Avoid These 5 Estate Planning Mistakes to Safeguard Your Business’ Future
In the world of business, planning for the future is crucial. One aspect that often gets overlooked by business owners is estate planning. It’s more than a legal formality—it’s a cornerstone of your business continuity.
Today, we will delve into some common pitfalls and misconceptions in estate planning to help you navigate this important aspect of your business and personal finances.
Pitfall 1: Procrastination
It’s easy to put off estate planning, especially when you are focused on running your business. However, procrastination can lead to serious consequences. Without a solid estate plan in place, your assets may not be distributed according to your wishes in the event of your passing.
Confront this challenge head-on by setting a timeline for your estate planning. Consult with a professional who understands the nuances of your business and begin crafting a comprehensive plan that addresses all contingencies.
Pitfall 2: Ignoring Business Ownership
Many small business owners fail to consider how their business ownership will factor into their estate plan. Whether you are a sole proprietor, in a partnership, or own a corporation, it is crucial to outline what will happen to your business assets upon your death or incapacitation.
In the case of a corporation, business owners often fail to consider how their shares will be allocated after they pass away, which can lead to conflict among survivors and potentially destabilize the business. To avoid this, your estate plan should clearly delineate business assets from personal ones and stipulate a clear transfer of ownership that aligns with your vision.
Work with an estate planner to establish whether a buy-sell agreement, trust, or another vehicle best suits your situation. Ensure this is reflected accurately in your will and communicated clearly to all stakeholders to circumvent any ambiguity.
Pitfall 3: Lack of Clarity in Beneficiary Designations
One common mistake in estate planning is not clearly designating beneficiaries for your assets. Without clear instructions, the distribution of your assets can become a complex and lengthy process.
Regularly review and update your beneficiary designations, particularly after major life events such as marriage, divorce, or the birth of a child. Your estate planning advisor can assist in ensuring these designations are consistent with your overall estate planning goals.
Pitfall 4: Overlooking Tax Implications
Estate planning is not just about asset distribution; it also involves understanding the tax implications of your decisions. Failing to consider tax implications can result in unnecessary tax burdens for your beneficiaries.
Seek out an estate planner with tax expertise or involve your accountant in the estate planning process. There are numerous strategies to mitigate tax exposure, such as trusts, charitable donations, or gifting strategies that can preserve more of your estate for your beneficiaries.
Pitfall 5: DIY Estate Planning
While DIY solutions may seem cost-effective, estate planning is a complex process that requires professional guidance. Templates and online tools may not account for the nuances of your specific business and financial situation.
Rely on the expertise of qualified estate planning lawyers who can tailor solutions to your specific circumstances. The investment in professional advice will pay dividends in ensuring your estate plan is comprehensive, legally sound, and truly reflective of your intentions.
Securing Your Legacy with Estate Planning
Estate planning isn’t merely about drafting documents; it’s about securing the future you envision for your business and your loved ones. Each pitfall avoided is a step towards that security, a reinforcement of the fortress that protects your legacy. Begin the journey today—it’s one of the most profound acts of stewardship you can perform for the business empire you have built and the people who help sustain it.
As you move forward, remember that estate planning is an ongoing process. It evolves as your business and personal circumstances change. By staying vigilant and proactive, you ensure that your business’s future—and your legacy—remains fortified for years to come.
Avoid common estate planning mistakes that can jeopardize your hard-earned success by booking a free consultation with one of our estate planning experts. We are here to help you make informed decisions and secure a prosperous future for your business and your family.
Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.
Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.
Cash Flow Management: Mastering the Lifeline of Your Business
In a world where nearly 82% of businesses falter due to poor cash flow management, understanding this vital aspect is not just important—it’s your lifeline. Mastering cash flow management can mean the difference between thriving and merely surviving.
Imagine navigating a ship through unpredictable seas. Without a clear understanding of your position and the elements at play, the journey becomes perilous. Similarly, without a firm grasp on cash flow, your business may struggle to reach its destination: success.
Understanding Cash Flow: The Bedrock of Business Health
At its core, cash flow represents the movement of money in and out of your business. It’s a real-time snapshot of your financial health, showing how well you’re managing your resources. Understanding cash flow goes beyond merely observing the numbers; it involves deciphering what those numbers say about your operational efficiency, your ability to meet obligations, and your potential for growth.
Cash inflow is the lifeblood of your business, pumped in through sales, accounts receivable collections, and any other sources of income. Conversely, cash outflow is the expenditure tide, flowing out for expenses such as rent, payroll, inventory purchases, and other operational costs. The equilibrium between these two streams dictates the financial health and stability of your business.
Profit vs. Cash Flow: A Critical Distinction
A common misconception among business owners is equating profitability with healthy cash flow. A business can be profitable on paper yet struggle with cash flow.
Profit, or net income, is a measure of what remains after all expenses are subtracted from revenue over a certain period. Cash flow, on the other hand, is about the actual amount of money available at any given time. For instance, sales made on credit contribute to profit but not to immediate cash flow, highlighting the potential for discrepancies between the two.
The Significance of Cash Flow Statements
Understanding cash flow necessitates familiarity with cash flow statements, a financial document that breaks down the cash generated and used by a business over a period. This statement is divided into three main parts:
- Operating activities (day-to-day business operations)
- Investing activities (purchases and sales of long-term assets)
- Financing activities (loans, dividends, and equity)
A well-maintained cash flow statement not only offers a snapshot of the business’s liquidity but also provides insights into its operational efficiency, investment strategies, and financial health.
