Author Archives: fivestar

The Importance of a Budget

It is very surprising when speaking with business owners how few actually spend the time and effort developing a budget.  Preparing a budget could be a daunting task.  However, one can be convinced that the benefits of using a budget as a tool to steer your company and to monitor your progress far outweigh the” head in the sand” approach.  Having a budget can help you realize controlled growth rather than ad hoc growth and operating expenses.

A budget is essentially a financial plan for your business.  Using past data and current knowledge about your business, growth potential, competition and changes in your expenses, one can estimate how their business should perform in the future using a best estimate approach.    But let’s not kid ourselves.  There are quite a bit of guesses and assumptions brought into a budget.  However, one of the most important aspects of developing a budget is that an owner must think about the future of their business at a very detailed level.  In a sense then, they are mapping out a plan as to where their business should be in the next year or two and what needs to happen in order to make it happen.  This then gets them thinking about what steps are required to meet their budget estimates.  For example if one estimates a growth in sales of 20% next year, they have to ask themselves how do they think they can meet this goal?   A 20% increase in sales will not mean a 20% increase in profits.  Why?  Because more sales can mean more costs.  Will they have the space, the employees, the supplies, etc. to meet the increase in sales?  Are they planning to promote their company and if so, in what way and at what costs?   It is at this point of detail that some business owners start to squirm.  They are not comfortable thinking about so many details.

Often, budgets are only brought to the forefront when financing is needed.  Banks or investors start asking probing questions and also require a budget for a few years down the line.   They want to know your assumptions and a budget helps to give them some assurance of how their investment or loan will generate enough revenue for their payoff.   If you are one of those business owners who just don’t want to go there, the staff at Five Star Accounting can meet with you to ask some of these questions and work with you to develop your budget.  We would be happy to assist you in mapping out a plan for you to follow in taking your business where it potentially could and should be.   We hope you can agree that following a budget and knowing if you’re on track throughout the year is far better than operating with your head in the sand.  A budget really helps to lower anxiety and gives an owner a much better feeling of control.

New PST Rules Affecting Estheticians, Spas, Laser Services, Hair Salons

Are you a Winnipeg business owner of a hair salon, spa, cosmetic clinic or the like? If so, there are some major changes to the way RST (also known as PST) is to be charged to your clients for specific services. If you think you may be affected, then read on!

Effective July 1, 2012, sales tax will apply on the following personal services: spa treatments, non-medical skin and nail services (such as manicures, pedicures and facials), tattooing, piercing, and hair services (including hair removal and augmentation, hairstyling, haircuts and barber services).

Haircuts costing no more than $50 will continue to be exempt from sales tax. Note that there are very specific rules for when you should and should not charge RST on haircuts when combined with other services. Please contact the staff at Five Star Accounting if you have any questions!

Also, if you use certain supplies for services to your clients then read on to learn about changes which could save your company from paying unnecessary RST on supplies soon to be exempt.

The following is taken from the Province of Manitoba website.  Be sure to check out the website for more details.

Exempt goods purchased for use in providing a taxable service

• Effective July 1, 2012, goods applied directly to a customer and consumed completely in the performance of a taxable personal service can be purchased RST exempt by the service provider. Examples include shampoo, soap, skin care products, nail polish, make-up, tattoo ink, body ornaments supplied with piercing services etc. Businesses can buy these goods exempt by providing their supplier with their seven-digit Manitoba RST number.

Taxable goods for own use
• Businesses are required to pay RST on all purchases of equipment, supplies and taxable services acquired for their own use in operating their business. Examples are service equipment (e.g. salon beds and furniture, styling stations, wash units, hair dryers, carts, trolleys, laser equipment, tanning beds), accessories (towels, basins, scissors, razors, brushes, makeup applicators) office equipment, signs, brochures, forms and other stationery, computer software, promotional items, uniforms, building cleaning supplies, accounting services and equipment repair services.

Lastly, have you sold any prepaid services? No worries. These are exempt from RST. This would then be an ideal time to push those spa packages!

If you need any help or assistance interpreting the new RST rules, the team at Five Star Accounting is here to help!

