into the interest rates that you are paying on your credit cards and think about changing to a card with lower fees or cash back.  As most of us are not travelling at present it might be a good idea to get rid of your travel points credit card with it's high fees and change it to a regular card with a lower rate.  You could also try and negotiate a lower rate with your credit card company.

Update your Beneficiaries - Have you reviewed your will lately? This is a good time to make updates to your beneficiaries or any other information as your circumstances may have changed.

Check your Credit Report - Make sure that your credit report does not contain any errors or charges relating to identity theft as your credit score will affect your ability to get loans or lower rates on your credit cards.

Change your Passwords - It's a new year and time to change those passwords especially for your bank account and credit cards.  You should be doing this every three months but at least once a year will help to avoid identity theft.

Do a Subscription Audit - Take a look at your monthly subscriptions for streaming tv services, apps, news providers etc.  How many of these do you actually use?  If you have not used it for a while and don't intend to use it in the foreseeable future then deactivate it.  You can always reactivate it later if you need to.

Tweak your Budget - Though setting a budget can be intimidating it will help you to keep track of your spending.  If you are working from home and not spending money on Starbucks and lunches perhaps you could put that money into your savings account?

From an article by Mike Winters

Tips to Avoid the Post-Holiday Finance Blues

By Randall Orser | Budget , holiday season , online shopping , Personal Finances

Every holiday season we try to resist the temptation to overspend, but for those of us who are not successful, we have to deal with the post-holiday finance blues when the credit card bills arrive in January.  2020 has been a difficult year for all of us especially financially so this season it is important more than ever to stay within our budget.  Here are some ideas that might help you to keep your spending in line.

1. Pause before you act - remember last year and how long it took you to pay off those credit cards?  This year instead of splurging too much on gifts for your family and friends, consider making home made gifts, they are often more appreciated.

2. Set a budget and stick to it - according to the annual Holiday Spending Survey by the CPA only 39% of Canadians save all year for their holiday purchases.  Maybe you should consider doing this for Christmas 2021 but in the meantime make a sensible budget for gifts and food and stay to it.  Due to the pandemic it is expected that people will spend less in 2020 as they will not be going to parties and travelling, even so it will be easy to overspend on making your Christmas at home memorable.

3. Avoid credit at all costs - Most of us get a rude awakening in January when those credit card bills arrive especially those with high interest rates.  Even though stores may be offering you a discount on purchases remember if you have to pay high interest rates on their credit cards that discount can quickly disappear if you do not pay off your bill in full.  

4. Think about an app to track your spending - tracking your spending is essential to prevent going over your budget.  Even if you have set a limit it is so easy to overspend on gifts and and all the frills for an enjoyable holiday.

5. Be creative and responsible - People you care about do not want you to go into debt to give them gifts.  Instead overspending on gifts think about what you can do for them which may mean a whole lot more, such as babysitting, making them meals or treats, help with minor repairs or just spending time with them. 

6. Give younger kids experiences not stuff - Instead of giving them lots of toys that they easily become bored with, how about signing them up for sports, or giving them event tickets to use when the pandemic is over?  

7. Resist those Boxing Day sales - Shopping on Boxing Day is a bargain hunter's dream, but in reality many items can be found cheaper at other times of the year.  You need to have amazing willpower not to impulse buy even online.  This year most of us will not be going to the mall and the good thing about online purchasing is that you can do your research for the best price, and really think about whether or not you really need to buy the item at all. 

From an article by Mathieu de Larjartre

Canadians Plan to Spend Most of Their Seasonal Budget on Gifts

By Randall Orser | Budget , holiday season , Personal Finances

A 2020 holiday spending study by CPA Canada has shown that despite the pandemic shoppers have managed to save money for holiday gifts, and most people will be spending $588 this year compared to $583 in 2019.  In a normal year most people would be busy making lists and planning celebrations but this is far from a normal year and even though Covid-19 continues to ravage the economy most people have managed to set money aside for gifts even if they cannot celebrate with work colleagues friends and loved ones.

People will spend the most on gifts this year - To try and make up for this difficult year and treat themselves people will spend money on electronics, furniture and beauty products.  Old fashioned gifts such as board games will be popular as people will be stuck at home. 

Spending on entertainment will be down - The survey showed that 13% of respondents planned to spend nothing at all on entertainment outside of the home, and those who are venturing out plan to spend less than $200.  The usual Christmas socializing will not be happening, no corporate or personal Christmas parties, so there will be no temptation to overspend, for example on fancy clothing.  