In essence, mastering cash flow management empowers you to make informed decisions, anticipate future financial needs, and navigate the challenges of business operations with confidence. It enables you to ensure your business remains solvent and can sustain growth over the long term.
The Impact of Poor Cash Flow Management
Neglecting cash flow management can have dire consequences. A study by U.S. Bank found that 82% of business failures are due to poor cash management. Without a vigilant eye, you might not see trouble brewing until it’s too late. Inadequate cash flow management can lead to:
- Inability to meet financial obligations on time
- Compromised business relationships and creditworthiness
- Hindered growth due to lack of funds for reinvestment
- Increased stress and potential for business failure
Measuring and Analyzing Cash Flow
To steer your business towards success, you must first learn to measure and analyze your cash flow accurately. This involves:
- Understanding cash flow statements: Learn to read and interpret cash flow statements, which detail the cash generated and used during a specific period.
- Identifying cash flow trends: Look for patterns in your cash flow over time. Are there seasonal fluctuations? Are certain products or services more profitable?
- Benchmarking against industry standards: Knowing where you stand in comparison to industry averages can provide valuable insights and highlight areas for improvement.
Tips for Improving Cash Flow Management
Improving cash flow management is a multifaceted approach that involves both strategic planning and practical actions:
- Invoice promptly and follow up: Delayed invoicing leads to delayed payments. Develop a system for timely invoicing and follow-up on overdue accounts.
- Optimize inventory: Excess inventory ties up cash. Use inventory management tools to maintain an optimal inventory level, reducing waste and freeing up cash.
- Negotiate better payment terms: Work with suppliers to negotiate payment terms that align with your cash flow cycle, possibly extending payment periods.
- Leverage technology: Implement accounting and cash flow management software to automate and streamline processes, providing real-time insights into your financial status.
- Manage expenses: Regularly review and categorize expenses. Identify areas where costs can be reduced without impacting quality or productivity.
Implementing a Cash Flow Management System
A structured cash flow management system is crucial for maintaining control over your financials. This involves:
- Regular cash flow forecasting: Anticipate future cash flow with forecasting based on historical data, current trends, and expected changes in the market.
- Setting cash reserves: Establish a safety net of cash reserves to buffer against unforeseen challenges.
- Creating actionable policies: Develop clear policies for payment terms, credit control, and expense approval to ensure consistency and discipline in cash flow management.
Advanced Cash Flow Management Strategies
For businesses looking to take their cash flow management to the next level, consider these advanced strategies:
- Dynamic discounting: Offer early payment discounts to customers for quicker cash turnaround.
- Supply chain financing: Utilize third-party financing to pay suppliers early at a discount, improving supply chain efficiency and maintaining cash flow.
- Cash flow analysis tools: Invest in advanced analytics tools to gain deeper insights into cash flow patterns, enabling more informed decision-making.
- Leverage Financing Options Wisely: Consider lines of credit, invoice factoring, or other financing solutions to manage short-term cash flow needs without compromising long-term financial health.
Conclusion
By understanding and effectively managing your cash flow, you’re not just surviving; you’re thriving, ready to seize opportunities and navigate challenges with confidence.
Remember, effective cash flow management is an ongoing process. It requires vigilance, adaptability, and strategic foresight. By implementing the tips and strategies discussed in this post, you can ensure your business not only survives but thrives in the competitive marketplace.
Book a free consultation to learn more about how to use solid cash flow management to run your business.
Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.
How Do I Make a Payment to the CRA?
One of the most common questions we hear from our clients is “how do I make a payment to the CRA?”
The Canada Revenue Agency (CRA) offers a number of options for making payments, allowing you to choose the payment method that best suits your immediate needs. In the past, the only options available to taxpayers (individuals or businesses) would have been to use a remittance form provided by CRA to pay at the bank teller or by mail through Canada Post.
The remittance forms had magnetic ink encoding so the payment would be applied to the correct taxpayer and tax year. These old-school remittance forms are still provided by CRA but only by special request as they are intentionally moving toward more electronic options. Even though we all know change can be hard, we believe these new options are actually easier for taxpayers.
Electronic Payment Options for The CRA
The two most common electronic options are making payments using your financial institution’s online banking bill payment service or via CRA’s My Payment service.
Payment using online banking is as simple as setting up a new payee, like a utility bill or credit card. For individuals, you simply enter your SIN for your account number and select the payment option (e.g., payment on filing, arrears balance or installment).
Businesses typically have to select “Business Tax Payment” or a similar option within bill payments to get to the CRA payments. Once there, you select the type of payment (GST, corporate tax or payroll).
Most banks also allow you to file your GST or payroll remittance at the same time as payment.
CRA’s My Payment service has been around for a number of years and accepts Interac Debit, Visa Debit or Debit Mastercard payments. It uses the same login information as your online banking account (so you don’t have to remember another dreaded password). Unlike online banking which can take a day to process, with My Payment you get an immediate confirmation, great for those last-minute tax payments. Important note: credit card payments are not accepted through the My Payment service.
The steps for My Payment are very similar to online banking: first, select your payment type, account number, payment period and amount. Once you are happy with the payment to be made, confirm and click “Pay Now” to proceed to select the bank to pay from.
Did you know that you can set up pre-authorized debit (PAD) payments to CRA? PAD payment agreements can be set up for a one-time payment or for a series of payments (like installments). You can create a PAD payment agreement in your CRA My Account or by asking that your electronic filer completes and files form T185, Electronic Filing of a Pre-authorized Debit Agreement.