Types of Corporations in Canada Influences the Tax Paid

In Canada, there are two types of corporations. The first type is the corporation created under federal law, and the second type is the corporation formed under the provincial laws of the provinces and territories. Typically the federal form is preferred because it allows business operations across the country and the statutes controlling the corporation are consistent. The province and territory statutes vary quite a bit concerning issues like the rights of minority shareholders, internal governance, financial recourses and soon.

When you start a business, there are basically three business structures to choose from: sole proprietorship, partnership or incorporation. There is a fourth form called a cooperative, but it’s a very specialized and uncommon business form. The choice of business form influences the types of deductions you are allowed to take. Incorporation is often chosen because it can allow you to maximize the benefits of expense deductions while limiting personal liability.

There are several corporation types in Canada as summarized below:

• Canadian-Controlled Private Corporation (CCPC) – resident in Canada and is not controlled by corporation(s) or person(s) outside of Canada.

• Private Corporation – resident in Canada, not a public corporation, and not controlled by one or more public corporations

• Public Corporation – resident in Canada and meets requirements for listing of shares on the stock exchange or elects to be designated as public under Regulation 4800(1)

• Other Corporation – corporation form that doesn’t fall within the other 3 types of corporations

The advantages of incorporating include limited liability, ongoing operations with transferable ownership, easier to raise capital, possible tax deferral and lower tax rates. For any of these reasons, sole proprietors may choose to incorporate. For example, the Canadian-Controlled Private Corporation eligible for a small business deduction will currently pay a net federal tax rate of 11 percent which may be much lower than a personal income rate.

Corporations are also able to deduct all operating expenses while sole proprietorships face limitations. This gives you much leeway in terms of controlling the tax you will owe. For example, corporations can pay out profits to its management and staff turning what would be taxable profit into a deductible expense. A sole proprietor would have to pay all the tax due on business profit and personal income. In addition, any legitimate and legal expense incurred to operate the corporation is deductible, while it may be more difficult to separate personal from business expenses in a sole proprietorship.

It’s important to make sure you are getting all possible tax deductions on a business. The business structure you choose makes the difference on the type and amount of those deductions in addition to the tax rate paid.

Helping Small Business Owners Succeed

As a small business owner, you’re often required to fill multiple roles in order to ensure your business’ success. You’re often pulled in so many different directions it’s hard for you to concentrate on what you love doing most, the reason why you decided to open your own business in the first place.

At Five Star Accounting, we are a team of experienced accounting and bookkeeping professionals who are passionate about what we do.  With our combined experience in the small business environment, we understand the unique demands of small business owners. We can help you with your small business bookkeeping and accounting requirements so that you can concentrate on what you are most passionate about.

Don’t Go Down in Flames! Avoiding Burnout in the Small Business

Wow! How did you forget to update the new maximum pensionable earnings amount in the payroll system effective January 1, 2012? Was it because you were too busy trying to catch up with the bookkeeping? And when did the mileage rate go up for employees using their personal vehicles to make business deliveries? Perhaps it was when you were driving around town to meet with potential clients, since business growth depends on your networking abilities.

If these scenarios sound familiar then you’re on the path to small business owner burnout. One of the first symptoms to appear is stress from filling multiple roles as owner, employee supervisor, customer service representative, bookkeeper, manager, purchasing director, marketing director, salesperson and human resources director. Another common symptom is important tasks not getting done in a timely manner or not getting done at all. For example, a frantic order is placed with a supplier – maybe not at the best price, either – because the business is about to run out of essential supplies.

The Business Finances – Get Reports Monthly not just Yearly!

As a small business owner, one of the most alarming symptoms is having no idea how the business is doing financially. Sure, you may keep a close eye on the bank balance but do you know if you were profitable over last quarter or even the last month? You need regular financial statements to help you navigate your business decisions. Perhaps they haven’t been printed because the accounting software needs updating, there’s a backlog of postings and account balancing to clear up, and you have no idea how to record the purchase of the new equipment as a depreciable asset. So unfortunately, you remain oblivious as to how your business is operating financially on a regular basis.  One of the first facts you need to realize as a small business owner is that buying accounting software doesn’t turn you into a bookkeeper or accountant. The power of the accounting software is often not even utilized by entrepreneurs because often they don’t know how to create and interpret management reports. These reports can help the business owner manage the business better, smarter and more efficiently.

