Category Archives for "Small Business"

How and When to File a Record of Employment

By Randall Orser | Payroll , Small Business

A Record of Employment (ROE) must be completed by an employer when a worker suffers a break in insurable earnings (from which EI payments are deducted) for seven consecutive days.  Reasons for the break in earnings can include being laid off, dismissal, illness or when the worker resigns.  The ROE must be submitted to Service Canada for the Employment Insurance (EI) program whether or not the worker intends to apply for EI.

There are also special situations when ROEs must be issued.  These can include a change in pay period, (even though the employees are not experiencing an interruption of earnings) or a change in ownership, unless there has been no actual break in employees’ earnings during the change-over, and the new employer agrees to issue a single ROE that covers both periods of employment should it be required in the future. A more comprehensive list of situations when a ROE must be issued can be found on ROE Guide on the Service Canada website.

There are two ways in which an employer can submit a ROE to Service Canada, each of which has it's own filing deadline.

  1. ROE in Paper Form - Part 1 of this must be given to the employee. Part 2 must be sent to Service Canada within 5 calendar days of the first day of the interruption of earnings.  The employer must retain Part 3 as well as the employee's payroll records for six years after the ROE is issued.
  2. ROE Submitted Electronically - the information is transmitted directly to the Service Canada database where it is used to process EI claims.  In this case the ROE must be issued five calendar days after the biweekly period, five calendar days after the end of a monthly pay period, or fifteen days after the first day of the interruption of earnings.

Should the ROE be incorrect, or it needs to be updated the employer can submit the amended ROE either in a paper copy or electronically.

Employers should refer to Service Canada’s website for more information. 

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Accounting Terms Every Businessperson Should Know

By Randall Orser | Small Business

This glossary of accounting terms will get you up to speed if you’re new to business. A big part of understanding the financial side of your business consists of nothing more than learning the language of accounting. Once you’re familiar with basic terms, you’ll be better prepared to make sense of basic written reports and better able to communicate with others about important financial information.

ACCOUNTING is a general term that refers to the overall process of tracking your business’s income and expenses, and then using these numbers in various calculations and formulas to answer specific questions about the financial and tax status of the business.

BOOKKEEPING refers to the task of recording the amount, date, and source of all business revenues and expenses. Bookkeeping is essentially the starting point of the accounting process. Only with accurate bookkeeping numbers can meaningful accounting be done.

An INVOICE is a written record of a transaction, often submitted to a customer or client when requesting payment. Invoices are sometimes called bills or statements, though the latter term has a separate meaning, as explained below.

A LEDGER is a physical collection of related financial information, such as revenues, expenditures, accounts receivable, and accounts payable. Ledgers used to be kept in books preprinted with lined ledger paper -- which explains why a business’s financial info is often referred to as the “books” -- but are now commonly kept in computer files that can be printed out.

An ACCOUNT is a collection of financial information grouped according to customer or purpose. For example, if you have a regular customer, the collection of information regarding that customer’s purchases, payments, and debts would be called his or her “account.” A written record of an account is called a statement, as explained below.

A STATEMENT is a formal written summary of unpaid, and sometimes paid, invoices. Unlike an invoice, a statement is not generally used as a formal request for payment, but may be more of a reminder to a customer or client that payment is due or that payment has been made.

A RECEIPT is a written record of a transaction. A buyer receives a receipt to show that he paid for an item. The seller keeps a copy of the receipt to show she received payment for the item. Receipts are sometimes called sales slips.

A BALANCE SHEET is a statement listing a business’s assets, liabilities, and net worth, or equity (the difference between the value of the assets and the liabilities).

ACCOUNTS PAYABLE are amounts that your business owes. For example, unpaid utility bills and purchases your business made on credit would be included in your accounts payable.

ACCOUNTS RECEIVABLE are amounts owed to your business that you expect to receive. Accounts receivable include sales your business made on credit.

BAD DEBT is money owed for a business debt that cannot be collected; it can be deducted as an operating expense.

NET INCOME is gross income less expenses; it represents a business’s profit for a given year.

The ACCRUAL METHOD of accounting accounts for income and expenses that are earned or incurred within the 12-month period, which is not necessarily when it is received or paid. (For more information, see Cash vs. Accrual Accounting.)

The CASH METHOD of accounting accounts for income and expenses when actually received or paid. (For more information, see Cash vs. Accrual Accounting.)

DOUBLE-ENTRY ACCOUNTING is a system of accounting that records each business transaction twice (once as a debit and once as a credit).