Of course, we would be remiss if we left out credit card payments, we all love the points! The option is available, but it’s not free. Two third-party providers, PaySimply and Plastiq, accept credit cards for a fee of about 2.5%.
In-Person Payment Options for the CRA
You can make a payment to CRA by visiting your Canadian bank, financial institution, or credit union, if you have a personalized remittance voucher. Personalized remittance vouchers can be requested through My Account or by calling the appropriate general enquiries line 1-800-959-5525 (Business) or 1-800-959-8281 (Individual). For individual taxpayers only, your tax return preparer may be able to print a personalized remittance voucher that can be used to make your tax payment in person via cheque or debit.
CRA’s newest payment option allows you to pay in person with cash or debit at any Canada Post outlet across Canada using a QR code that contains information that allows CRA to credit your account. Personalized remittance vouchers from CRA or from your tax return preparer will already contain this QR code. If you do not have a personalized remittance voucher, you can create a QR code at paysimply.ca. Service fees for Canada Post payment services range from $3.95 – $7.95 and are dependent on the amount of the payment.
Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.
Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.
Mastering Delegation: Overcoming Hurdles for Team Success
Pick up any book on workplace leadership, and you’re likely to find a chapter extolling the power of delegation. If done effectively, delegating can lead your team to new heights and drive organizational success. Too often, though, we fall short.
To succeed, one must overcome the initial hurdles tied to delegation while ensuring meaningful follow-up.
To illustrate, consider the story of Jane. A seasoned manager with years of experience, Jane has honed her proficiency in her current role. Recently entrusted with overseeing junior staff, Jane’s superior hopes that she’ll pass on her experience by entrusting her juniors with specific tasks. Jane is initially hesitant to follow through with this request. She has grown comfortable with her responsibilities and fears giving them up. Jane worries that relinquishing tasks to the junior staff may render her role expendable, and she is concerned for her job security.
Jane’s apprehension is a sentiment shared by many. As humans, we trust first in what we know, and we avoid stepping into the unknown. That’s why we tend to focus first on the tasks that come easily to us and can shy away from exploring new opportunities. Yet, beneath the surface, delegation presents a dual advantage: it gives those under you the chance to develop new skills while allowing you to enhance your own growth.
Jane’s primary fear is becoming replaceable. However, that doesn’t have to be a bad thing. She can use her newfound capacity as a springboard to learn a new skill or to tackle assignments outside her current scope. By not delegating, Jane is inadvertently limiting her own growth. When properly utilized, delegation is a win/win for all parties involved. Jane and the junior staff open themselves up to promotions within the company. The company also benefits by promoting from within, retaining staff who are familiar with the company’s values and culture while avoiding the hassles that come with external recruiting.
Now that Jane understands the value of delegation, she’s finally ready to pass on certain tasks to junior team members. Delegating isn’t just about passing off tasks, though. Jane must be involved throughout the process to ensure her subordinates complete the tasks effectively.
That begins with clearly communicating what is expected and providing all the resources necessary to succeed. As described in the example, Jane is an expert at what she does. She already intuitively knows precisely what needs to be done. However, she must be careful not to assume that her team members will possess this knowledge. She needs to walk through the project with them at each level.
Regular check-ins can offer support and provide a safe place for questions to arise. It’s important, however, to strike a balance between support and micro-management. Trusting them to navigate challenges independently is essential to the learning experience, even if that means allowing them to falter at times.
When mistakes that require correction are made, Jane may think it best to fix them herself. It would seem quicker than having her teammate rectify the error. While that may be true, it will prove more beneficial to have invested the time in guiding her teammate through the issues in the long run. If your team members understand what went wrong and how to fix it, they will be better able to avoid those mistakes in the future.
Once her team has completed the task, feedback is essential. Jane must ensure her feedback is constructive, highlighting achievements while pointing out areas for future growth. At the same time, Jane should also ask for feedback for herself. This will help in her own development as she seeks to improve her delegation skills.
Delegation is a tool that needs to be managed appropriately. As Jane’s story illustrates, the challenges to delegating continue once the initial hurdle of handing off work is completed. It’s important to set clear expectations while providing guidance and support when mistakes are made. Following these steps will enhance your leadership and pave the way for organizational success through effective delegation.
This post was contributed by Avisar Associate Manager Caleb Barkowsky.
Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.
New Year, New Financial Goals: A Blueprint for Small Business Success in 2024
As we enter 2024, it’s an excellent time to ensure you’ve set some financial goals for your business. Effective financial planning is a good practice and the backbone of sustainable business growth. If you have yet to set some solid financial goals for your business in 2024, this guide will offer some practical, actionable advice on setting and monitoring those financial goals, ensuring your business not only survives but thrives in the year ahead.
Understanding the Financial Landscape of 2024
The Canadian economy looks to be on track to avoid a recession in 2024. Still, GDP growth is forecast to slow to 0.9% (from 1.1% in 2023). Our dollar is expected to remain in the 72-75 cent range. Most economists expect our inflation rate to get closer to the target 2% range but not achieve it until the end of 2024.
According to the BDC, three elements could worsen things and push us into a recession.
Geopolitical conflicts could affect the energy market. Persistent inflation could affect consumer spending. And even if interest rates hold, the current rates could cause consumer demand to collapse.