Don’t Succumb to Wearing “Too Many Hats”

One danger sign of a business owner unable to manage business growth is when he or she believes no one else is qualified to do certain jobs. This individual then keeps taking on more and more work – wearing too many different hats. Instead of working smarter, the owner works harder and in the process falls behind. A better approach is to identify your strong skills and then determine the work that can be outsourced to professionals. Outsourcing your bookkeeping and accounting to a company such as Five Star Accounting is a good place to start because a professional can ensure the business records are kept current and that you have the financial information needed to grow the business. It’s hard to grow when you’re always looking back at work that should have been done already.

Five Star Accounting offers expertise in small business financial management.

The staff can assist by relieving you of the detailed recording and reporting, ensuring records are maintained according to accounting standards, preparing accurate financial and cash flow statements, and meeting government reporting requirements in a timely manner. Instead of counting receipts, you can spend your time strategically managing business growth and achieving financial goals. And who knows – you may just be able to make the next family birthday party or take a Sunday off to rest. The only flames you should be looking at are in the barbeque. Doesn’t that sound so much more delightful than burnout?

Let's Talk About Business Expenses

If you are a business owner, expenses incurred while running your business is,well, a cost of doing business. Expenses are a way to offset income which would otherwise be taxed, and so they offer opportunities to decrease income taxes. However, you cannot expense everything and some allowable expenses are subject to certain limitations. Since you can only expense costs related to generating income, personal expenses are not deductible – they don’t help to produce an income. There are also expenses deducted under the capital cost allowance provision which represent an annual amount for depreciation related to assets acquired to assist in income generation but also expected to be in use for longer than a year.

There is a long list of business expenses and each one is carefully defined, sometimes in a complex manner. For example, there are stringent rules concerning documentation of all auto related expenses including the total amount of business related kilometres driven annually. There are limits on deductibility of lease payments, loan interest and depreciation. It is also necessary to prove that trips claimed were actually for business purposes.

The long list of possible business expenses includes bad debts, business-use-of-home, fuel costs, insurance, accounting and legal fees, maintenance and repairs, office expenses, property taxes, rent, salaries and benefits, supplies and many others. Each category is precisely defined by law and regulation, meaning you can’t just deduct an expense because you think it should be deductible. The expense must be related to commercial activity, meet the regulatory guidelines, be well documented with detailed receipts and incurred for the purpose of contributing to the production of profit.

Given the complexity of the tax laws and to avoid a tax audit as much as possible, it’s always wise to let an accountant determine which expenses are deductible. The staff at Five Star Accounting can provide invaluable guidance on appropriate expense documentation and ensure that the business is claiming all its allowable expenses.

Tips for Small Business Owners

Small business owners face a myriad of challenges. But small businesses also make up a huge portion of Canada’s workforce. According to Industry Canada, 98 per cent of companies here are considered small, and those businesses comprise 48 per cent of the country’s work force. To help survive in today’s challenging economy, below are a few tips for small business owners.

Help your accountant help you
Hire an accounting service such as Five Star Accounting to manage your finances. An accountant files tax returns, tracks a company’s finances and keeps up with all the current and latest regulations. But a good accountant can do far more than just balance your company’s budget. Accountants can also help expand your company and grow your finances. Get organized before meeting with your accountant so that you’re not wasting time getting caught up.

Paperwork & meetings are time consuming
Your time is valuable. If you’re a small business owner, chances are you have very little time in the day to get everything done. Therefore, you should make the most of your time. Prioritize your tasks. Limit your meetings. Another valuable tip: Never let a piece of paper touch your desk more than once. If it’s important enough, file it or record it somewhere. Otherwise, shred it or throw it away. Clutter is a time waster, too.

How much do you really need?
Look for ways to save money by evaluating your overhead. Are you leasing a space that’s too big (and therefore more expensive)? Can you cut back on supplies and travel? Can some positions be eliminated? Is expansion necessary right now? Some of these are hard choices to make, but the goal is to have enough reserves on hand to survive difficult economic times. Set weekly, monthly and yearly goals, and work with your accountant and other top managers to stay on track.

Coach the coaches
In sports, the head coach often spends time coaching the assistant coaches so that he or she can focus on the big picture while letting the assistant coaches work with the players. The same holds for business owners. Thoroughly training your managers will allow you to delegate while also instilling trust that the job can still get done when you’re not there.

