COVID-19: Understanding Emergency Options for Small Business & Entrepreneurs

COVID-19: Understanding Emergency Options for Small Business & Entrepreneurs

UPDATED April 8, 2020*

Has COVID-19 impacted your small business? Probably!

If not, you’re in the minority. There are very few industries that haven’t felt the strain caused by the coronavirus. Even “essential” businesses that remain open like grocery stores have needed to make some significant changes, like adjusting for supply chain demands, increasing health and safety precautions, and working long and exhausting hours as people panic shop for food and supplies.

If you own a “non-essential” business, however, you have likely been forced to shut down operations until further notice. The Ontario Government issued a State of Emergency, releasing a list of all non-essential businesses on March 24th. That list is being updated as circumstances change. (To find out if your business is considered non-essential, check this list).

No one knows just how long we’re going to be physically distancing and that’s putting incredible strain on small businesses. Thankfully, the government is offering some ways you can augment your income and help support your small business throughout the crisis.

Federal Support – Canada Emergency Response Benefit

On March 25th, the federal government announced they were streamlining their emergency benefits programs into a single benefit, the Canada Emergency Response Benefit, or CERB. This $24-billion fund will deliver money straight to Canadians who have either lost employment or had their income significantly curtailed because of COVID-19.

The benefit pays up to $2,000 a month ($500 weekly) for up to four months. To qualify, you must live in Canada and be 15 years or older to apply. You also need to have made more than $5,000 in 2019 and the reason you are out of work must be a result of COVID-19. You must reapply each 4 week period and your first application has to include a 14 consecutive day period where no employment, self employed income or maternity/paternity benefits are earned. Each subsequent application will require no income from these earlier noted sources have been earned throughout the 4 week period. The program will be until October 3rd, 2020.

As of today, April 6th, you can start to apply for the benefit, but because they’re expecting so much demand, they’ve created a system based on your birth month, so as not to overload their system:

  • People born January, February, March – apply on Mondays starting April 6th
  • People born April, May, June – apply Tuesdays starting April 7th
  • People born July, August, September – apply Wednesdays starting April 8th
  • People born October, November, December – apply Thursdays starting April 9th

On Fridays, Saturdays, and Sundays anyone can apply.

You can apply for CERB through either Canada Revenue Agency or Service Canada.

Other Support

Unlike EI, which has strict requirements, the criteria for applying for the CERB are much broader. If you applied for EI after March 15th, your application will be automatically transferred to the CERB program.

There are other federal measures currently in the works for businesses, including the Canada Emergency Wage Subsidy, which would cover 75% of salaries for qualifying businesses (ones that have lost at least 30% 15%* of their revenue compared to last year) for up to three months. There is also another program currently in place, Temporary Wage Subsidy for Employers, that covers 10% of remuneration, paid from March 18th to before June 20th.

Another way the federal government is helping businesses manage the tax burden is by allowing businesses to defer the payment of any income tax (until August 31st) owing on or after March 18th and before September 2020. There will be no interest or penalties on those amounts between those periods.

There are many other programs the federal government is putting into place to help businesses, industries, and individuals manage throughout the COVID-19 crisis. You can find more about them here.

Provincial Support

The Ontario government is also helping small businesses during this time. They’ve announced several measures to help mitigate the impact of the crisis, and there are more on the way.

Currently, there’s a provincial tax deferral on the Employer Health Tax, Tobacco Tax, Fuel Tax, Beer Tax, Mining Tax, and other provincially-administered taxes until August 31st. These deferrals will be without interest or penalty. WSIB premiums will be deferred until August 31st as well. The Employer Health Tax exemption threshold will be increased to $1-million for the next year, and property tax reassessments being conducted for the 2021 tax year have been postponed.

Another support measure that will help individuals, small businesses, and families is a drop in electricity prices, which have been placed at “low peak” for all hours.

Further Measures

An additional COVID-19 measure being planned for the near future is an interest-free loan program offered through Canadian banks for small businesses. Currently, the federal government and banks are still hammering out the details of the program, which will provide small businesses interest-free loans of up to $40,000 until the end of 2022. These loans will be guaranteed and funded by the federal government, up to $25-billion. To be eligible, small businesses must prove they had an annual payroll of $50,000 to $1-million in 2019.

Up to 25% of the loan (up to $10,000) will be forgiven so long as the borrower repays the balance before December 31st, 2022. If a small business is unable to pay back their loan by the end of 2022, the loan will then be converted to a three-year loan at a 5%-interest rate.

Emerging Updates

While these measures are going to be very helpful to individuals and small businesses all over Canada and Ontario, they will not solve the economic crisis. With record levels of unemployment due to COVID-19 layoffs and an unstable stock market, it’s going to be months at best before we get a firm grip on the full financial implications of the pandemic. However, until that point, we do have these measures to help us navigate the situation and keep our businesses afloat.

If you find yourself confused about how these emergency financial measures will impact your personal and small business bottom line, contact The Number Works today. We can help you understand your numbers so you can weather the storm and come out the other side.

Managing a Small Business During the Coronavirus Pandemic

Managing a Small Business During the Coronavirus Pandemic

Are you worried about the impact of COVID-19 on your small business?

Probably! This is a tough time for all of us!