Why Your Company Needs a Minute Book

By Randall Orser | Small Business

When you decide to incorporate your company there are many things that you need to do, but one of the most important tasks is setting up a Minute Book.   The business registry does not require you to set one up but as a business owner you are responsible for creating one and updating it annually or if there are changes to the company for example in shareholder information.  With the right amount of information, creating a Minute Book is not such an intimidating task. 

Your Minute Book is comprised of important company documents including:

  • Your articles of incorporation
  • Minutes of shareholder/director meetings
  • Annual filings /Financial Statements
  • By-laws
  • If you are selling your company a potential buyer will want to see your Minute Book
  • If you are transferring ownership, a Minute Book is necessary to prove your ownership of the company.
  • If you want to apply for a bank loan they will want to see your Minute Book
  • If you want to purchase property, you will have to provide your Minute Book before the transaction can be completed.
  • Potential investors will want to see your Minute Book to help them decide if they want to invest in your company.
  • In a partnership the Minute Book will keep a record of how much of the company is owned by each partner and any major decisions that have been made. This protects you if there is ever a dispute between the partners or if one wants to dissolve the partnership.
  • Your accountant will require your Minute Book in order to correctly prepare your Tax Returns.
  • Government agencies will request your Minute Book for information and will inflict penalties if you are unable to produce one.  

It is always best to have your Minute Book already prepared to meet any of these situations.  If you rush to put one together you can miss important information or put inaccurate information into the Minute Book, which could cost your company money.  For more information visit:


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Why Your Business Needs Financial Statements

By Randall Orser | Small Business

Why do I need a financial statement? is a question that bookkeepers and accountants are asked many times by clients.  There are three main reasons why your business needs a financial statement.

  • It is a measurement of how well your business is doing today, has done in the past and what it expects to do in the future.  Investors and potential investors look at financial statements to assess the management of the company and the viability of the business.      They also use a financial statement as a starting point to forecast the company’s future performance.  Lenders look at the financial statement to assess a business’s ability to repay debt.  The financial statement can also decrease the costs that a business may have to pay for capital, seen in lower return rates for investors and lower interest rates from lenders. 
  • You are expected to have financial statements especially by your bank.  Your financial statement assists in bridging the information gap most lenders will not even consider a loan application without up to date financials.  Bankers are notoriously unsympathetic to the stress put on entrepreneurs trying to get their business off the ground and providing an up to date financial statement will make it easier to deal with them.
  • Financial Statements are required by the CRA.  To file corporate tax returns Canadian corporations are required to produce financial statements.   If a corporate tax return is not filed within three months of the corporation year end interest on taxes begins to accrue. Within six months significant late filing penalties are also charged.  In order to avoid these extra costs, it is important to have a financial statement prepared on at least a yearly basis. 

As a business owner, financial statements are vital information for you to make business decisions.  You need to review more than your bank statements to see if you can afford to invest money back into your business.  Having a financial statement will also help you to keep all your information neatly organized for tax time.   

Just having a financial statement is not enough!  You must make sure that you are reviewing your statements regularly.  This will help you to catch mistakes earlier, detect fraud, theft or other illegal activities within your business.  Even if you have a bookkeeper or accountant to do your books you still need to be involved and watchful for any discrepancies.  

Bookkeeper vs CPA – Why you Need Both

By Randall Orser | Small Business

Many people outside the financial sphere have understandably never felt much need to absorb the various terms we throw around, even the basic ones. For instance, you might not have a grasp of the actual differences between a bookkeeper and a Chartered Professional Accountant (CPA). After all, they're both professionals who work with small business that need to outsource critical accounting tasks. But there are some important distinctions to be made between these two types of specialists, and ultimately, you're well advised to make extensive use of both of them for your business accounting needs. 

CPA firms tend to take on big, complex issues that routinely plague businesses of all sizes. These may include tax advice and tax return filing, counseling on what type of structure the business should adopt (proprietorship, partnership, LLC, corporation), in-depth financial reviews, and preparations for loan applications. These are the specialists you rely on for major transitions and CRA transactions. By contrast, full-charge bookkeeping firms help you handle those routine but critical day-to-day accounts receivable and accounts payable issues, including payroll calculations, bank reconciliations, journal entries, and internal financials.