There will be a lot less travelling - Travel is expected to take a big hit, over a third of respondents to the survey said they would not be spending anything on travel, 38% will be spending less than $200.  Travel can be a big expense for families at Christmas but most will be staying close to home this holiday season.

In person shopping will be down - Only 30% of respondents to the survey planned to shop in bricks and mortar stores and will be shifting to online options.  One in three people will be doing the majority of their shopping online compared to one in five in 2019.  Rushing around crowded malls to do last minute shopping will not happen for most shoppers this year, instead they have to plan their shopping online early in order to get  deliveries in time for Christmas.

It's ok to treat yourself - Financial experts say that Canadians should not be too concerned about treating themselves this Christmas as long as they do not go too far overboard.  After a tough year everyone should enjoy themselves at Christmas.

From an article by Margaret Craig-Bourbon

Will Wage Subsidies Help Retail Businesses?

By Randall Orser | Budget , Covid-19 , Employees , Retail , Small Business

Though the lockdown of last Spring was the right thing to do to keep people safe and flatten the curve, but it did a huge amount of damage to the economy.  Canadian retailers saw a 26% fall in sales during quarantine and 40% of retailers had to close their doors.  

Stores offering non-essential products and services such as clothing stores were the hardest hit, along with gas stations as people were no longer travelling.  However those selling essential goods found themselves thriving and even experiencing surging sales such as in groceries, home renovations, alcohol and cannabis.

Canadian retailers have been slow to transition to on-line sales but the pandemic has forced them to adopt e-commerce techologies to try and keep themselves in business and as a result e-commerce sales have more than doubled year over year.  Although it means that Canadian retailers face competition from others worldwide it also gives them the opportunity to expand their market share at home, especially if they sell niche products.  

In 2021 it is likely that retail business will still suffer a bumpy ride.  As we are seeing now there will probably be sporadic shut downs due to minor outbreaks but these are likely to be more regional.  During this time retailers can expect sales to fall and they will have to deal with high labour costs and the costs of having to comply with health regulations but it is hoped that on-line sales will be a stop-gap solution to keep them in business.

The federal government is continuing to support businesses by extending the Canada Emergency Wage Subsidy program into 2021, coving 75% of employees wages for those that are eligible.  This will help retailers to avoid bankruptcy and will give employees more disposable income to spend.  

Even with these new ways of doing business and federal help it is unlikely that many in the retail sector will survive another major lockdown.  However localized shutdowns will allow the majority of retailers to stay open and keep some revenue coming in until a vaccine arrives.

From an article by Ali Amad

Need Money? Should you Withdraw from your RRSP?

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

Most of us do not think about withdrawing from our RRSP until we retire, but in some instances it might make sense to cash in a portion of your savings early to help finance your studies, buy a home or help you get through financial difficulties during the present pandemic.  Here are some examples of times you might want to access your RRSP funds.

  • If you want to become a homeowner but you are finding it difficult to save up enough for a down payment, through the Home Buyers' Plan (HBP) you may be able to get the financial boost that you need.  Under this plan you can withdraw up to $35,000 from your RRSP to buy or build a home provided that you are a first time buyer (defined as not having owned a home in the four year period preceding a home purchase).  The amount that you take out is repayable over 15 years.  Repayments are made as a RRSP contribution designated as a repayment on your tax return.  If you don't make a repayment the amount required will be included as income on your tax return.  Contributions must be in the RRSP for 90 days before they can be withdrawn under the HBP.
  • If you want to further your education by learning new skills or training for a new career you can enrol in the Lifelong Learning Plan (LLP) that allows you to withdraw funds from your RRSP to fund your tuition and help with other costs.  The plan allows you to withdraw up to $10,000 in a calendar year up to a total of $20,000.  The funds have to be repaid over a period of ten years avoid it being included as income.  
  • If you have income volatility an early withdrawal might make sense. Only the HBP and the LLP allow you to withdraw funds from your RRSP tax free if you have no other income in the withdrawal year your tax rate may be low.  Alternatively you could move the money from to a TFSA without paying much tax.  In both your RRSP and TFSA you need to make sure when you are making withdrawals and paying back that you do not go over your contribution limit in a year.    
  • If you expect to have a clawback on your OAS and you decide to retire at 60.  In that instance your income will probably drop until you reach age 65 when you will start to receive your company pension, CPP, OAS and money from your RRSP.  As your total income at age 65 may exceed the OAS clawback limit ($79,054 in 2020) your OAS will be subject to a clawback and 15% tax.  It would make sense to withdraw money from your RRSP over these five years probably saving you a lot of tax.  If you don't need the money it might make sense to use your RRSP for income until you reach age 70 as each year you defer claiming your government benefits means that they will increase.