In just one week, it seems like everything in the world turned upside down. COVID-19 has had an unprecedented effect on our society in modern times, with social distancing being practiced on a mass scale to prevent the rapid spread of the virus. This situation has forced small businesses all across the country to either temporarily close or dramatically change their daily operations.

Like all Canadians, we’re watching all of the new developments of COVID-19 with rapt attention—and especially those that impact Canadian businesses. From the stock market crashing to bars and restaurants being closed indefinitely, it’s currently a scary state of affairs.

What’s important to remember, however, is that this *is* temporary. Things will likely swing back to normal (or close to normal) in a few weeks or months. When that happens, you want your small business to be in a position where it can rapidly bounce back from the damage caused throughout the crisis.

Here at The Number Works, we don’t have all of the answers, but we can certainly provide some financial advice that might help you navigate through these challenging times.

You Still Need to Think About Your Taxes

The good news is, we’ve all gained more time this tax season. The CRA has deferred filing due dates as a result of the hardships of the COVID-19 pandemic. Individuals (other than trusts) now have a due date of June 1st, 2020.

If you’re expecting to receive benefits under the Goods and Services Tax credit (GSTC) or the Canada Child Benefit, we encourage you not to delay filing as those credits will surely come in handy during these times.

Trusts with a taxation year ending on December 31st, 2020 now have a filing due date of May 1st, 2020.

The CRA will allow all taxpayers to defer until after August 31st, 2020 the payment of any income tax amounts that become owing on or before September 2020. This relief would apply to tax balances due, as well as instalments, under Part I of the Income Tax Act. No interest or penalties will accumulate on these amounts during this period.

Even if you aren’t expecting tax credits, now while there’s some downtime is a great opportunity to get organized and move on your taxes. Please get in touch with us if you need any help.

Communicate With Your Customers

Whether your business usually operates out of a brick-and-mortar location or not, now is the time to communicate with your customers online. Use social media and, if you have a collection of email addresses, a newsletter system to reach out and keep your clients informed.

If you haven’t already done so, it’s also a good idea to send out an email addressing COVID-19 and any changes that your business is making. That might be to business hours, operations, sanitizing, or any kind of safety adjustments.

If you’re stuck at home, you could spend some additional time every day working your business’ social media accounts. By commenting and interacting with your customers online, you’ll be engaging with them just as much (if not more) than you did in person. This strategy can be essential to keep your customer relationships secure throughout the crisis.

Put Your Focus Online

Shifting your focus online at this time might be the only way to “keep in business.” While we’ve already mentioned email and social media, there are other ways to engage with your customers digitally. For example, your website.

If you haven’t updated your website in months (or even years), this is the perfect opportunity. There are going to be more people online than ever over the next few weeks, so you want to be putting your best foot forward. Polishing up the webcopy on your site, posting updated photography and graphics, updating your news or blog, or giving your website a full facelift can be excellent ways to improve your business while you’re stuck at home.

Even better, these improvements will pay off even after we’re all safely back at work!

Work On Your Future Plans

At times like these, it can be difficult to remember that things will get better. But as a small business owner, you need to keep an eye on your future plans now.

If you haven’t already got one, now is the time to implement an emergency savings system for your business. Think about how you can put away savings for your business so that in case of any future emergency, you have some money put away for a rainy day.

There’s really a lot of planning you can do right now, while things are slow. By taking some steps today to refine your product line, generate new marketing campaigns, and reexamine your finances, you can put yourself in an even better position when everything has reopened for business. And if you need any help with the financial side of that, we’d be happy to help!

Bringing It Home

Just like every small business across Canada, The Number Works is having to adapt quickly to everything that’s happening. We may be working from home, but that certainly doesn’t mean we’re lounging around in our PJs! We’re crunching the numbers and helping out our clients wherever we can to weather this storm.

If you’re looking for some help with your tax returns, bookkeeping, or simply want someone to take a look at your finances, The Number Works would be happy to help. Contact us today, and we can get started helping you manage your small business’ finances throughout this pandemic.

First Time Filing Your Taxes as a Small Business Owner? This is What You Need to Know!

First Time Filing Your Taxes as a Small Business Owner? This is What You Need to Know!

Have you already completed your taxes for your small business?

Chances are that you just let out a big sigh, followed by “…no.” Well, don’t worry! You still have some time before you need to get your business and personal tax returns to the CRA. Of course, you might also be incredibly busy between now and then—after all, running a small business is one of the most stressful jobs you can have!

If you’re concerned about filing your small business taxes, here are some of the things you need to know, from the professionals here at The Number Works!

What Actually Is a Small Business?

A small business can be just about anything that brings you income. If you’re self-employed, then you have a small business, even if it isn’t incorporated.

That said, the structure of your small business will play a significant role in how you file your taxes.

If you’re self-employed, then everything can be filled in the T2125, Statement of Business Activities form. This form informs the CRA of your income and deductions.

If, on the other hand, you’ve incorporated your business, you’ll need to file a separate return. This is a Corporate Tax Return, or a T2, for the business. All of your business’ income and deductions end up in this return.

You must know the forms that you need to fill out. The last thing you want is the CRA knocking at your door because you didn’t fill out the right ones. If you’ve filled out your small business’ taxes in the previous few years, you can likely use them as a template. If this is your first time filing your taxes as a small business, then you might need a little bit of help (which we would be thrilled to provide).