Too many businesses try to get by without a bookkeeping firm by simply throwing together a rough approximation of their financial details and handing that to their CPA firm. This places an undue burden on the CPAs, forcing them to work harder and longer to make sense of your books. A CPA's billable time usually comes at a premium, so you pay proportionately more for their extra efforts. If you've been getting by in an effort to save some money, you would be better off hiring a professional bookkeeping firm to handle your financials. You'll receive smaller bills from your CPA while making better use of your own team's valuable time.

Renting Out Your Mortgage Helper? – The Taxman Cometh

By Randall Orser | Business Income Taxes , Personal Income Tax , Small Business

Once you start renting out that mortgage helper you will need to include rental income on your tax return, using form T776 Statement of Real Estate Rentals.

You must keep accurate records of your rental income and expenses each year and retain them for six years.  These records help you figure out your net profit for the year. The tax you pay will depend on the net income from the rental; any losses will be deducted from your other income and if you have no other income will be carried forward to the next year. Whether a long-term or short-term rental, most rental receipts are considered income for tax purposes.

If your mortgage helper is for a parent, grandparent, or sibling, they are considered a ‘related person’. You may still have to report the income as rental income, however, if you’re renting below fair market value, you won’t be able to write-off any losses, and will have to report the income differently. 

Airbnb is a big thing now, and you need to realize if you’re doing this regularly, then you need to claim it as rental income. You get the same expenses as if it was a long-term rental, plus you can write off bedding, towels, and soap etc. that you use exclusively for this rental. If you supply meals, then the income may be considered business income and not rental income.

Your mortgage helper can definitely help pay for the mortgage and make your dream home more affordable. With experience, managing the rental side does get easier. Finding a good property manager, lawyer and tax preparer can help you manage the details.

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Thinking of Renting Out Your Mortgage Helper? – Here are Some Things You Should Know

By Randall Orser | Small Business

Before You Rent Out That Mortgage Helper, here are Some Tips

You’ve been able to buy that new home you want, and it came with an income suite, which can be financially fruitful. To be a good property manager, you should manage your rental as you would a business, which means you need to be an able planner and keep good records (especially for the taxman).
For a first-time landlord, renting out your house to an outsider can be quite the challenge. The following three items are things you should know before renting out that mortgage helper.

Keep Your Property Presentable
You must keep up the property in a tidy manner, no one wants to rent a messy place. You may also get a higher rent if you maintain the property, and keep it looking nice. Your renters will feel more confidence that you are a professional landlord when the residence is maintained. If something needs repairs, fix it, clean up the floors and walls and keep up the landscaping; this makes your rental much more attractive to potential tenants. 
Rental properties will need periodic repairs. If you’re not handy yourself, it is a good idea to find a local handyman you can rely on when needed. Your job as a landlord will be much easier if you can find reliable professionals you can call on when needed. Yes, it’s going to cost you money to maintain the property, however, it could cost you more in lost tenants. Plus, you get to write off minor repairs off the rental income.

Always Get it in Writing
That old adage is never truer than when being a landlord. You need to have a tenancy agreement, though there is no standard agreement you must use. You can look at one of those online law documents services and grab one from there, or chat with a lawyer that specializes in rentals. If you decide to just create your own, it is advisable to have a lawyer check it over for its legality. 
You should include the following details in any tenancy agreement:

  • Start and end date of the rental term
  • Security deposit amount
  • Monthly rental amount
  • The date of the month the rent is due
  • Acceptable methods of payment
  • How rent should be paid
  • If you are allowing direct payments into your bank account, you need to note on the form your bank details.
  • The number of keys you are giving the tenant
  • Who is responsible for utilities and maintenance
  • Any additional fees and disclosures

Depending on your particular circumstances, you may want to incorporate other terms you deem appropriate.

  • Pre-tenancy application form
  • Security deposit receipt for

It may be a good idea to contact a property law specialist to help create the tenancy agreement to your particular needs. The lawyer will be over legal disclosure requirements and explain how insurance can curb your liability.

Acquiring Great Tenants

At the beginning of a successful landlord-tenant relationship you need to get the right tenants. To find financially suitable applicants for your property seek the help of a credit check agency and ask for references from previous landlords.   After that, there are tools that can help you locate good tenants. Look for a local property investment association, as this can be a great resource for networking with other landlords. You’ll be able to get tips, and share yours, that you and they have learned over the years.

Employees or Contractors? Which Makes Better Sense for Your Business?

