Setting SMART financial goals for your business

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.

Year-End Tax Planning Strategies for Small Business

Year-End Tax Planning Strategies for Small Business

As the year draws to a close, small business owners in Canada have a golden opportunity to minimize their tax liability and maximize their financial stability. By implementing smart year-end tax planning strategies for small business, you can ensure you keep more of your hard-earned money while complying with Canadian tax laws. In this article, we will explore important considerations and strategies for Canadian small businesses, highlighting some time-sensitive items and key business deductions to consider.

Review Your Business Structure

One of the first decisions small business owners should revisit at year-end is their business structure. Whether you are a sole proprietor, partnership, corporation, or another entity, your structure can significantly impact your tax liability. For instance, if you’re operating as a corporation, you may be able to take advantage of the small business deduction, which can reduce the federal corporate tax rate on active business income. Similarly, if your business has grown significantly, it might be time to consider incorporating, which can offer tax advantages and limited liability protection.

Evaluate Your Income and Expenses

It’s essential to review your business’s financial performance and make informed decisions about your income and expenses. Delaying or accelerating income or expenses can have a substantial impact on your current-year tax liability. If you expect your income to be lower next year, you may want to defer invoicing clients until the new year. Conversely, if you anticipate higher income next year, you might consider accelerating income into the current year to take advantage of lower tax rates.

There is a near-term opportunity to elect to fully deduct capital asset purchases (with some limitations) in 2023 versus the usual requirement to claim the deduction over several years. For these purchases, the asset must be in use before December 31, 2023, and an election made on filing the tax return. This deadline is extended to December 31, 2024, for sole proprietorships and partnerships of all individuals.

Maximize Small Business Deductions

Canadian small businesses are eligible for various deductions, which can significantly reduce their tax liability. Some key deductions to consider include:

  1. Small Business Deduction (SBD): This deduction allows eligible small businesses to reduce their federal corporate tax rate on active business income. It’s important to ensure that your business meets the criteria to qualify for the SBD.
  2. Home Office Expenses: Given the rise in remote work, many small business owners work from home. You can claim a portion of your home-related expenses, such as rent, utilities, and internet, as business expenses if you use your home as your principal place of business.
  3. Employee Benefits: Offering benefits to employees can be a valuable deduction. This can include health and dental plans, life insurance, and retirement savings plans.
  4. Scientific Research and Experimental Development (SR&ED) Tax Incentive: If your business is engaged in research and development activities, you may be eligible for the SR&ED program, which offers tax credits for eligible expenditures.

Take Advantage of Time-Sensitive Items

Certain tax planning strategies must be implemented before year-end, so it’s crucial to act promptly. Some time-sensitive considerations include:

  1. RRSP Contributions: Consider contributing to Registered Retirement Savings Plans (RRSPs) before the end of the year to reduce your personal taxable income.
  2. Dividend Planning: If your business is incorporated, assess the most tax-efficient way to distribute dividends to yourself and other shareholders.
  3. Debt Repayment: If your business has outstanding debts, it may be beneficial to pay them off before year-end, potentially reducing interest expenses and improving your financial position.
  4. Payroll and Bonuses: Ensure you’ve processed payroll and employee bonuses before year-end to claim them as expenses in the current tax year.

The Avisar Difference

Taxes are some of your business’s most significant expenses, which can cause a massive headache when it comes time to file. Remembering all deductions, credits, and strategies is difficult, even for the most well-organized businesses.

Due to the increasing complexity of the tax landscape, working with a professional is always recommended, especially one well-versed in local laws. It can optimize your tax payable throughout the year – freeing you up to focus on what you do best (running your business!)

Avisar CPA specializes in all manners of the tax act and how it applies specifically to BC residents and businesses. We sit down with you to learn more about your situation, business structure, and current goals and position.

After we have analyzed your unique scenario, we will devise a course of action and provide you with actionable steps on how we can improve your overall tax return, year after year. Book a free consultation today to learn more about how we’re helping BC businesses prosper.