The Importance of Keeping Records

The main reason why so many people have a difficult time during tax season (when it comes to both their business and personal returns) is because of poor record-keeping.

When you are running a small business, you can’t just keep shoving all of your receipts and invoices into a shoebox sitting under your desk (you shouldn’t be doing this with your personal taxes either, FYI). Instead, it would be best if you made sure that your books are being kept up-to-date continuously, with detailed financial information.

Maintaining the books is one of the reasons why many small business owners hire a bookkeeper year-round. We can ensure that everything will be exactly where it should be. A professional bookkeeper makes tax time a snap, as you don’t need to dig through dozens (or even hundreds) of documents to find the ones that you need.

The Structure of a Self-Employed Tax Return

There are three parts to a self-employed tax return: Identification, Business Income, and Business Expenses.

Identification is simply the details about your business, including its name, address, industry code, information on partners or co-owners, and the fiscal period you’re covering (usually the fiscal year). You likely have all of this information readily on hand, so this section is typically a piece of cake to fill out.

The business income is precisely that—this section is where you are putting the income you’ve gotten from your small business. It’s important to remember that this is your gross income before you calculate your experiences. You will be putting your expenses in the next section.

The business expenses section is the place you list all of the expenses that you built up while running your business. Here, you can include things like office supplies, marketing, vehicle expenses, and meals (50%). If you have no experience filling out your small business’ taxes, this section can be tricky because you might not know which deductions you qualify for—that’s where we come in. At The Number Works, we know all of the deductions that you’re eligible for. In fact, the money you save on your dedications can often cover the cost of hiring us to do your taxes!

Common Mistakes or Assumptions

New small business owners often make mistakes or assumptions about their taxes. Here are some things to keep in mind:

First, it doesn’t matter how much money your business makes, you still need to file a tax return. Some people think that if their business doesn’t bring in any income, then they don’t have to do their taxes. This is most definitely not the case! After all, many businesses fail to show a profit for the first few years in operation. If that is your situation, then you can often deduct the loss to your other forms of income. So, don’t make this mistake!

Another belief is that if you make less than $5,000 a year, you don’t have to file your income taxes. Again, this is a misconception. You need to consider Canada Pension Plan contributions and other factors. It doesn’t matter how much money you make, you still need to file.

Finally, it doesn’t matter if you are a student or not—you need to file a tax return if you are self-employed or own a small business. This can be tricky as students are often overworked and have little time. Many rely on their parents to file their returns, but this can be a big mistake. It’s best to get involved with your taxes at a younger age, so you don’t feel overwhelmed when it falls to you to complete them in the future. We can help you learn what you need to make sure you’re better prepared to handle your taxes once you graduate!

The reality is that nobody likes to do their taxes, either small business or personal. It’s stressful, takes up a ton of time, and one mistake can result in months of headaches. At The Number Works, we do whatever we can to help small business owners take care of their taxes so they can instead focus on the job of building their business. Contact us today to get some help doing your taxes. But do it soon, as filing deadlines are coming up fast!

Your Accountant is Here to Help: Just Ask!

Your Accountant is Here to Help: Just Ask!

How often do you speak to your accountant?

For some people, their accountant is this borderline-mysterious figure that appears once a year to help with their taxes. You rarely have face-to-face or even telephone contact with them. You simply send off your financial documents and, poof, taxes are done. They’re like a reclusive math wizard that you met on the internet!

As flattering as it is being considered a “wizard,” at The Number Works, we have a slightly different idea about what an accountant and bookkeeper should be to your business. We are a resource that can do much more for you than just your taxes—

although that’s super important.

With our help, you can launch a new business, reduce costs and expenses, set up your accounting software, and get a ton of busywork off your plate. All you need to do is ask!

Startup a Startup!

If you’re an entrepreneur who is looking to build a brand new business from the ground up, getting your financials in order can be one of the most daunting things on your to-do list.

You need much more than just a good idea to start a business. You need to identify your startup costs, plan your operating costs, figure out your business’ legal structure (sole proprietorship, LLC. etc.), and work out the fine details of your business plan.

One of the best things about bringing your accountant into the earliest stages of your business planning is that they’ll be there from the very beginning. As your business grows, your accountant will already know everything about the company. In times of financial difficulty, they’ll be able to help guide you with expert advice. Plus, in the event of an audit or other financial challenges, you can rest assured that your accountant will already have detailed records on hand from the very start.

Set Up Accounting Software

As accountants, we have a love-hate relationship with spreadsheets. It’s just part of the job! But if you’re keeping all of your finances in Microsoft Excel, then you need to get with the times.

Setting you up with online accounting software is another service that accountants can offer in the earliest days of entrepreneurship. It’s also a valuable service at any stage in the life of a business. With cloud-based accounting software, you and your accountant can access your finances from anywhere at any time. With professional features ranging from customized reporting and analysis to rock-solid security, setting your business up with a cloud-based system like QuickBooks Online, Xero, or Wave can be more than a worthwhile investment.

The trick is finding an accountant who can recommend the best platform for your business or one who is already familiar with the program you want to use. That way, they can rapidly import all of your current financial information into the system. All that work could take days if you’re doing it yourself. But if you hire a professional accountant to do it, everything will be ready in no time at all!

Reduce Costs and Expenses

Running a growing business is complicated. There are so many moving pieces that even the business’ owner might not be fully aware of how everything works.

