improving small business financial literacy by andrew wall cpa.cma
TRANSCRIPT
Financial Literacy For small business
What is Financial Literacy?
"the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being." (2008 Annual Report to the President)
Why is it important?
•83% of business owners would have trouble passing a test on basic finance.
• When you know where you stand you can plan for the future and avoid pitfalls
Small Business Failure Rates
Good Advice is Priceless
Get a good accountant• That educates you• That asks questions• That you understand• That works with small business
Ask for a referral
Leverage Technology
I hate this stuff
Improve your financial Literacy
Three Primary Forms of Organization
Sole Proprietorship
Pros
Cons
Partnership
Pros
Cons
Incorporation
Pros
Cons
Financial Advantages of Incorporation
Financial Comparison
Sole Proprietor Corporation
40K 43K30K
ContractorEffective tax rate = 14.5 %
=$6,224.
SpouseEffective tax rate = 12%
=$3,612
Corporate Tax:
37K at 15.5%
=$5,735
Total Personal Tax: $21,702Total Corporate
& Personal Tax: $15,571
37K
150K
40K 80K30K
150K
SpouseEffective tax rate = 12%
3612.81
ContractorEffective tax rate = 22.6 %
= $18,090
Expenses Expenses
Maximizing the Benefits of a Corp
What is Deductible?
Decreased ExpensesIncreased Taxes.
Lack of knowledge.
Fear of Revenue Canada.
Poor record keeping.
Reasons for Below Average Expenses
Tools for Maximizing Expenses
Advertising Vs. Business Promotion
25
When going out for business lunches, dinners, breakfasts write the clients name on the credit card slip
Keep a diary so you don’t have to remember what the
expense was related to
Meals & Entertainment
Advertising Expenses
Motor Vehicle Expenses
• Automobile expenses can be calculated using actual expenses or a mileage rate.
• Automobiles should be purchased/leased under your personal name and the business can reimburse you for its use of the vehicle.
Home Office Expenses
Books & Periodicals
Education & Seminars
Telephone and Internet
Insurance– 3 Types from a tax perspective
• Health, Dental E & O• Disability• Life
– Premiums are deductible as an expense if:
• You are incorporated and it’s your primary source of income
• You offer coverage to all your permanent full time employees
Get expert advice
Capital Cost Allowance(CCA)
• You’re allowed you to claim CCA on all business assets
• Ask your accountant what the rates are as they change regularly
• Assets that cost less than $200 can be expensed
• Ensure that you keep an accurate list of all the assets
Double Entry Accounting Income
Asset
Expenses
Liability
Equity
Debit CreditDebit Credit
Debit Credit Debit Credit
Debit Credit
Balance Sheet
Important Tax Deadlines
What are payroll/source deductions
Remitter types and due dates
Tax avoidance/planning is legal – using legitimate ways to reduce taxIncorporating to save taxes
Income tax splitting
Evasion of tax is breaking the law, falsifying accounting or not declaring
income
Savings $5,391
1 person earns $100,000
Tax Payable = $32,825
2 people earn $50,000 each
Tax Payable = $13767 each
Total Payable = $27,434
Income Splitting
Owners Remuneration
Accessing Money Left in Your Corp
Financial Ratios
Improving Your financial Literacyhttp://quickbooks.intuit.ca/r/financial-literacy/
http://knowyourworth.ca
The Silver Lining For Your Accounting Cloud
Andrew Wall C.M.A., C.P.A.Founding Partner