The BC economy is expected to experience slightly slower growth, with GDP growth of only 0.5% in 2024. British Columbia Real Estate Association is forecasting 24% growth in the real estate market in 2024, compared to an expected 7.1% drop this year, Which would be good news for businesses supporting the housing and construction industry.
For small businesses, this all means staying informed and adaptable is more crucial than ever. Adapting to these trends can affect everything from supply chain decisions to customer spending habits, making an agile approach to financial planning essential.
Setting Smart Financial Goals
Central to effective financial planning is the establishment of SMART (Specific, Measurable, Achievable, Relevant, Time-bound) goals.
For instance, setting a goal like “Increase net revenue by 12% by the end of Q3 2024” is a prime example of a SMART goal. It’s specific, quantifiable, achievable, relevant to overall business growth, and has a defined timeline.
In setting these goals, it’s also essential to consider the broader economic forecasts and how they might impact your specific industry or market—tailoring your financial goals to your business’s capabilities and the predicted market conditions can significantly enhance your chances of success.
Budgeting for Success
A robust budget is your financial compass, guiding every business decision you make. It involves deeply understanding your income versus expenses and balancing them to meet your goals. An effective budgeting strategy starts with thoroughly categorizing costs into fixed (rent, salaries) and variable (marketing, utilities) expenses. This distinction is crucial in creating a budget that guides spending and aligns with your financial targets.
In addition to basic categorization, integrating predictive budgeting can be highly beneficial. This involves using past financial data to forecast future spending and income, allowing for more informed budgeting decisions. Predictive budgeting can help anticipate and plan for market fluctuations, ensuring your business remains agile and responsive to change.
Read more about creating a better small business budget.
Managing Cash Flow
Cash flow management is the lifeblood of any business, particularly small enterprises. It’s about ensuring that your business has the necessary funds when needed. Effective strategies include prompt invoice management, maintaining a cash reserve for unexpected expenses, and managing credit efficiently. A well-managed cash flow ensures that your business can meet its financial obligations and invest in growth opportunities as they arise.
Moreover, employing tools like cash flow forecasts is highly beneficial. These tools help you anticipate periods of tight liquidity, allowing you to make proactive decisions to maintain a healthy cash flow. Regularly updating these forecasts based on real-time financial data keeps your business one step ahead.
Leveraging Technology for Financial Management
In the age of digital transformation, technology plays a pivotal role in efficient financial management. From cloud-based accounting solutions to mobile invoicing apps, these tools bring a level of automation and accuracy previously unattainable. They streamline tasks like expense tracking and financial reporting. They can even offer predictive insights into future economic trends based on your historical data.
But technology’s role extends beyond simplification and automation. It can provide critical insights into your business’s financial health, offering analytics to inform decision-making.
For example, many modern financial management tools come equipped with dashboards that provide a real-time overview of your financial status, helping you make informed decisions quickly.
Regular Review and Adjustment of Goals
Setting financial goals is not a one-time event but an ongoing process requiring regular review and adjustment. Ideally conducted quarterly, this practice allows you to measure your progress against set objectives and respond appropriately to any changes in your business environment.
Regular reviews also provide an opportunity to reassess your business strategies in light of new market information, economic trends, or changes in your business model. This flexibility is critical to maintaining relevance and competitiveness in the ever-changing business landscape.
Seeking Professional Guidance
While managing finances internally is essential, external expertise can be invaluable. At Avisar Chartered Professional Accountants, we offer tailored advice for your unique business needs, including specialized areas like tax planning, strategic financial consulting, estate planning, and more. Our team is well-versed in the nuances of the Canadian economic landscape, particularly in British Columbia, offering insights tailored to your local context.
Conclusion
Setting and monitoring financial goals is a dynamic process. The beginning of 2024 is the perfect opportunity to plan and adapt your financial strategies. Remember, the objective is not just survival but thriving success.
Avisar Chartered Professional Accountants is committed to guiding you on this journey. Our experience and personalized approach ensure that your financial planning aligns with your business goals. With a strong focus on local businesses in British Columbia, we understand the challenges and opportunities unique to our region.
Ready to set your business on the path to financial success in 2024? Contact Avisar today, and let’s turn your financial goals into achievements.
Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.
Big Financial Trends 2024: What Canadian Small and Medium-Size Businesses Need to Know
Supplier costs continue to rise. Inflation continues to impact buyer behaviour. Global unrest is making people uneasy. All of these financial trends are affecting small and medium-sized businesses as we head into 2024. 12% worry they will be unable to continue past 2024. Here’s the good news: 88% of Canadian SMBs surveyed say they are confident about growing their company over the next three years — an improvement from 2022’s 83%.
Regardless of what you see coming in the years ahead, understanding your financial situation is crucial to effectively building a successful and sustainable business. Cash flow will be more important in the coming year, and managing the economic, consumer, technology, and labour challenges should be top of mind.
Financial Trends and Challenges Facing Small and Medium-Sized Canadian Businesses
Here are some of the key financial trends and challenges that SMBs must confront in 2024.
Economic Concerns
Are we heading into a recession? That’s the big question that we’re all grappling with. The Conference Board of Canada now believes we’ll avoid a recession with a recovery in 2024. Others disagree. Either way, SMBs need to keep tight control over finances and prepare for whatever comes next.
The Bank of Canada is expected to hold tight on interest rates for the first half of 2024, with rate reductions not coming until mid-year. High interest rates slow down many areas of the economy, including consumer spending. SMBs seeking financing will find it more expensive, and loan grants may be more restrictive.