An accountant can help you get a grip on the financial workings of your business, including your incoming cash flow, expenses, and costs. As a professional accountant, they can also identify places where you aren’t spending money optimally, offering you advice as to where you can trim the fat, so to speak.

Get Stuff Off Your Plate

One of the busiest livelihoods out there is that of a small business owner.

While demands can vary depending on the size and type of the company, a small business owner is typically overwhelmed by the amount of work on their plate. Everything, from marketing decisions to customer service to product development, needs to be run through them. It isn’t unusual to have upwards of two dozen non-negotiable items on your to-do list every single day.

That’s why asking your accountant to help with the daily financial headaches of your business can be a massive relief. Rather than having to pour over the numbers, you can instead focus your energies on the things that only you can do as the owner of the business. By outsourcing your financial planning and management to a professional accountant and bookkeeper (like us here at The Number Works), you can strike off dozens of those to-do list entries in one fell swoop.

Get the Help You Need

Accountants might be “math wizards,” but we aren’t mindreaders! There are so many other ways that we can help your business grow in addition to your yearly taxes. All you need to do is ask! At The Number Works, we want to do whatever we can to help your business grow. If you have any questions about your business’ finances or how an accountant can help, please feel free to contact us today! Sometimes, all it takes is one question to change everything about your business’ future!

Bookkeeping New Year's Resolutions

Bookkeeping New Year’s Resolutions

Do you always keep your New Year’s Resolutions?

Unfortunately, studies have shown that most new year’s resolutions simply don’t work. We enter into the new year with the best of intentions, planning on making significant changes to our lives, but before we know it… it’s February, and we haven’t taken any steps towards our resolutions.

One of the reasons for this is because most resolutions resemble wishes rather than actual goals. They are too general, e.g. “I want to lose weight,” or overly ambitious, e.g. “I want to be able to run a marathon by February.” If you want to make a new year’s resolution that you’ll keep, it needs to be both realistic and actionable.

This year, why not make your new year’s resolution about your small business’ bookkeeping? There are a ton of concrete steps you can take to make your bookkeeping habits and practices even better for the upcoming year. Take on any of the following resolutions, and you’ll not only be able to keep them, but you’ll also see some major positive changes to the way you handle your personal and small business accounting!

Resolve to: Digitize Everything

The days of keeping your receipts and invoices in a series of shoeboxes are long gone. Nowadays, thanks to digital technology, you can make sure that everything is optimally organized so that you can find any document in a matter of minutes (if not seconds).

While you do need to keep paper copies of all your receipts, you should be creating digital copies that are correctly named and organized on your computer. It isn’t as difficult as you might think, as there are dozens of high-quality apps that allow you to simply take a photo of a paper receipt with your phone. These apps will then automatically name and file that record into the proper place in your bookkeeping system.

Creating a system like this can have countless benefits. First, searching for a necessary receipt is going to be easy as pie. Just type the name into the search, and the corresponding document will pop up. If you’re using accounting software, it will help you keep track of all your receipts, organizing them for you by date and type.

It’s also going to be easier to work with a bookkeeper or accountant when your financial documents and records are already “filed” and organized on your network!

Resolve to: Hire a Bookkeeper

One of the biggest time sucks for small business owners is doing their own bookkeeping.

Bookkeeping is something that needs to be constantly updated and maintained. If you’re a super busy small business owner, that can result in updating your financial records being put on the backburner. Over time, this ends up becoming a huge backlog of work that you MUST do to keep your business happily humming along.

When you hire a professional bookkeeper, you’ll have the time to focus on the job of growing your business rather than having to monitor and update the books every day. The cost of hiring a bookkeeper is often more than covered by your increased productivity, and that’s not even mentioning the levels of stress that you’ll be avoiding!

If you don’t currently have a bookkeeper, you’re probably dreading going over all of your year-end financial records. By hiring a bookkeeper, you can instead rest easy and enjoy the start of the new year!

Resolve to: Modernize Your Bookkeeping Software

Do you keep all of your financial records in an Excel spreadsheet? Now, there is nothing wrong with that—Excel is a fantastic program! But wouldn’t it be better if you could use a program designed specifically for bookkeeping and accounting, rather than continually having to customize spreadsheets to your desired specifications?

By using online cloud-based accounting services like Xero or Quickbooks Online, you’ll be streamlining the way you input your financial information and records. You’ll also be ensuring that everything will be safely backed up to the cloud. If the unthinkable were ever to happen, all of your financial information would be secure.

At the start of this blog, we told you that most people don’t keep their new year’s resolutions. Why not be an exception to that rule this upcoming year by making your resolutions into actionable plans and strategies that will simplify your life? At The Number Works, it’s our goal to help you keep all of your finances in order with exceptional bookkeeping services. If you want to get the new year started right, please feel free to contact us today! We can’t wait to make 2020 the year that you get all of your bookkeeping under control!

Year-End Bookkeeping Checklist

Year-End Bookkeeping Checklist

Are you ready for the winter rush?

The temperature is dropping, there’s snow on the ground, and there are countless items on your to-do list. Once again, the most wonderful time of year has arrived and, boy, can it be stressful!