CPP Changes for Retired Small Business Owners – What You Need to Know

Changes to the Canada Pension Plan could affect your or your employees’ early retirement plans. The government-run Canada Pension Plan, or CPP, allows working Canadians to receive a retirement benefit after paying into a pension plan. CPP also has a disability benefit and a death and survivor benefit.

Below are a few things you need to know about new CPP changes:

You May Have to Deduct Contributions
CPP has undergone some notable changes in recent years, including new regulations for those who want to start collecting early. The most recent change took effect Jan. 1, 2012. Employers were notified that companies must deduct CPP on pensionable earnings from employees 60 to 65 even if they are collecting CPP.

How it Affects Employees 65 to 70
Employers also must deduct contributions for all employees between the ages of 65 to 70 – unless the employee decides not to contribute to the plan and has filed the election to stop paying CPP Employees cannot contribute the month after turning 70.

Under the Microscope
The Canada Pension Plan has come under scrutiny in recent years as employees and employers alike try to make sure they receive adequate retirement incomes. Employees – especially those nearing retirement age – should check with their employers to see how the changes impact them, and small business accountants should work with their employer to review how the changes could impact both the work force and the company’s finances.

For more information, click here to be redirected to the Canadian Revenue Agency.

Prepping Your Books for a CA Review

No matter how well you or your bookkeeper stay on top of all your business’ expenses, there may come a day when one or more auditors from the Canada Revenue Agency come knocking on your door. But being audited can be a relatively straight-forward process if all the paperwork has been accounted for. Below are a few small business accounting practices that will help ensure the process goes smoothly.

When in Doubt, Keep It

If, for whatever reason, any of your receipts aren’t legible, then it’s not considered a supporting document, and you lose the deduction. You also lose the deduction if you can’t produce a receipt. Your claims will be matched with your receipts by an auditor. Bottom line: When in doubt, keep track of all your receipts.

What’s Acceptable?

Credit card statements, bank statements and cancelled cheques are required documentation but are not considered an acceptable form of verification in Canada. Instead, you’ll be asked to produce invoices, receipts and mileage records.

Keep Track of Mileage

Even if you drive your personal car for business, you’ll still want to keep a detailed daily mileage log book that includes the starting mileage, name of people or places you visited, and the ending mileage. Your log book should also include all original gas station receipts.

Who Did you go to Dinner With?

If you go out to eat or entertain a client, make sure you write their name on the back of your receipt. There are some instances where you can claim meal expenses by yourself, too, for example if you can show that you had to work out of town that day.

What if I work from Home?

You can claim a home office if you can show that you have an area dedicated for work and to meet clients. That area can’t be your bedroom, though; it has to be enclosed and furnished as an office.

These simple tips will ensure that your records are more accurate, making tax time simple and efficient.

The Importance of Accurate Accounting

Are you aware of all the current and new tax laws and regulations? Are you keeping up with currency fluctuations with our neighbours to the south? How is the stock market impacting your business? Today’s small business owner has to wear many hats, and the same can be said of small business accountants.

Gone are the days when their only tasks were keeping up with tax returns and tracking where a company’s money was going. Today’s small business accountant has to sift through a maze of ever-changing rules and regulations while maintaining an accurate paper trail in the event of an audit. In other words, a good accountant is far more than a “bean counter.” Think of a good accountant as a trusted business advisor.

Pay Attention to Detail
Accuracy and attention to detail should be priority No. 1, especially for small business accountants who are responsible for recording, reviewing and auditing all of a company’s finances. The savvy accountant should also keep up with all the latest accounting software to ensure accuracy. The penalty for failing to keep track of your finances goes far beyond an audit; accurate accounting can make the difference between whether a small business survives or thrives.

Partnership with Common Goals
Where do you see your business in five years from now? Ten years? Today’s accountant will work with you on your goals and hold you accountable by creating, and executing, a sound business plan. After all, no one knows your company’s finances better than you and your accountant. Communication between you and your accountant, therefore, is vital to your company’s future.

Keeping your goals in mind coupled with attention to detail will provide more accurate accounting results for your business.  At Five Star Accounting, we are more than accountants and bookkeepers.  We use our business expertise, combined with our accounting backgrounds to help you achieve your goals for your small business.