Should I incorporate?
 
There are two perspectives on incorporation: The first is legal and the second tax. Let’s deal with the legal side first and very quickly. Incorporating protects your personal assets from any claim that might be made against the business. However, there are two very important exceptions: Tax agencies can pursue company directors personally for unpaid payroll deductions and for unpaid sales taxes.


But it’s the tax advantages that usually determine whether a small business owner decides if he should incorporate. The most significant of these is that the tax rate for small businesses is only about 20% on profits up to $400,000. While this sounds terrific, it only works if the profits of the company are reinvested in the business. If you need to remove profits to live, you could end up paying the top rate of personal tax anyway. Another tax advantage is that you can sell the shares of your company and be exempt from taxes on up to $750,000 of any capital gain you make. This mechanism may help some business people extract an attractive lump sum tax free but the reality is that an interested purchaser will usually be more interested in buying the assets of a small business than its shares so the exemption is of limited benefit.


Incorporating costs more. You need to pay anywhere between $1,000 and $1,500 to incorporate, $100 per annum for government registrations, about $500 per annum for legal updates and anywhere upwards of $1,500 per annum for your annual corporate tax return and financial statements.


So what’s the bottom line? If you are starting a new business and don’t expect to be making profits after paying yourself for a few years, you should not incorporate unless you want the legal protection. Incorporation works best for tax purposes when you are making profits and reinvesting some of those profits in the business.
 
 
 How can I raise money for my small business?
 
Let me dispel one common myth right away: Banks are not a good source of working capital finance for new small businesses. However, if you can get financing from your banker, he will probably be the cheapest way of getting it. Apart from credit cards, unsecured debt is very difficult to get from banks particularly for small businesses which they consider to be high risk. They will usually ask for a substantial investment by the business owner of their own funds as well as security and guarantees for amounts borrowed. The first meeting with bank manager is often a very discouraging experience. However, if your business needs new equipment or buildings, your banker is a good place to start.
 
Here are a few links to major bank small business programs:

Scotia Bank

TD Canada Trust

RBC

 
There are also a myriad of government grants and loans available. Go here for more details:

http://www.grants-loans.org/

 
Is there a good source of information on how to make a small business venture successful?

I recommend you visit this website: www.e-myth.com and order and read a book called “The E-Myth Revisited”. You can also purchase it in audio form and download it at www.itunes.com.

The basic premise of the book is that most new small businesses are started by people who are experts in their own particular field – a top chef opens a restaurant, a creative director opens an advertising firm – but who underestimate the expertise and effort required to run a business. What they end up doing is failing because they spend too much time working IN the business and not enough time working ON the business.

How much should I pay for accounting software?

One thing you should know about accounting software is that you don’t necessarily get more value by paying a higher price. Small business software costs up to about $500. Paying any more than that is unnecessary unless you have very high transaction volumes and I mean by very high more than about 5,000 per month. There are also hybrid solutions where you can use a specialist software package tailored to your type of business and link that software to Quickbooks which is much better than any other general accounting package on the market – at any price!

We can get you a 10% discount on Quickbooks products. Just e-mail us. No obligation.


How does GST work?

As a consumer, you are very familiar with the extra tax added at the cash register and it becomes part of the cost of living. However, as a business person, you don’t pay GST on what you buy for the business. Keep you receipts and the government will refund it to you. However, for most of what you sell, you are required to add GST and send what you have collected to the government. One is offset against the other. Usually, you will have collected more than you have spent and so you will have a net amount to pay.

If your revenues are below $30,000 per annum, you don’t have to register but, in most cases, it’s a good idea anyway because you can recover whatever GST you have spent on your purchases.

If your annual revenues are below $500,000, you can register to pay GST once a year but after the first year, you will need to pay quarterly instalments. It is also a good idea not to hang on to government money that doesn’t belong to you because that can get you into all sorts of trouble. For this reason, we recommend that most small businesses volunteer to remit quarterly or monthly. Over $6,000,000 per annum, you are required to remit monthly.

Exports of goods and services are zero-rated but you can recover any GST you pay on your purchases so you will normally receive refunds.

What do I need an accountant for?

Like any other purchase, you need to make sure you’re getting value. We encourage you to do as much of your own accounting as you’re comfortable with. Usually that means you’ll do your own invoicing, bill payments and banking. Beyond that, we’ll help with advice on the best way to build the structure of your system and with any day-to-day issues you’re not sure of. That’s where hosting is really useful because we can work simultaneously with you on your file.

You’ll also need help with government filings: sales tax returns; personal and corporate tax returns.

As you get more sophisticated, we can help with budgets, cash forecasts, tax planning purchasing or selling a business.

Do you have a question for us?

E-mail outsource@eircan.com and we’ll add it to this page.