With labour challenges causing wages to rise and costs of goods increasing, SMBs will have to make difficult decisions about raising prices and managing cash flow.
Consumer Behaviour
A long-running financial trends that will continue in 2024 is more consumers are shopping online. With internet usage across Canada at nearly 93%, the retail eCommerce market is forecast to hit $71.7 billion in Canada in 2024. Yet, many small businesses nationwide are lagging in building out eCommerce solutions. Businesses must assess their eCommerce strategy to stay competitive, especially with younger consumers.
If there is a recession, expect consumer behaviour to shift. As businesses downsize, many Canadians will suddenly be out of work or have their work hours reduced. Demand for goods and services will decrease, especially for items that aren’t considered essential.
Consumers are also focusing on sustainability and eco-friendly practices in decision-making. More people expect transparency into how businesses operate as part of purchase decisions. Starting in 2024, banks and insurance companies face mandatory disclosures for climate-related risk and exposure. While most SMBs do not have such reporting requirements, expect more interest in how you are operating.
Technology
Technology is playing an increasingly important role in business. Artificial intelligence and automation are both disrupting entire sectors and providing significant efficiencies.
At the same time, SMBs need to worry more about cybersecurity than ever before. Cybercriminals are increasingly targeting small and medium-sized businesses. Cybercrime in Canada is up more than 600% since the start of the pandemic, and nearly half of all attacks target SMBs.
Labour Laws
A new regulation goes into effect on February 1, 2024, as part of the Labour Code, increasing the obligations employers have when terminating employees in federally regulated businesses. More notice will need to be given to those with three years or more of employment. Up to eight weeks’ notice is required for employees working at a company for eight years or longer. There are also new requirements about the statement of benefits, wages, and severance pay that must be provided.
Businesses that use employment contracts will want to review them to ensure they comply with the new measures. Businesses must update employee handbooks and policy manuals to meet the new guidelines.
What SMBs Can Do to Prepare for 2024
Seek Financial Advice
Consulting with accounting and finance experts like Avisar Chartered Professional Accountants should be a priority heading into 2024 and pondering how to prepare for emerging financial trends. A CPA firm can provide expert guidance on budgeting, cash flow management, financing options, and more to help SMBs adapt to evolving economic conditions.
Adapting to Changing Consumer Preferences
SMBs need to evaluate their products and services, looking at ROI in light of evolving consumer behaviour. Enhancing eCommerce and digital offerings, managing supply chains, and tight cost control are all part of the SMB landscape moving forward.
Leverage Technology
SMBs should stay current on technology and look for ways to streamline operations. The right technology can boost competitiveness by automating functions. Seeking input from your accounting firm can help you find new ways to optimize finances and reduce your accounting workload.
SMBs also need to evaluate their current cybersecurity to lower risk.
Remain Compliant
Regulatory compliance is essential. Rules and reporting requirements are changing, and SMBs need to avoid costly problems by adhering to evolving laws. A CPA firm can help ensure businesses adhere to the latest accounting, tax, and other financial standards.
Get Professional Financial Management
With these complex challenges facing SMBs in 2024, you need a trusted advisor to help guide you, keep you compliant, and better manage your finances.
Avisar Chartered Professional Accountants is a trusted BC-based Canadian accounting firm focused on serving small businesses, entrepreneurs, and not-for-profit organizations. Our team of highly experienced accountants understands the unique needs of small and medium-sized businesses and is dedicated to helping you manage your finances and grow your business.
Contact Avisar Charted Professional Accountants today to book a consultation.
Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.
Avisar Chartered Professional Accountants Nominated For “Business of The Year” By Greater Langley Chamber Of Commerce
Avisar Chartered Professional Accountants is thrilled to announce its nomination for the prestigious “Business of the Year” award by the Greater Langley Chamber of Commerce.
“This is a proud moment for our dedicated team, who consistently strive to provide top-notch services to businesses and individuals throughout Langley,” said Bernie Zacharias, Partner at Avisar Chartered Professional Accountants. “Being recognized by the Greater Langley Chamber of Commerce underscores our commitment to business excellence and community growth.”
Celebrating its 27th anniversary, the Langley Business Excellence Awards stands as a testament to the region’s economic prosperity and innovative spirit. Avisar’s nomination showcases its excellence in the field of accounting, along with its noteworthy contributions to Langley’s vibrant business ecosystem.
Local residents and businesses are invited to join a night of distinction on Thursday, October 26 from 5:45 pm – 9:00 pm at the Cascades Casino Coast Hotel. The event will shine a spotlight on Langley’s top-tier businesses, offering attendees a prime networking environment accompanied by a sumptuous plated dinner.
Having established deep roots as an accounting firm in Langley, British Columbia, Avisar has cemented its reputation as an industry leader, putting clients’ needs first and playing an active role in advancing the Langley business community.
About Avisar Chartered Professional Accountants:
Located in the heart of Langley, BC, Avisar Chartered Professional Accountants is committed to delivering exceptional accounting services to small- and mid-sized businesses with integrity, excellence, and accuracy. By fostering relationships with local businesses and the community, Avisar aims to contribute positively to Langley’s dynamic growth and prosperity. Avisar was established in Langley, British Columbia in 2004, and today we serve 300+ client groups across the Lower Mainland, Langley, Surrey, & several other areas in Canada.
Building a Strong Financial Foundation: 9 Tips for a Better Small Business Budget
Creating an effective small business budget can make the difference between thriving and just surviving in the exciting and sometimes unpredictable world of running a small business. Despite its crucial importance, many small business owners feel daunted by creating and managing a budget, viewing it as a complex and time-consuming process.