This time of year, you have to deal with everything from shopping to dropping the kids off for their school holiday concert practice. There’s so much on your plate that it can be difficult to know where to get started. This is one of the reasons why we want to make it as easy as possible for you to take care of your year-end bookkeeping with this simple checklist. By getting these things out of the way in the next few weeks, you’ll be ensuring that you’re positioned for a fantastic year ahead!

Update Your Bookkeeping Records

Throughout the course of a year, your bookkeeping can get a bit disorganized. If you aren’t working with a professional bookkeeper who will keep everything tidy and up-to-date, then it’s important for you to check your records at the end of the year to confirm everything is in order.

First, make sure that you’ve reconciled every bank and credit card statement with what is in your bookkeeping records. This will tell you if you’ve missed (or even double charged) a transaction.

Next, review your last few months of financial statements to confirm that the numbers are correct and that transactions weren’t improperly labeled. Make sure that your physical inventory, assets, and supplies match up with the numbers you have on paper.

Finally, don’t forget to double-check your accounts payable and accounts receivable (if you use the cash accounting method, you may want to wait to send invoices until January to keep your taxable income lower)!

We admit, updating your bookkeeping records is not the most enjoyable task, but it’s going to be invaluable when you need to do your taxes next year. If you simply can’t find the time to do it, we’d be happy to get everything ready for you!

Budgeting

We understand why you might dread going through your books at the end of the year. So many numbers, so little time! But one way that you can help keep everything on track for the following year is to set up a detailed budget.

By using the knowledge you gained from updating your bookkeeping records, you can project a reasonably accurate yearly budget for your business. By knowing your likely future income and expenses, goals can then be set that will help you grow your business next year.

Your yearly budget should be broken down into periods, monthly or quarterly (or both). This will also help you focus on goal setting for smaller sections of the year.

It can also be helpful to get some additional eyes on your projected budget to make sure that everything is in line with expectations. This is another area where we can help!

Set Goals for the Year Ahead

To be clear, we aren’t talking about a New Year’s Resolution here.

New Year’s Resolutions rarely work because they aren’t goals; they’re more like wishes. You need SMART goals that you can genuinely achieve in the upcoming year. SMART stands for: specific, measurable, attainable, relevant, and timely.

It can be helpful to break up your desired goals for the year, allowing you to regularly check-in and see how things are developing. We recommend setting up monthly, quarterly, and yearly goals. If you really want to get into the thick of it, you can also set up daily and weekly goals to improve smaller aspects of your business like daily reporting or customer management.

Reflect On Your Last Year

For small business owners, it’s almost always about “what’s next?” You’re focused on growth and on making your company a success. But it can pay to take some time at the end of the year to reflect on everything that happened to you over the last 12 months.

So much can happen that whizzes by in the moment. By taking a close look at your yearly successes, failures, and struggles, you can know where to focus your energy next year. On top of that, remembering successes can give you a feeling of accomplishment to give you a nice boost! And remember all of those headaches and problems you were dealing with earlier in the year? You’re now past them! Rejoice!

Tax Planning

By doing all of this bookkeeping work at the end of the year, you’re going to be setting yourself up for a much easier tax time in a few months.

Effective tax planning is key to a business’ success. If you aren’t sure of where to find relevant tax credits and rebates that will help you keep more of your money in your pocket, The Number Works would be happy to help!

By starting early, we can put together a plan that will you save big money on your taxes. At The Number Works, we’ll position your finances to maximize your year-end expenses and lower your taxable income. We can also assist with setting up a personal budget! If you’d like some help getting your year-end bookkeeping out of the way so that you can enjoy the holidays, please feel free to contact us today!

Make Better Financial Decisions By Better Understanding Your Income Statement

Make Better Financial Decisions By Better Understanding Your Income Statement

How often do you check your business’ income statement?

When you run a small business, information is your best friend. The more information that you have at your fingertips, the better the decisions you can make for your future. Being able to review your numbers and pull out key data at a moment’s notice is essential when you’re a small business owner.

One of the best ways to measure the health of your company is to check your income statements periodically. This is one of your company’s primary financial reports, sometimes referred to as the Profit & Loss Statement. This document is generated monthly, quarterly, or annually to provide an “in progress” snapshot of the current performance of your business.

What Is Its Main Use?

The primary use of the income statement is right there in the name. It’s a document that you can use to measure whether or not you’re bringing in money. “Bringing in money” doesn’t necessarily mean that you are saving money in the bank, however; to do that, you need to check your Cash Flow Statement.

The information contained in your income statement describes your net profit. In other words, your revenue minus your expenses will equal your net income.

Let’s Look at Revenue

When you generate income through your business operations, that’s your revenue. You might have a number of different revenue sources, depending on your business, which should appear at the end of each section of your income statement. This division can help you analyze which of your departments is performing best and where you might want to put your resources in the future.

This kind of information can be very useful for streamlining operations as it can help you focus in on the most profitable aspects of your business.

Let’s Look at the Cost of Sold Goods

If you’re an inventory-based business (as opposed to service-oriented), then the Cost of Goods Sold (COGS) is the key to understanding your income statement. Your COGS is the cost of your inventory sold within a given time frame. For example, if you buy approximately $10,000 worth of inventory and only sell 20% of it, then your COGS will be equal to $2,000. The rest ($8,000) can only be expensed once sold. Otherwise, it will be considered an inventory asset of your business.

Before purchasing inventory, it’s important to know what you already have in stock. That’s where your balance sheet can come in handy.

