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Aug 18 2017

The Cash Flow Paradox

 

The number one concern most business owners have – especially in the beginning – is how to manage their cash flows. It’s not just about generating the sales – but getting those clients to pay. Pay on time. So you can pay your bills on time. And just because you aren’t getting paid doesn’t mean that your vendors will excuse your late payment. And so we find ourselves in this cash flow paradox of you need money to pay your bills, but what do you do when your clients just aren’t paying you?

The reality is cash flow ups and downs happen in any business and the excuse of your clients aren’t paying you does not bode well with most vendors. You need to be prepared for this and have a plan. The solution is a business line of credit.

For some reason most entrepreneurs do not want to get a business line of credit. Perhaps they’re afraid they’ll abuse the credit available or they need to personally guarantee it. But the fact of the matter is, you will inevitably need it at some point. Here are the two mistakes I see the most when it comes to borrowing money.

  1. Timing

Getting a line of credit can be a challenge for many business owners. If you’re a new business you don’t have enough credit established as a business and many banks will deny you unless you personally guarantee the loan. If you’re an established business, but have a lot of debts, you can also be denied the loan. Or If you’re an established business, the banks can question why you need a bank loan now when you’ve been in business for X years already. It can be a red flag to all of a sudden need to borrow money unless you have an expansion or specific tangible purpose.

Typically banks and creditors like to support clients in either the start-up phase or the expanding phase. So getting a line of credit established early on – even if you have to personally guarantee or put up some collateral – is advisable. You can support your business case by citing all the start-up costs that require immediate cash flow (website, advertising, space rental etc) and banks understand that in the beginning there will be more money out than in. Versus, needing money to just survive. The latter is a guaranteed loan denial. So ask for the line of credit application when you’re starting your business!  You don’t have to use it, but it’s easier to not use it when you have it, than be denied when you need it.

  1. Borrowing the wrong way.

Yes, there is a right and wrong way to borrow. The right way includes a nice tax write off! If you borrow money for business purposes, the interest you pay on that loan is TAX DEDUCTIBLE. Yay!

Often what I see happen is entrepreneurs put their SAVINGS in the business and then BORROW to fund their PERSONAL lives. Borrowing for personal purposes is NOT tax deductible. So only use your personal savings into the business if you have enough to cover your personal needs. Otherwise, see point 1 about getting a line of credit.

Note: even if you use your personal line of credit for business purposes the interest is still tax deductible. Either way, you need to be able to support the “business purpose” with a paper trail.

 

 

“Behind Every Great Business is a Great Accountant”

For more information on how to keep your business tax efficient, or to get a consultation on whether you are making all the right tax choices for your business, contact Dharna CPA. www.dharnacpa.ca. Info@dharnacpa.ca

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Written by Dwania Peele · Categorized: Shalini Dharna · Tagged: accounting, business, cash flow, credit, money, money matters, taxes

Feb 18 2017

Common Mistakes Made by Small Businesses

You have this fabulous idea to start a business, and you go for it…yea! But then the reality sinks in that running a business is so much more than just selling your product and service. There’s HR and Marketing and IT and ugh worst of them all….accounting!

As an accountant I see small business owners making a few critical mistakes all the time. And the result is they either pay too much in taxes, do not have money to pay themselves, or worst of all go out of business.  Unfortunately accounting is as important to a small business as any other aspect of running a business; and it has a direct financial impact to your business! Here are some the top mistakes made by small business owners:

Not having a budget

You obviously do not start a business thinking it will fail, but in the beginning there WILL be more expenses than income. Until your brand and client list grows your budget is extremely important to sustain you. There will be tough calls to make but without a clear budget, you won’t know how to spread out your expenses.

Not keeping up-to-date records

A budget is fine as a guide but how do you know if you are sticking to it if you only do your bookkeeping once a year for tax time? At a minimum doing your bookkeeping quarterly (monthly is ideal) allows you to track progress and adjust your path accordingly. By doing your bookkeeping ONLY at tax time means it is often too late to make any informed decisions and corrective action.

If they walk, talk and look like an employee…they are an employee

Employee vs contractor is a huge area of audit with the CRA. Many employers will classify workers as contractors to avoid paying into CPP & EI when in reality they are employees and subject to payroll deductions. There are a few factors to consider when making this difference but a big red flag is control – who controls their work and schedule? A legitimate contractor likely will not be reporting to someone else who is controlling and reviewing their work.