Table of Contents
What is a small business budget, and why is it crucial?
Creating Your Small Business Budget
Monitoring and Adjusting Your Small Business Budget
Using Your Budget to Make Strategic Decisions
Introduction: Tips for Small Business Budgeting
Budgeting is not just about tracking income and expenses or preventing your business from overspending. It serves as a compass that guides your business toward its goals, a yardstick that measures your business’s performance, and a contingency plan that prepares your business for uncertainties. It allows you to anticipate challenges, seize opportunities, and steer your business on the path to growth and stability.
In this blog post, we aim to demystify the budgeting process and provide practical, actionable tips that small business owners can apply to their businesses. Whether you’re a startup just about to venture into your industry or a seasoned business looking to improve your financial management, these tips can help you navigate the financial aspects of your business with greater confidence and foresight.
Stay with us as we delve into the essentials of business budgeting, explore strategies for creating a realistic and effective small business budget, discuss the importance of regular budget monitoring and adjustments, and offer advice on planning for uncertainties. Along the way, we’ll also highlight the value of budgeting in making strategic decisions. Ready to master the art of budgeting? Let’s get started!
What is a Small Business Budget, and Why is it Crucial?
Business budgeting might seem like a fancy term, but at its core, it’s about planning your finances so that your income is greater than your expenses. This allows your business not only to cover operational costs but also to invest in its growth. But let’s go a bit deeper into this concept.
A small business budget is a financial plan that estimates income and expenses over a specific period. It serves as a roadmap, outlining how resources will be allocated to achieve business objectives. Budgets can be designed for a quarter, a year, or any period that suits your business needs.
The importance of business budgeting cannot be understated. It helps you understand your business’s financial health, make informed decisions, and plan for the future. Budgeting offers visibility into your cash flow, making it easier to identify potential cash shortfalls in advance and take preventive measures. It also enables you to allocate resources wisely, assess the feasibility of your financial goals, and measure your progress against those goals.
Different Types of Budgets: Operational, Cash Flow, and Capital Budgets
There are different types of budgets, each serving a unique purpose.
Operational Budgets focus on the day-to-day running of the business. They include income and expenses related to operations, such as sales, cost of goods sold (COGS), salaries, rent, and utilities.
Cash Flow Budgets estimate the inflow and outflow of cash in your business. They are crucial for ensuring that your business has enough liquidity to meet its short-term obligations. They can be beneficial in companies with significant seasonal variations.
Capital Budgets are for large, long-term investments such as purchasing equipment, upgrading software, or expanding to a new location. They help businesses plan and allocate funds for significant expenditures that can drive growth.
The Role of Budgeting in Strategic Planning
A well-structured small business budget is integral to strategic planning. It helps you prioritize your business initiatives, guiding where to cut costs and where to invest more. It serves as a performance metric, enabling you to compare projected performance against actual results, informing future strategies. By aiding in the identification of financial strengths, weaknesses, opportunities, and threats, budgeting helps you chart the course of your business’s future.
Understanding business budgeting is the first step toward mastering it. As we dive deeper into the specifics in the following sections, you’ll see how these concepts are applied to create a realistic budget that can navigate your small business toward financial success.
Know Your Costs
Knowing your costs is like having a clear map for your financial journey. By understanding and categorizing your costs, you can make more informed decisions and create a budget that reflects the realities of your business operations.
Identifying and Categorizing Your Business Costs
There are three main types of costs that your small business will incur: fixed, variable, and semi-variable costs.
Fixed Costs are expenses that do not change regardless of your business activity level. They remain the same whether your business is bustling or experiencing a slower season. Examples of fixed costs include rent, salaries, insurance, and any other expenses that are consistent from month to month.
Variable Costs, on the other hand, fluctuate depending on your business operations. These costs increase as your business activity goes up and decrease when it goes down. They often include expenses like raw materials, shipping, sales commissions, and other costs associated directly with the production or delivery of your products or services.
Semi-variable Costs are a blend of fixed and variable costs. These costs remain fixed to a certain output level, after which they increase. For example, you might have a data plan for your business with a fixed cost for a specific limit. Still, any usage beyond that limit incurs additional charges.
By accurately identifying and categorizing your costs, you can create a more precise small business budget and make better decisions about pricing, cost-cutting, and growth strategies.
The Significance of Understanding Your Costs in Budgeting
Knowing your costs is more than just a pre-budgeting exercise—it’s an ongoing part of managing your business finances. When you understand your costs:
- You can set prices that accurately reflect your cost structure, ensuring your business remains profitable.
- You gain insights into the profitability of individual products or services, allowing you to adjust your offerings or marketing strategies as needed.
- You can identify potential areas for cost savings and efficiency improvements, which could mean the difference between struggling and thriving in competitive markets.
- You can better manage cash flow by anticipating changes in variable and semi-variable costs.
In the following sections, we’ll delve into revenue forecasting and creating your budget. Armed with a clear understanding of your costs, you’ll be well-prepared to tackle these steps confidently.
Revenue Forecasting
Accurate revenue forecasting is a crucial aspect of budgeting. It offers insights into your business’s potential income, allowing you to plan expenditures and evaluate the financial feasibility of your business goals. Let’s dive deeper into the what, why, and how of revenue forecasting.