Let’s Look at Gross Profit

Gross profit can be boiled down to a simple equation:

Revenue – COGS = Gross Profit

This is a subtotal within your income statement and represents the revenue that you can disperse on your other expenses after you purchase your inventory. When this is expressed as a percentage, it’s called a gross margin. It can come in handy when you want to make decisions regarding your business taking on more expenses. It’s expressed through this equation:

(Revenue – COGS) / Revenue = Gross Margin

The Gross Margin will, of course, be different for various industries. You should do some research (or ask an accountant) to determine if your Gross Margin is comparable to your competitors’ as a metric of the health of your business. If it’s too low, it means that you are spending too much on inventory, or your sales prices are too low. This could indicate that you should be looking for more competitive prices for inventory or that you should increase your sales price.

Let’s Look at Fixed Costs

Fixed costs are the expenses that are easy to predict. They occur monthly, regardless of your overall sales or other costs. They can include your monthly rent, hydro, water, business and inventory insurance, marketing, and employee salaries.

This is another place where you might want to look at industry benchmarks to determine if you are overspending. For example, if your rent accounts for more than 50% of your fixed costs every month, you are likely paying too much. It could save you money in the long run to start looking for another location for your business and/or try to re-negotiate with your landlord. You could also consider cutting down on the space used for your business and sublease the rest. Always be sure to calculate the percentage of each fixed costs against your overall revenue.

Let’s Look at Variable Costs

These are the costs that vary month to month, depending on your sales and other occasional expenses. For example, if you start to sell more of your products, then the cost of packaging is likely to go up.

Your variable costs will likely fluctuate, depending on whether you are experiencing an increase or decrease in your sales numbers. If you are experiencing a temporary downturn of 20% in sales, but your variable costs remain constant, then you might need to explore some ways to cut down on that overspending.

Variable costs can vary wildly depending on if you are in a slow or rush season. You should constantly be tracking these costs through these seasons to make sure that you are slowing your spending during the slow season to save yourself money.

Basically, your income statement all comes down to this: to figure out your bottom line, you need to subtract your expenses from your gross profit. If you discover that you’re in the black, that’s great news—it means your revenue exceeds your expenses! Yay, profit! If you’re in the red, that unfortunately means you’re going to have to figure out how to shuffle things around financially to get yourself in the black. This can happen periodically, depending on variable costs during slow and rush seasons, so you always need to be on top of your income statement.

If you’re having trouble figuring out the areas where you are overspending and underperforming, we can help. At The Number Works, we can give you a more complete understanding of your income statements and show you places where you might be able to streamline your business. So, feel free to contact us today! We can’t wait to help you better understand all of your financial statements!

Better Understand Your Business' Finances By Breaking Down the Balance Sheet & Key Ratios

Better Understand Your Business’ Finances By Breaking Down the Balance Sheet & Key Ratios

Do you know what your company is really worth?

Whether or not you use a professional bookkeeper and/or accountant, knowing how your business is doing at any given time is an essential part of success. While income statements and cash flow statements can give you a view of your business over a period of time, a balance statement (BS) can give you a snapshot view of your business as it exists at this moment. Add to that an understanding of financial ratios, and you’re well on your way to having a firm grasp of the financial underpinnings of your business!

What Is a Balance Sheet?

Simply put, a balance sheet is based on an equation:

Assets = Liabilities + Equity

In this context, your assets are what you own, your liabilities are what your company owes, and your equity is the net worth of your company.

Your assets can be either current, fixed, or long-term. Your current assets are the ones that you will be using in the near future. Your fixed and long-term assets are those held beyond one year and often depreciate in value (unless the asset is land, which tends to mature rather than depreciate). You can also include your long-term investments as part of your long-term assets. Your assets can also include intangible things like your brand, trademarks, and patents.

You can think of your liabilities similar to the opposite of your assets. Similarly, there are both current and long-term liabilities. Current liabilities are generally payables and short-term debt that can be paid within a year. Long-term liabilities can include debt to the bank or to your investors.

Finally, equity can be different depending on the structure of your company. If you operate as a sole proprietor or partnership, you’ll likely have an owner’s equity. If your company is a corporation, then you’ll probably have shareholder’s equity. On your balance sheet, equity is usually made up of your retained earnings over the years; the value of what is left of the assets after all liabilities are cleared. This can also be where your capital stock is listed.

Let’s Look at Ratios

But how does any of this information help you? To take advantage of the data in your balance sheet, you need to look at financial ratios. The three most common kinds are:

  • Current ratio
  • Quick ratio
  • Debt-to-equity ratio

Your current ratio should lay out the liquidity of your company and its ability to pay current liabilities with your current assets. In this case, you want a ratio of 2:1 or higher, as you want to be able to cover the current liabilities you owe completely.

Your quick ratio is a more detailed version of your current ratio, removing your inventory from consideration. Much like current ratio, you want this to be 2:1 or higher. That being said, you don’t want it to be too high, as this would mean you aren’t reinvesting your cash back into your company.

Finally, your debt-to-equity ratio is the level of debt you hold against your equity. You want no more than a 2:1 ratio here, as anything above that means your company is taking on more debt than it can handle versus your level of equity.

Having accurate metrics of how your business is doing is vital to your overall success. You can’t rely on luck alone when it comes to growth. Knowing all about balance statements and the financial ratios that can be derived from that data can be invaluable. If all of this sounds pretty complicated, don’t worry because we can help!