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.

financial literacy

Unlocking Business Success: The Power of Financial Literacy for Entrepreneurs

As entrepreneurs and small business owners, you wear many hats, from marketing mavens to product developers. It’s impossible to be an expert in every aspect of your business. Still, there is one area that will pay huge dividends on the investment of time you make: financial literacy.

Financial literacy isn’t just about crunching numbers. It’s about understanding those numbers well enough to steer your business in the right direction. And in the unpredictable world of business, that understanding is priceless.

In this post, we’ll delve into the importance of financial literacy for small business owners, highlighting how mastering the basics can lead to smarter, more informed business decisions. So, whether you’re a seasoned business owner or just starting out, let’s embark on this financial journey together.

The Direct Impact of Financial Literacy on Business Success

Financial literacy is more than just a buzzword; it’s a foundational skill that can make or break a small business. Let’s dive into how understanding the financial ropes directly influences your business’s success.

Improved Cash Flow Management

Cash is the lifeblood of any business. A U.S. Bank study found that a whopping 82% of small businesses fail due to poor cash flow management1. By understanding the nuances of your cash inflow (sales, investments) and outflow (expenses, purchases), you can predict potential shortfalls and take proactive measures. It’s not just about making money; it’s about ensuring that money is available when you need it.

Informed Decision Making

Have you ever been of two minds about investing in new equipment or hiring more staff?

Financial literacy equips you with the tools to make these decisions confidently. By understanding your financial statements, you can gauge the health of your business, assess profitability, and determine the feasibility of big-ticket expenses. It’s like having a financial compass guiding you toward decisions that align with your business goals.

Risk Management

Every business faces financial risks like fluctuating market conditions or unexpected expenses. Being financially literate equips you to identify those risks early on.

For instance, if you’re aware of market trends, you might foresee a potential dip in sales and adjust your spending accordingly. Or, by regularly reviewing your financial statements, you might spot irregularities that could indicate fraud. Financial literacy acts as your business’s early warning system, helping you navigate potential pitfalls.

The Indirect Benefits of Financial Literacy

While the direct impacts of financial literacy, like cash flow management and risk assessment, are often in the spotlight, the indirect benefits can be just as transformative for small business owners. Let’s delve into these often-overlooked advantages.

Enhanced Confidence in Decision Making

When you understand your finances, you’re not just making decisions; you’re making informed decisions. Imagine being at a crossroads, unsure of which path to take. Financial literacy is like having a map, giving you the confidence to choose the right direction.

Better Relationships with Financial Institutions

Banks and creditors love working with informed clients. When you demonstrate a clear understanding of your financial position, it not only makes their job easier but also builds trust. This can lead to better loan terms, faster approvals, and even potential partnerships. Think of it this way: would you rather lend money to someone who knows exactly how they’ll pay you back or someone who’s just hoping for the best?

Long-term Business Sustainability

Financial literacy isn’t just about the here and now; it’s about the future. By understanding financial trends and the broader economic landscape, you can make strategic plans for growth and expansion. It’s like planting seeds today for a harvest tomorrow. Businesses prioritizing financial education tend to have a more sustainable growth trajectory, ensuring they’re not just a flash in the pan but a lasting presence in the market.

How to Improve Your Financial Literacy

Improving your financial know-how is more accessible than you might think. Here are some ways to chart your course to become more financially savvy.

Educational Resources

The digital age has blessed us with many resources at our fingertips. From online courses on platforms like Coursera and Udemy to insightful books like “Financial Intelligence for Entrepreneurs” by Karen Berman and Joe Knight, there’s no shortage of material to dive into.

Hiring a Professional

Sometimes, the best way to learn is from someone who’s been there and done that. Consider hiring an accountant or financial advisor, even just for a few consultation sessions. They can provide personalized insights, answer specific questions, and guide you through the intricacies of your business’s finances.