Basics of Revenue Forecasting and Its Importance
Revenue forecasting involves estimating the amount of money your business will receive in a specific period. It’s not just a wild guess but a calculated prediction based on past data, market research, and industry trends.
Accurate revenue forecasting can help you make strategic decisions about your business operations. It can inform your budgeting, enabling you to plan your expenses accordingly and avoid potential cash flow problems. Additionally, it can help you identify which products or services are most profitable, assess the impact of price changes or marketing campaigns, and plan for growth.
Tools and Methods for Accurate Revenue Predictions
Here are some strategies and tools that can help you create accurate revenue forecasts:
Historical Data: Your past sales data is a gold mine of information. You can analyze this data to identify trends and patterns, which can inform your future revenue predictions. Keep in mind, however, that past performance does not guarantee future results. It’s crucial to consider other factors, such as changes in the market or your business operations.
Market Research: Understanding your industry trends, competition, and target market can significantly improve the accuracy of your revenue forecasts. You might use online research, surveys, or industry reports to gather this information.
Sales Pipeline: If you have a predictable sales process, your sales pipeline can be a valuable forecasting tool. By examining your pipeline stages and conversion rates, you can estimate the likelihood of potential sales becoming actual revenue.
Seasonal Adjustments: Consider these in your revenue forecasting if your business has seasonal fluctuations. You might have periods of the year with higher or lower sales, which should be reflected in your forecasts.
Creating accurate revenue forecasts requires time, effort, and a bit of skill, but the benefits are well worth it. In the next section, we’ll discuss how to integrate this information into creating a comprehensive and realistic budget for your small business.
Creating Your Small Business Budget
A detailed understanding of your costs and an accurate revenue forecast give you a solid foundation to build your budget. This process may initially seem overwhelming, but it can become a manageable and even empowering task with a step-by-step approach.
Step-by-Step Guide on How to Create a Comprehensive and Realistic Budget
- Define Your Business Goals: What do you want to achieve in the specific budgeting period? Your goals might involve expansion, increasing profitability, reducing debt, or investing in new products or services. These goals will influence your budget allocations.
- Estimate Your Revenue: Use the revenue forecasting methods discussed in the previous section to estimate your income for the budgeting period.
- Detail Your Expenses: Based on your understanding of your business costs, detail all your expected expenses. They should include fixed, variable, and semi-variable costs. Remember to include non-regular expenses such as annual insurance premiums or tax payments.
- Create the Budget: Subtract your total expenses from your total revenue to determine your net income. This figure will show whether your business will likely make a profit or loss in the budgeting period.
- Review and Adjust: If your initial budget shows a loss or less profit than desired, review your revenue and expenses. Are there ways to increase revenue or decrease costs without negatively impacting your business operations or growth? Make adjustments as necessary until your budget aligns with your business goals.
Role of Budgeting Software and Other Digital Tools
In today’s digital age, small business owners have access to a variety of budgeting software and digital tools that can simplify and streamline the budgeting process. These tools can automate data entry, provide visual representations of your budget, and even offer predictive analytics for more accurate forecasting. Some popular options include QuickBooks, Xero, and FreshBooks, but the right tool for your business will depend on your specific needs and preferences.
Allocating Resources Effectively: Balancing Between Growth and Sustainability
Creating a budget isn’t just about ensuring your business stays afloat—it’s about planning for growth while maintaining sustainability. Allocate resources to areas that contribute to your business growth, such as marketing, product development, or customer service. At the same time, ensure your essential operational costs are covered and you have a buffer for unexpected expenses.
Remember, a budget is a living document. It will need adjustments as your business circumstances change. The key is to start with a clear, realistic plan and stay flexible as you navigate your business journey. Next, we will discuss the importance of regularly monitoring and adjusting your budget.
Monitoring and Adjusting Your Budget
Creating a budget is a significant first step, but the process doesn’t end there. You should monitor your budget regularly and adjust as necessary to reflect the changing realities of your business.
Why Regular Monitoring is Essential
Business is dynamic, and the assumptions you use to create your budget may not always hold. Market conditions can change, new opportunities may arise, or unexpected challenges may crop up. Regular monitoring allows you to catch these changes early, assess their impact on your budget, and adjust your plans accordingly.
Moreover, monitoring your budget is about more than just tracking your financial performance. It’s also about understanding why your actual results differ from your budgeted figures. By doing so, you can gain insights into your business operations, the effectiveness of your strategies, and the accuracy of your assumptions.
How to Monitor Your Budget
Here are some practical steps for monitoring your budget:
- Regular Reviews: Set a schedule for reviewing your budget. This could be monthly, quarterly, or whatever frequency works best for your business. Consistency is key.
- Track Actual Results: Keep track of your actual income and expenses. Compare these figures with your budgeted amounts to identify any variances.
- Analyze Variances: If your actual results differ significantly from your budget, try to understand why. Were your assumptions inaccurate, or did something change in your business or the market?
- Adjust Your Budget: If necessary, adjust your budget to reflect your new understanding of your business. This might involve changing your revenue forecasts, cutting or increasing expenses, or re-evaluating your business goals.
Tools for Small Business Budget Monitoring
You can simplify your budget monitoring with the help of digital tools. Many budgeting software options include features for tracking actual results, analyzing variances, and even sending alerts when your figures deviate significantly from your budget. These tools can save you time, improve accuracy, and provide valuable insights into your financial performance.