At The Number Works, we’ve helped countless small businesses thrive, taking care of their complicated finances. If you want to ensure that everything at your business is kept in financial balance, contact us today! We can’t wait to help you better understand all of your financial statements!

Taking the Leap Towards Self-Employment

Taking the Leap Towards Self-Employment

Are you ready to strike out on your own?

Being self-employed is the dream of countless Canadians. They fantasize about the freedom that comes with being the master of their own destiny…

But of course there’s another side to being self-employed. The rewards of being self-employed can be huge, but so are the risks and strains. Yes, you’re your own boss, but that means all of the responsibilities and risks are yours as well. If you want to be an entrepreneur, you need to provide your own motivation, pushing yourself every day towards success.

To be clear, we are not trying to talk you out of starting your own business! However, it’s important to have a clear understanding of what’s involved. With that in mind, here are some of the things you need to consider before making the leap to being self-employed.

What Do Your Current Finances Look Like?

Whether you’re considering going freelance or you’ve decided to start your own business, you cannot count on your endeavour becoming profitable right away. In fact, for the first year or so, you might be losing money.

Jumping from a reliable paycheque to invoicing clients and hoping they pay on time can be nerve-wracking—not to mention finding those clients and getting through the start up expenses. You must have detailed knowledge of your finances and your risk resilience before you make the full leap to being self-employed.

Not sure where to start when it comes to your numbers? Luckily, this is an area where The Number Works can help. We can walk you through all of your current financial data, showing you exactly where your profits and expenses are and what you can do to shape things up before you go into business for yourself.

Do Your Research

Before starting your own business, you should probably ask yourself the tough question, “Do I have any idea how to start my own business?”

There can be a real “look-before-you-leap” mentality when it comes to becoming self-employed. It isn’t just about the state of your finances; it’s also about learning the ins and outs of creating your own business and managing it effectively.

The first thing you might want to do is talk to some of your entrepreneurial friends. Getting a first-hand account of what it’s like to be self-employed can be invaluable, enabling you to bypass some of the mistakes they made in the early days of creating their businesses.

You’ll probably also want to read some books about entrepreneurship. While countless books have been written on the subject, you should be selective about which you pick up. There are significant differences between the Canadian and U.S. markets, so be sure your book is focusing on Canadians laws and guidelines. You also need to make sure it was written (or at least updated) within the last four to five years. Technology moves so fast that anything before 2015 will be borderline useless, omitting vast chunks of what it means to be self-employed today.

Ongoing management of finances can be another big hurdle for those who want to jump into the self-employed arena. If you’ve never had to manage anything larger than a personal budget, you might need a hand getting started. That’s another thing we can help you with at The Number Works. Right from the first minute of your business, we can be there to support your financial position and ensure you’re optimized and running things as smoothly as possible.

Start Slowly

Have you ever heard of a “side hustle?” It’s essentially part-time self-employment. A side hustle could be as simple as setting yourself up with an an Etsy store to sell things that you’ve created in your spare time, or taking on a single freelance client to get your feet wet in your desired industry.

Having a side hustle can be a great way to get a small business started. If you’re feeling nervous about jumping into self-employment with both feet, this can be an excellent starting point, building muscles that will come in handy when you decide to quit and go into business for yourself full-time.

Keep in mind that it can require building some serious discipline to force yourself to work even after you get home from your job, but the result can be more than worth it. And you’ll need all that discipline when you’re a full-time entrepreneur who has to continuously self-motivated.

Do Not Forget About Your Taxes

One of the biggest shocks that a self-employed person can go through is their first tax season.

When you’re working for a company, taxes are automatically taken off your paycheques. Now that you’re self-employed, you’re collecting the entire amount you’ve earned… until tax time that is. When tax season rolls around and you need to calculate your taxes, you might be in for a shock! Yes, you knew that your tax bill would be higher than usual because you’re now self-employed but… Surely there must be some kind of mistake, right? Don’t be one of those people who realizes they owe thousands of dollars to the government that they’ve already spent!

While, yes, there is a chance that you made a mistake, it’s much more likely that your numbers are correct and you need to give the government a sum of money that you hadn’t planned for. It’s shocking, but there are several ways you can mitigate this situation.

One thing you should definitely have is an accountant experienced in working with self-employed entrepreneurs in your province. At The Number Works, we know all of the deductions and legal tricks for Ontario that could save you big bucks, especially come tax time. With our help, we might be able to get your taxes down to a slightly less jaw-dropping amount. And we’ll certainly help you prepare so that you aren’t caught off guard when you see the amount you’ll owe.

We also recommend that, rather than just dump every paycheque you have into your Chequing account, you take off about 25% off and put it into a separate savings account that you use for taxes. That way, you’ll have a reserve of money ready for you come tax time, reducing any sense of “sticker shock” when you figure out precisely what you owe.

Take Care of Yourself

For new entrepreneurs and freelancers, self-care can become an afterthought in the pursuit of making your business a success. This is a massive mistake!

If you’ve been putting off going to the gym, heading to yoga, buying healthy groceries, or spending quality time with family or friends, be sure to start scheduling it in your calendar like you would a business meeting or other important event. Same with making sure that you take appropriate breaks for lunch and for stretching if you’re sitting down for long hours. If you don’t take care of yourself physically, you’re going to start getting worn down by the job. Manageable things could start to feel overwhelmingly stressful, all because you aren’t caring for your personal needs.