Plus, having an expert on speed dial can be a game-changer during those “I’m not sure what to do” moments.

Continuous Learning

The financial landscape is constantly evolving. Regulations change, new tools emerge, and market dynamics shift. Dedicate some time each month to stay updated. Subscribe to financial news outlets, join business forums, or attend workshops. By committing to continuous learning, you ensure that your financial knowledge doesn’t just grow but stays relevant.

In essence, improving financial literacy is a journey, not a destination. Whether you’re diving into online courses, seeking expert advice, or simply staying updated, every step you take strengthens your business’s foundation.

If you focus on developing and maintaining your financial literacy, the positive impact on your business will be profound.

If you’d like to have a conversation to help you get started, book a free consultation. We’d be happy to offer some advice.

small business budget

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.

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.

small business profitability

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

  1. 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:

  1. 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.

mastering financial forecasting

Mastering Financial Forecasting: 3 Things You Need to Know

Financial forecasting is a vital skill that many small business owners overlook, especially when first starting a business. Impacting sales projections, planning for expenses, and cash flow, this skill makes it easier for you to see how your business will do not only today, but tomorrow, next week, and next month. Financial forecasts make it possible for you to determine whether you’ll have sufficient funding to keep your business operating in the future, or if additional funding may be needed.

Mastering Financial Forecasting: Predicting and Planning for Small Business Success

The Importance of Financial Forecasting in Strategic Planning

A financial forecast will project sales, expenses, and cash flow into the future of your business, allowing you to determine areas where financing may be required to prevent your business from shutting down or suffering other financial difficulties. But beyond seeing into the short-term future, financial forecasting also plays other roles in your business, specifically in your strategic planning process.

Having a strategic plan for your business gives your budget some place intentional to put every dollar and gives you strong direction on which way to go as you face a range of issues in your company. Though you’ll still want to have a buffer set aside for unexpected emergencies, having a strategic plan that includes expected growth, capital equipment replacement, annual expenses, and similar revenue and expenses in place makes it easier to make decisions that are in line with your overall strategic plan.

Think of it this way: if a business didn’t plan for capital equipment replacement or for a slow season, the business might be caught without enough funding to successfully complete the financial cycle. With a plan in place, the owner, management, and leadership of the business can make decisions that are in line with the plan, preventing wasted time, money, effort, and materials.

How to Create Financial Forecasting Models and Projections

Though expenses, revenue, and cash flow all look at different aspects of your business’s overall health, all three follow the same basic rules when undertaking your financial forecasting. The biggest difference is which factors you’ll be considering.

  1. Define your financial forecasting purpose. What do you want to learn? Are you estimating sales or determining if your budget will work? These purposes will help you decide which measurements to use in the process.

  2. Pull your past financial data and statements. The past got you to where you are today and will help you determine where you’ll go in the future. You’ll want to know about revenue, liabilities, equity, expenses, losses, investments, income, per-share earnings, and fixed costs.
  3. Choose a timeframe. How long do you want to go into the future? For a business that has a regular income, you can create financial forecasting based on a few weeks’ data, but for irregular or seasonal income, go for several years. Most companies use a single fiscal year. If you’re doing long-term planning, pull long-term data and trends.
  4. Decide what financial forecasting method to use. Quantitative forecasting uses existing historical data for identifying trends and patterns but may not take into account industry changes. For those changes, a qualitative forecasting method that includes expert opinions and sentiment about the business and industry is more accurate.
  5. Document the process and review calculations. Much like weather forecasts, financial forecasting isn’t 100% accurate and will change more the further you get from the point of analysis. Document your process for future use and revision and check its accuracy after strong internal or external changes. Automation can make this process easier.
  6. Analyze the data. By regularly checking the data created regularly in your business against your forecast, you can determine how accurate your financial forecasting will be. You can also determine when your goals and plans should be accordingly adjusted.

  7. Repeat. Based on your timeframe in #3, repeat your financial forecasting on a regular basis to ensure that you’re still on top of the figures and in control of your spending and income.