Monitoring and adjusting your budget is an ongoing process that encourages continuous learning and improvement. It keeps your budget relevant and effective, ensuring it continues to be a helpful tool for guiding your business decisions. In the next section, we’ll discuss how your budget can help you plan for uncertainties and secure the future of your business.
Planning for Uncertainties
Running a small business involves a degree of uncertainty. Changes in the market, unexpected expenses, and other unforeseen events can impact your financial position. However, you can use your small business budget to anticipate and prepare for these uncertainties, helping secure your business’s financial future.
The Role of Contingency Planning in Budgeting
Contingency planning involves preparing for unexpected events that could negatively impact your business. When creating your budget, it’s wise to set aside funds for such situations. This contingency fund serves as a financial safety net, ensuring you can meet unexpected costs without jeopardizing your business operations or dipping into your essential operational funds.
The size of your contingency fund will depend on your business’s risk level and financial position, but a common recommendation is to cover at least three to six months’ worth of operating expenses.
Scenario Planning and Sensitivity Analysis
Another method to plan for uncertainties is through scenario planning and sensitivity analysis. These involve creating different versions of your small business budget based on various scenarios, helping you understand the potential impact of changes in key variables on your business’s financial performance.
For instance, you might create:
Best-case Scenarios: What would your financial position look like if your sales were 20% higher than forecast? How could you use the extra revenue to further your business goals?
Worst-case Scenarios: What if your sales were 20% lower than forecast? How would you adjust your spending to keep your business afloat?
Most likely Scenarios: What if your sales were precisely as forecasted? Would your budget allow you to cover all your expenses and achieve your business goals?
By considering these scenarios, you can create plans to respond effectively to different situations, reducing the impact of uncertainty on your business.
Importance of Insurance
Insurance is another tool to manage financial risk and plan for uncertainties. Depending on your business operations, you might consider various types of insurance, such as property insurance, liability insurance, or business interruption insurance. While insurance involves an upfront cost, it can save your business from significant financial losses in the event of an unfortunate incident.
Planning for uncertainties might involve some guesswork, but it’s essential to managing your business’s financial risks. By integrating contingency planning, scenario planning, and insurance into your budget, you can create a financial plan that supports your current business operations and secures your business’s future.
Using a Budget to Make Strategic Decisions
Your small business budget isn’t just a financial document—it’s also a strategic tool that can guide your business decisions. By analyzing your budget, you can identify opportunities for growth, areas for cost savings, and strategies for improving your profitability and sustainability.
Driving Business Growth
Your budget can offer insights into potential areas for business growth. For example, suppose your revenue forecast shows strong sales for a particular product or service. In that case, you might decide to allocate more resources to its production, marketing, or development. Conversely, suppose a product or service isn’t performing as well as expected. In that case, your budget can help you decide whether to improve or phase it out.
Additionally, your budget can inform your decisions about business expansion. If your net income is consistently high and you have a strong cash flow, you might decide it’s time to open a new location, hire more staff, or invest in new equipment. On the other hand, if your net income is low or your cash flow is inconsistent, you might decide to focus on improving your existing operations before considering expansion.
Identifying Cost Savings
Analyzing your budget can also help you identify potential cost savings. By looking at your expenses in detail, you might find areas where you can reduce costs without impacting your product quality or customer satisfaction.
For example, suppose your rent is a significant portion of your fixed costs. In that case, you might consider relocating to a less expensive location, negotiating a better lease deal, or even transitioning to a home-based or online business model. If your variable costs are high, you might look for ways to improve your operational efficiency, negotiate better deals with suppliers, or reduce waste.
Improving Profitability and Sustainability
Ultimately, your budget can guide your decisions to improve profitability and sustainability. It can help you set accurate prices for your products or services, ensuring you cover your costs and earn a profit. It can inform your cash flow management, helping you ensure you have enough money to meet your financial obligations. And it can help you plan for uncertainties, securing your business’s financial future.
In the final analysis, your small business budget is more than just numbers on a page. It reflects your business strategy, a tool for decision-making, and a roadmap for your business’s financial success. It’s an asset that, when used effectively, can help you navigate the complexities of running a small business and achieve your business goals.
The Role of a Professional Accountant
Sometimes, you need a helping hand, and that’s where an accountant comes in. They can provide expert advice, help you develop a robust small business budget, and guide you through the complexities of financial management. Hiring a professional may be an added expense, but it can be an investment that pays off in the long run.
Avisar Chartered Professional Accountants is a leading accounting firm for small and mid-sized businesses in the Lower Mainland. Vancouver, Langley, Abbotsford, and Surrey.
Get a free review of your finances by booking a consultation.
Conclusion
Budgeting is a critical aspect of managing a small business. It provides an insightful financial roadmap that can guide your decision-making and strategic planning. By understanding the essentials of business budgeting, you can identify your costs, forecast your revenues, and create a detailed budget. This is not a static document but requires regular monitoring and adjustments to remain effective and relevant to your business’s changing needs.
Contingency planning, scenario analyses, and insurance play a vital role in preparing your business for uncertainties, enabling you to mitigate risks and maintain your business’s financial health in various situations. Your small business budget is also a powerful tool for strategic decisions, helping you identify growth opportunities, discover potential cost savings, and improve profitability and sustainability.
In essence, a well-structured budget is not merely a financial statement—it’s a strategic compass guiding your business toward its goals amidst the dynamic landscape of the market. By integrating effective budgeting practices into your business operations, you can enhance your financial management skills, drive your business growth, and secure its financial future.
Ready to take your budgeting to the next level? Book a free consultation today.
Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.