There is also a mental self-care component of being self-employed. Some people start feeling like every minute they aren’t working is a minute they’re losing money; an unhealthy mindset that can lead to self-esteem issues and self-abusive thoughts of “laziness”.

Even though you’re self-employed and can technically get up at any time of day (including well after 9am), try setting “business hours” where you do your work throughout the day. Working 9 to 5, even if you’re doing so from home, can help you maintain a healthy work-life balance. If you prefer unorthodox hours, that’s ok too but make sure that you schedule your on- vs. off-time. It can keep you from feeling guilty that you aren’t working at 9pm on a Saturday rather than spending time with friends.

It takes a great deal of bravery to be self-employed, either by starting a new business or by going freelance. No matter which path you choose, you can bet that at The Number Works we’ll do whatever we can to help. We work with freelancers and entrepreneurs every single day, helping them balance their finances and making sure they’re fully prepared come tax season. If you want to simplify your financial life while moving towards self-employment, get in touch with us today. We’d love to help your entrepreneurial dreams come to life!

All About Tax-Free Savings Accounts

All About Tax-Free Savings Accounts

Did you know that a Tax-Free Savings Account (TFSA) isn’t really a savings account? Instead, a Tax-Free Savings Account is more like a basket that holds many financial options. In your TFSA, you can choose to include exchange-traded funds (ETFs), guaranteed investment certificates (GICs), stocks, bonds, and of course, actual savings. The best part is that any money you make from the investments in your TFSA is tax-free!

In 2009, the Canadian government introduced TFSAs to encourage people to save money for retirement. Since you pay tax on the money you put into your TFSA, you won’t have to pay anything when you take that money out.

TFSAs are great tools for growing your finances and setting up a cushion for retirement, but they do come with specific rules and limitations. So here’s everything you need to know about TFSAs:

What is the Contribution Limit?

You’re only allowed to open a TFSA or contribute to one when you turn 18 (in some provinces and territories you cannot contribute to a TFSA until you’re 19). Once you turn 18, you’re allowed to contribute $6,000 per year (as of 2019). However, if you don’t contribute the full $6,000 per year, you can carry forward the unused contribution amount and add it to the TFSA contribution limit for the following year. In 2018, the contribution limit was $5,500, so if you didn’t put any money into your TFSA in 2018 or 2019, then in 2020, you can contribute $11,500.

What’s more, if you withdraw money from your TFSA in one calendar year, it’ll create additional contribution room for the following year. For example, if you put in $6,000 in 2019, but then you withdraw $1,000 in 2019, you can contribute $7,000 in 2020.

What If I Exceed the Contribution Limit?

If you overcontribute to your TFSA, then the Canada Revenue Agency (CRA) imposes a tax of 1% per month for each month or partial month that the excess amount stays in your TFSA.

The 1% tax applies until:

  • You withdraw the entire excess amount; or
  • For those who are eligible, the entire excess amount is absorbed by additions to their unused TFSA contribution room in the following years.

For more information, you can visit the CRA website.

What Are the Benefits of a TFSA?

The main benefit of a TFSA is right in its name: you don’t have to pay any taxes on the money you make on it. For instance, if you invest $5,000 in your TFSA, and it grows to be $15,000 by the time you retire, the extra $10,000 of income is 100% tax-free.

Another advantage to using a TFSA is that unlike your Registered Retirement Savings Plan (RRSP), you can quickly and easily withdraw money at any time. There is no penalty when you take money out of your TFSA. Plus, withdrawing cash allows you to contribute more the following year, as mentioned above.

Lastly, since the TFSA was designed to help build income for retirees, once you retire, you can withdraw your money from your TFSA, and it won’t affect your retirement benefits such as Old Age Security, which decreases when you have a higher income.

How Can I Open a TFSA?

If you’d like to open a TFSA, you must be a resident of Canada with a valid social insurance number (SIN) and be at least 18 years of age. There are four types of TFSAs available:

  • A deposit
  • An annuity contract
  • An arrangement in trust
  • A self-directed TFSA

You can have more than one TFSA at a time, but the total amount you contribute to all your TFSAs can’t exceed your available TFSA contribution room for that year.

To open a TFSA, get in touch with your bank, credit union, or insurance company (issuer) and present the issuer with your SIN and your date of birth. This way the issuer can register your qualifying arrangement as a TFSA.

Can TFSAs Benefit Business Owners?

As a business owner, you might opt to leave extra funds in your corporation for investing. However, according to a report by CIBC, if you decide to take those additional funds out of your corporation and invest them in a TFSA, you’ll generally end up with more after-tax cash, especially if you have a long time horizon for the investment.

How Can the Number Works Help?

It’s a good idea to discuss the above with a professional accountant. So if you’re looking for an affordable virtual accounting firm, look no further than The Number Works! We partner with small businesses and creative entrepreneurs who are looking to grow their businesses and profits.

We offer a wide range of services such as cloud-based bookkeeping, full cycle accounting, financial statement analysis, strategic planning, and tax planning. So if you have a question about TFSAs and how they can work for your business, don’t hesitate to get in touch with us today. We love helping you tell your financial story.