By understanding how these documents are created, you’ll have a much better idea of how to leverage them to your company’s advantage in the future, including when you’re preparing an annual budget, finding problem areas, setting intelligent business goals, attracting investors, and reducing your risk. You’ll also be able to undertake innovative discussions about your company’s financial health with financial institutions, creditors, and other organizations you work with.

Why You Should Regularly Review and Adjust Financial Forecasting

However, it’s not enough to simply finish these financial forecasting models. You’ll also want to take time on a regular basis to review and adjust as needed to optimize your results. As an example, if you have higher or lower sales or expenses than was forecast, you have the option of slowing down the progress of your strategic plan or speeding it up. The strategic plan will still come into play, but it will have its timeline adjusted when financial forecasting is reviewed and adjusted.

Though financial forecasting can seem like a very complex process, it’s actually fairly straightforward once you understand the basic processes that are involved. Why not take a little time when things are quiet and work one out using the steps above? Once you’ve figured out how to accomplish this task, your business will be in much better hands and will be facing a much stronger future.

Would you like a free review of your financial statements? You can book one here.

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.

using key financial ratios

Unlocking Business Insights: Using Key Financial Ratios to Analyze Small Business Performance

In the competitive business world, small business owners need to make informed decisions to ensure the success and growth of their ventures. One crucial tool at their disposal are financial ratios, which provide valuable insights into a company’s performance.

By understanding and leveraging financial ratios, you can assess your business’ financial health, identify areas for improvement, and make strategic decisions to drive their businesses forward. This article will explore the power of key financial ratios and how you can use them effectively.

The Significance of Key Financial Ratios

Financial ratios are quantitative tools that help assess a company’s financial performance, efficiency, profitability, and liquidity. They provide a snapshot of the business’s financial health and offer benchmarks for comparison with industry standards and past performance. You can utilize these key financial ratios to understand your company’s financial position and make data-driven decisions.

  1. Liquidity Ratios: Liquidity ratios help you understand your cash flow by assessing your ability to meet short-term financial obligations. You can calculate ratios such as the current ratio and quick ratio to determine if the company has enough liquid assets to cover immediate expenses. These ratios help identify potential cash flow issues and enable proactive measures to ensure smooth operations.
  2. Profitability Ratios: Profitability ratios measure a company’s ability to generate profits and help in assessing business performance. Ratios such as gross profit margin, net profit margin, and return on assets (ROA) enable you to gauge your profitability and compare it to industry standards. By analyzing these ratios, business owners can identify areas for cost reduction, pricing adjustments, or revenue enhancement to maximize profits. We explore many of these in The Ultimate Small Business Profitability Checklist.
  3. Efficiency Ratios: Efficiency ratios provide insights into how effectively a business utilizes its resources to generate revenue. You can analyze ratios like inventory turnover, accounts receivable turnover, and asset turnover to assess operational efficiency. These ratios help identify bottlenecks in the supply chain, inventory management issues, or inefficiencies in resource allocation, enabling you to streamline operations and improve overall efficiency.
  4. Debt Ratios: Debt ratios evaluate a company’s leverage and ability to meet long-term financial obligations. You can calculate ratios like debt-to-equity and interest coverage ratios to assess their company’s risk exposure and debt management capabilities. These ratios assist in making informed decisions about borrowing, managing debt, and maintaining a healthy balance between equity and debt.

Interpreting and Applying Financial Ratios

While understanding these key financial ratios is essential, interpreting them correctly is equally crucial.

You should compare their ratios to industry benchmarks, historical data, and competitors to gain meaningful insights. Additionally, tracking ratios over time allows you to identify trends and evaluate the impact of strategic decisions.

It is essential to note that financial ratios should be used with other performance indicators and qualitative analysis to make well-rounded assessments. You can learn more about some of these metrics in The Ultimate Small Business Profitability Checklist. You’ll also find key financial ratios formulas in a key financial ratios pdf.