However you decide to use your RRSP you need to do it with caution bearing in mind that the intent of a RRSP is to contribute regularly to a fund and let the money grow over the years until you retire.  Don't forget that any withdrawals are taxable.

From an article by Margaret Craig-Bourdin

Think Carefully Before Lending Money to Relatives or Friends

By Randall Orser | Budget , Personal Finances , Retirement

In this time of Covid-19 it is important to consider all the implications of loaning money to friends or relatives. The pandemic has resulted in many Canadians having financial problems due to losing their job and they inevitably turn to friends and relatives to help them out.  Before you make the decision to loan them money you need to consider the following:

  •  It is important to put yourself first, especially now,  you need to ask yourself if you can really afford to lend money.  Everyone wants to help their friends and family but extending a loan should not cause you to be in financial straits.  It would be better for the loved one to consider applying for the various government programs available especially those for small businesses. You need to keep all the cash that you need and be prepared for the worst case scenario in your own circumstances.   You should not sacrifice your retirement plans to help your kids out even though you want to and you need to be realistic about the risk of not getting your money back.
  • Be prepared to never see your money again, the loan that you make may become a gift as even with their best intentions their circumstances may mean that they are unable to pay you back.  You could ask for collateral against the loan, but that depends on how far you are prepared to go to collect and also protect your relationship with that person. A parent who lends money to a child should also consider other family members and and view the loan not as a debt but as an advance on their inheritance.
  • Ask why they need the money, if you are advancing a loan then you should know why the money is needed so ask questions.  If you are loaning someone money to help maintain a lifestyle that they cannot really maybe it would be better to ask questions to understand their circumstances and advise them as to how they can reduce their spending.  You may be able to help in other ways rather than loaning money such as buying groceries.  
  • Set the terms, establish terms for the loan, specify the amount, the date the loan should be repaid or a repayment schedule and whether or not you will be charging interest. To secure the loan you could register an asset such as a debt free vehicle or the borrower could name you as an irrevocable beneficiary in a life insurance policy.  This makes it possible to protect the loan amount up front from other creditors for example in the event of bankruptcy.
  • Think twice about guaranteeing a loan, as this can be risky, you may end up on hook for not only the debt but the accrued interest.  A lender may not feel that they are involved in the loan if they do not provide the funds but in fact they are taking on a new debt obligation if the borrower defaults.  Be aware that your children may have their eyes on your assets and what they may inherit and may use emotional blackmail to get the money they want.  It can be difficult to say no to them if you have loaned them money before.  Even if you do help out especially to keep a business afloat, it may be a short term solution and the business may not improve its financial situation under the current circumstances and closing down may be inevitable.

If you seriously considering extending a loan to a friend or relative, it might be prudent to get some guidance from a professional beforehand.

From an article by Mathieu de Lajartre

Financial Literacy Lessons Should Begin Early in Life

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

For most of us money management was not a subject taught in our schools.  Today it is recognized that financial literacy should start at an early age and should be taught in schools.  The Ontario government recently announced that this would be a subject that would be included in the 2020 curriculum which would be a win-win situation for both children and their parents enabling children to achieve a more stable financial future.  Other provinces across the country are now also making financial literacy a priority in schools. 

According to Doretta Thompson CPA Canada's financial literacy leader, "financial wellness is a continuum from knowledge, to competency to confidence in making sound financial decisions". "Kids who learn the basics of budgeting, saving, credit and wants versus needs are better prepared to make good financial decisions through post secondary education and beyond." In BC a new provincial curriculum was introduced in 2019 after it was shown that a number of students were graduating with a lack of financial skills.

Experts believe that talking about money and financial management goes beyond dollars and cents, it is also about making choices and being aware of the trade-offs those choices require.  The classroom setting gives children the opportunity to ask questions about money such as creating a budget to allow them to save up for a toy.  It is important that teachers are comfortable teaching financial literacy especially if they are struggling in their own financial situation.

Teaching money management in school is a good foundation for kids to learn but it is important that parents engage with their children about what they are learning.  Other strategies for parents including giving kids an allowance and teach kids about spending and saving, involving them in family financial decisions where appropriate for their age and reviewing the kid's first pay stub to make sure that they understand about deductions and taxes.

Although it can be difficult for parents to discuss money with their kids it is a good idea to use every day examples to teach about money in a way that make it relevant to them.  Examples can pop up all the time such as when grocery shopping or getting gas. 

From an article by Ethan Rotberg

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