Not recording all the personal contributions (properly)

If you ask most entrepreneurs how much money have they put into their business the answer is usually “a lot”…but when you ask them how much they cannot quantify it. This can have significant tax impacts when both taking money out of the business to pay yourself and when you are looking to sell the business.

 

 

 

“Behind Every Great Business is a Great Accountant”

For more information on how to keep your business tax efficient, or to get a consultation on whether you are making all the right tax choices for your business, contact Dharna CPA. www.dharnacpa.ca. Info@dharnacpa.ca

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Written by Dwania Peele · Categorized: Shalini Dharna · Tagged: accountant, accounting, bookkeeping, Budget, contractor, contributions, CRA, Dharna CPA, employee, mistakes, records, Shalini Dharna, small businesses

Aug 30 2013

What Does A New Business Need?

Kerry George (1)

When you get started in business you will typically be bombarded with a thousand good ideas from hundreds of people who may or may not know a thing about how to succeed in business. Taking their advice may do you great harm. One must always ask themselves, “why would this person give me this counsel?” If they make their living by selling advertising of course they will say their advertising is the best. If they offer a gadget or an app that is supposed to save you time, they will want to convince you that theirs is the best.

A good question to ask a salesperson is, “Have you ever owned a business?” And close behind that question should be another, “As a business owner what differences did this make for you?”

So what do you really need to succeed in a start-up venture?

While it varies industry by industry there are a few common things that everyone needs. Here are 5 essentials:

  1. Good mentorship. Real mentorship can be had and it should be pursued. One mistake that new entrepreneurs make is that they believe they are the only one who ever had this kind of business so they do not seek advice. That is a mistake that could cost you everything. One poor decision can take you out. So find someone who has succeeded at anything at all and that is a better mentor than not having one because you can’t find a person in your industry. Entrepreneurs are busy people but they typically enjoy the stimulating conversation of someone who is earnestly looking to learn. Ask questions and listen more than you talk. Build the relationship and don’t ask for their business. That may come later after you have won trust but it is not the purpose of the friendship. You need their wisdom to survive.
  2. Capital or cash flow. You either need a lot of up front capital or you need to produce a solid and consistent cash flow. If you are producing widgets part-time and working at a job, keep the job until you have enough consistent orders or you will die. Your family will suffer. You will hurt. Cash flow is king.
  3. Marketing, marketing, marketing. Sales cannot be properly supported unless you have invested either time into marketing or money and in many cases both. Never wait to start marketing. Your sales staff needs to have brochures to explain your service and they should have business cards and whatever else it takes to support a sale. It also takes months to produce a legitimate following online with Twitter, Facebook and LinkedIn. So don’t wait until your product launches to get started or you will shout about your new business to an empty room. Start building a small following online and take them with through the journey. By the time you launch you will have an active group of engaged cheerleaders who are excited about your new offering!
  4. Website and online presence. Today is a different world than it was even 5 years ago. These are not just about marketing these are essential to your survival and your success. Your credibility will be judged by a prospects ability to find information about you online. While branding is important do not wait to have it all perfectly aligned in the heavens to get started. You can set up a website for anywhere from $100 to $10,000 and you need to either have it done for you or get to work on it late at night. Remember that after they look at your website they then go look at you the owner. So develop a personal profile on LinkedIn, Twitter and Facebook. Don’t delay if you want to succeed.
  5. Accounting and tracking. Entrepreneurs often lack good bookkeeping skills. Get over it and get help. Use an online program or hire someone for a few hours a month to just keep you on track. An unpaid GST bill or a badly done tax return can destroy you. One also needs to know the numbers to improve the sales ratio later. If nothing is tracked success will be lacking. Find systems that work and implement them sooner rather than later.

Kerry George is the owner of the Canadian Imperial Business Network which is currently the largest business network in Alberta and rapidly expanding across the country. She is a serial entrepreneur/author and speaker with a zest for life and a passion to help others succeed in increasing their potential and their bottom line. Kerry has several publications and blogs that you can follow and welcomes most interaction online.

Twitter

@createloyalty2U

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Blogs

http://loyal2u.blogspot.ca/

http://calgarybiz.net/blog-3/

http://kidsincowtown.wordpress.com/

http://loyal2u.ca/category/social-media-2/linkedin/

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Written by Dwania Peele · Categorized: Kerry George · Tagged: accounting, business, business development, Business Woman, Canadian Imperial Business Network, Canadian Small Business Women, capital, cash flow, entrepreneur, Good Mentorship, Kerry George, marketing, online presence, small business development, start-up, tracking, venture, website

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