Financial ratios serve as invaluable tools for small business owners to assess their company’s performance, financial health, and areas for improvement. By leveraging liquidity ratios, profitability ratios, efficiency ratios, and debt ratios, you can gain a holistic view of their operations and make informed decisions to drive growth and success.

Understanding and interpreting financial ratios empowers you to optimize resource utilization, manage cash flow, improve profitability, and make strategic decisions for your business.

To learn more about how to calculate these ratios using your financial statements, check out How to Read Financial Statements: A Guide for Business Owners.

If you’d like help better understanding your financial ratios why not book a free consultation with one of the experts at Avisar.

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.

Federal Budget 2023: Other Measures

Small Business Credit Card Fees

Budget 2023 announced that commitments had been obtained from Visa and Mastercard to lower fees for small businesses. More than 90% of credit card-accepting businesses are expected to see their fees reduced by up to 27%.

Automatic Tax Filing for Low-income Canadians

Budget 2023 announced that the number of Canadians eligible for CRA’s automatic File My Return service will be increased to 2 million by 2025, almost tripling the number of currently eligible Canadians. In 2022, 53,000 returns were filed using this service. In addition, a new pilot project will be implemented to assist vulnerable Canadians in applying for benefits even if they do not file tax returns.

Student Benefits

Budget 2023 proposes increasing Canada student grants by 40%, raising the interest-free Canada student loan limit from $210 to $300 per study week, and waiving the requirement for mature students (aged 22 or older) to undergo credit screening in order to qualify.

Dental Care for Canadians

The Canadian dental care plan would provide coverage for all uninsured Canadians with an annual family income of less than $90,000 (the Canada dental benefit only provided benefits for children under 12) by the end of 2023. The plan will be administered by Health Canada with support from a third-party benefits administrator. Benefits are reduced for families with income between $70,000 and $90,000.

Protecting Federally Regulated Gig Workers

Budget 2023 proposes to amend the Canada Labour Code to strengthen prohibitions against employee misclassification for federally regulated gig workers such that they will receive protections and benefits including EI and CPP.

Ensuring the Integrity of Emergency COVID-19 Benefits

Budget 2023 proposes to provide $53.8 million in 2022-23 to Employment and Social Development Canada to support integrity activities relating to overpayments of COVID-19 emergency income supports.

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.

Federal Budget 2023: International Measures

International Tax Reform – Base Erosion and Profit Shifting

Canada is one of 137 members of the OECD/Group of 20 (G20) Inclusive Framework on Base Erosion and Profit Shifting (the Inclusive Framework) that have joined a two-pillar plan for international tax reform agreed to on October 8, 2021. Budget 2023 reiterates Canada’s commitment to the framework, and its intention to implement the Pillar One (intended to reallocate a portion of taxing rights over the profits of the largest and most profitable multinational enterprises to market countries where their users and customers are located) and Pillar Two (intended to ensure that the profits of large multinational enterprises are subject to an effective tax rate of at least 15%, regardless of where they are earned) initiatives.

Budget 2023 announces the government’s intention to introduce legislation implementing the income inclusion rule and a domestic minimum top-up tax applicable to Canadian entities of MNEs that are within scope of Pillar Two, with effect for fiscal years of MNEs that begin on or after December 31, 2023.

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.

why small businesses fail

5 Top Reasons Small Businesses Fail and How to Avoid Them

Why does the prospect of starting a small business come burdened with high risk? According to Innovation, Science and Economic Development Canada, the smallest businesses in Canada that only start with fewer than five employees have only a 62.5% chance of remaining open after five years and a 28.6% likelihood of survival after 17 years. However, small businesses with under 100 employees make up 97.9% of all businesses in the country. Therefore, even with high risk, many small companies still survive.

Understanding why small businesses fail will help a company to enact programs that prevent the most common reasons for failure and increase chances of succeeding over the year.