By Randall Orser | Small Business

Different businesses like to handle their staffing needs in different ways. Some prefer to keep a consistent team of permanent employees, while others are perfectly content to hire contractors on an as-needed basis. Both scenarios can make sense, but don't expect to impact your finances in the same way. Here are the respective pros and cons: 

Contractors-- If you're not determined to keep the same people on the job indefinitely, and you're willing to keep re-filling it as needed, hiring contractors can be a big money saver for your business. That's because you don't have to pay state unemployment compensation, worker's compensation, or half of the contractor's Social Security and Medicare taxes, as you would for an employee. You're also off the hook for many of the standard types of lawsuits filed against employers by employees. On the negative side, you arevulnerable to the personal-injury lawsuits that worker's compensation is designed to prevent. 

Employees-- Employees usually cost more to maintain than contractors. In return for the job security and benefits you're providing, you can offer a substantially lower hourly wage for the same work. You may also save on training-related expenses because you only have to train a permanent employee once, as opposed to constantly training an ongoing parade of new contractors. But you'll also have to pay your portion of Social Security and Medicare taxes on each paycheck, maintain worker's compensation, and pay state unemployment compensations. 

There is no "better" or "worse" in choosing to hire employees vs. contractors; ultimately, you have to weight the financial pluses and minuses against the qualities that will help your business run better (which also affects your bottom line).

If you want to make your new business a more prosperous one right from the beginning, assemble your bookkeeping and CPA team, hire the types of workers most likely to help your bottom line bloom, explore your eligibility for special ACA health insurance options, and talk to your financial team about any upcoming franchise taxes. Get your financial ducks in a row right now, and your business is more likely to enjoy a smoother glide toward success!

Starting Your Own Business – Sole Proprietorship, Partnership or Corporation?

By Randall Orser | Small Business

Once you have decided to take the plunge and start your own business, the next step is to decide upon the structure of your business.  In Canada, there are three kinds of business structure. Sole Proprietorship (one owner), Partnership (2 or more owners), and Corporation.  

With a sole proprietorship, you would be fully responsible for all debts and obligations related to your business and all profits would be yours alone to keep. As a sole owner of the business, a creditor can make a claim against your personal or business assets to pay off any debt. 

A partnership is a good business structure if you want to carry on a business with a partner and you do not wish to incorporate your business. With a partnership, financial resources are combined and put into the business. You can establish the terms of your business with your partner and protect yourself in case of a disagreement or dissolution by drawing up a specific business agreement. As partners, you would share in the profits of your business according to the terms of your agreement. If you wish to share profits or losses with your spouse, then you must form a partnership; CRA will not allow a split of profit or losses otherwise.

Another type of business structure is incorporation. Incorporation can be done at the federal or provincial/territorial level. When you incorporate your business, it is considered to be a legal entity that is separate from the shareholders. As a shareholder of a corporation, you may not be personally liable for the debts, obligations or acts of the corporation. When making such decisions, it is always wise to seek legal advice before incorporating.

Buy Assets for Your Business Now to Take Advantage of the Capital Cost Allowance

By Randall Orser | Small Business

As we’re coming up to the end of the year, it’s time to think about year-end. Even if you have a fiscal year-end other than December 31st, this is still something to think about. You’re probably looking at buying a new piece of equipment, or furniture, or such and wonder when I should buy such items. Now or at the beginning of the fiscal year? 

I say buy assets when you actually need them, and just a bit before so you have them ready to go when production gets ramped up, they’re ready to go. You might need to add a new computer for new staff or just figure it is time to upgrade (I like to upgrade my laptop every 4 years). You should be proactive in your asset purchases so that you’re not running into a lag time as you don’t have the asset ready.

For tax purposes, it’s always better to buy them before the year-end and get them ready to function. Why? The half-year rule that Canada Revenue Agency (CRA) has in place for asset purchases. Let’s say your fiscal year-end is December 31st, and you need new computers. If you wait until January to buy them the half-year rule applies and for that whole year you only get to write off a percentage of ½ that asset. If you buy it in, say, November, the ½ year rule applies, but then you still get the capital cost allowance on ½ the amount then the next year on the full amount. 

If you’ve just started your business this year, then the CCA is prorated based on when you started the business. For example, Jane starts a business on June 1st and her first fiscal period ends on December 31st. She calculates her CCA to be $3,500. Since Jane’s fiscal period is only 214 days, the amount of CCA she can claim is limited to $2,052 ($3,500 × 214/365).

As your business grows and you need equipment, etc. it’s always best to buy assets as you need them and not worry about depreciation expense. Not buying something could actually end up hurting your business as it could slow down production or your productivity.

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