1. Not Understanding the Numbers

A big reason why small businesses fail is a lack of funding or working capital. This can often come as a result of not understanding, or not paying attention to what their financial statements are telling them.

Not accurately tracking your revenue and expenses will leave you flying blind. Are you really profitable? Do you know? In some instances revenue may be great and the balance sheet might look strong, but you may not actually have the cash to keep your business running.

As a business owner, you need to know how much of your revenue is needed for wages, utility bills, or rent so you can set growth and cost-savings goals accordingly.

Taking the time to read and understand your financial statements can prevent you from being surprised and allow you to react and plan in a way that moves your business forward.

Resource: How to Read Financial Statements for Business Owners

2. Not Knowing About Funding Options or Starting with Adequate Capital

Many small business owners don’t understand how difficult getting loans from banks can be. Without adequate funding, some business owners may attempt to dip into personal savings or friends to finance their ventures. Banks recognize the risk of small business failures. Consequently, they are historically less likely to provide loans.

To help business owners get operating funds, the Canadian government took action and passed amendments to both the Canada Small Business Financing Act and the Canada Small Business Financing Regulations to make getting loans easier for small business owners and less risky for financial institutions. The lenders share some of the risks with the business owners and have new products available for the small businesses to use.

Under this program, small businesses can use lines of credit for daily operating expenses or term loans for major business purchases. Each type of funding allows the lender to apply additional interest on top of its prime lending rates or mortgage rates, depending on the product. While businesses pay slightly more in interest, they have a greater chance of getting the funding they need to establish and grow their businesses.

The good news in Canada comes from the 2021 small business Credit Conditions Survey. The majority of small businesses that sought financing had full or partial approval. For instance, 89% of small businesses earned approval for either short or long-term loans. Among the 42% of businesses that requested government financing, 95% got at least some of the funds they asked for. While 85% of businesses reported not requesting financing because they didn’t need it, 3% of businesses did not know where to get funding and 4% didn’t apply because they thought their request would fail. Businesses that don’t seek funding will never get the money they need.

It can help your cause to know what financial ratios and metrics your bank or lender will be most interested in. Speak to your accountant first and make sure those numbers are in good shape and identify other information that may help your application.

3. Not Meeting Market Needs  

The type of business can make a difference in whether it will last. In Canada, small and medium businesses that sell goods had higher survival rates from three to 17 years than those that provided services. However, even for companies that provide goods, the chances of survival depend on meeting the market’s needs for products. If goods sold have no buyers or fail to have profitable pricing, the business still risks failure.

Several famous products failed because they lacked market demand. The Microsoft Zune portable music player could not distinguish itself nor compete with the well-established iPod. The augmented reality tool Google Glass looked unattractive while wearing it, cost far too much for most people to afford, and had poor marketing to promote it. Finally, the Segway could not find an audience of users when alternatives, such as biking or walking, already existed.

Even initial success can be a hindrance sometimes because it can blind business owners to the need to pivot. Business owners and entrepreneurs can become so invested in their product or service, they miss the signs pointing to the need to change or a new opportunity. That dip in sales might not mean it’s time to spend more in advertising, it could mean it’s time for a bigger shift to a new market, product offering, or sales channel.

4. Failing to Create a Business Plan

Failing to plan for the establishment and growth of a business will lead to its failure. Business plans must have clear goals and outlines for how to manage operations. These plans must include information on managing the company, risk management planning, financing needs and sources, marketing plans, and examination of competition.

Clearly outlining the management of the company during its startup phase and as it grows will ensure an efficient organization of employees and managers that meets the needs of the operation. The business owner must have the ability to delegate tasks to management staff, which allows for easier transitions later if the owner chooses to expand the company or retire. Part of the management plan should include information on an exit plan for the owner. The business owner should not assume that they will run the company forever. Having a plan to pass on operations to a new manager or business owner will facilitate future changes in leadership.

Risks for companies will change over time, but all businesses need to evaluate their sources of potential risk and identify ways to mitigate them. Risk management includes creating disaster plans to respond to emergencies, natural disasters, or security breaches. Cyber security should be an important part of the business plan. According to the CIRA Cybersecurity Survey in 2021, 36% of businesses of all sizes reported more cyber-attacks during the pandemic. Data security is vital to all businesses, but especially for small companies that could face devastating losses. The survey also noted that 17% of businesses suffered ransomware attacks with 69% of those victims paying the fees. A small business could fold under such financial strain.

Financing at the startup gets a business going, but companies need clear financial plans to ensure their businesses remain profitable. Pricing products or services, cutting spending, keeping workers paid, and paying operating costs all should fall into consideration when creating short-term budgets and long-term financial plans.

Marketing plans and analysis of competitors both help ensure the growth of businesses. Companies should differentiate their offerings enough to ensure that they meet customer needs. The Microsoft Zune music player was too similar to the iPod to attract customers away from the Apple product, contributing to the Zune’s failure.

5. Bad Management

Perhaps the biggest reason small businesses fail may be staring at you from the mirror.

Small business owners and entrepreneurs can get so focused on doing things a certain way, often because it worked for them in the early days, that they don’t evolve.

What got you to the point you’re at now, may not be what’s needed to move you forward, or get you through a crisis. A business owner may have the skills and knowledge to build and successfully launch a product to the market, but those are very different skills than building, managing and motivating a team over the long term.

It’s critical as a business owner to recognize you’re not an expert in everything and to surround yourself with people who can fill in the gaps. That could mean hiring the right people, working with a business coach, or seeking advice from your accountant. When it comes to starting and growing a business in Canada, failure is a risk. Planning and assistance from trusted advisors like the chartered professional accountants at Avisar can raise the chances of a business succeeding over time. At Avisar, we offer accounting, business consulting, and tax services to help businesses grow and thrive.

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.

Why Do My Financial Statements Show a Profit, But Then Show a Loss After My Accountant Makes Adjustments?

Disappearing Profit: Why Financial Statements Change After Accounting Adjustments

Why do my financial statements show a profit, but then show a loss after my accountant makes adjustments? If you’ve ever asked yourself that question you’re not alone.

Accurate financial statements must reflect many business expenses, and it’s not unusual for these adjustments to change profits after an accountant includes them all. If you’ve received statements back from an accountant and they show less profit than you expected (or loss), here are some possible reasons why.

Sales-Related Expenditures

Financial statements may not immediately reflect all of the expenses needed to produce a product/service. 

For example, suppliers sometimes don’t send invoices until after those supplies have been used. Similarly, contracted service providers might bill 30 or even 90 days afterward. If there are still expenditures that will be due, a financial statement should reflect these.

An accountant will be familiar with what sorts of expenses your business incurs when producing its products/services. The accountant will make sure to include any that you might not yet have recorded. Any expenses that your accountant includes will have to be deducted from gross revenues.

Asset Depreciation and Amortization

Depreciation and amortization both account for the falling value of assets. Depreciation applies to physical assets (e.g., buildings, equipment, vehicles, etc.). Amortization applies to intangible assets (e.g., patents, franchise agreements, copyrights, etc.).

As these assets decline in value over time, their costs should be deducted throughout their useful life span. Even if your business doesn’t actually pay to renew or replace an asset in a given year, it theoretically must prepare for the future expense.

An accountant will know how assets can be depreciated or amortized according to tax regulations, and they’ll take care of the calculations for you. Although depreciation directly lowers your business’s profits, it’s something you should do. Your business will likely have to pay the cost eventually to replace the asset, and depreciating assets can provide significant tax benefits as it’s usually a write-off.

Standard Accounting Adjustments

A variety of standard accounting adjustments may have to be made to bring your business’s financial statements in line with accepted practice. Your business’s financial documents also won’t be complete and fully accurate until these adjustments are made.

An accountant will know what adjustments have to be made, and how to make them. Adjustments related to works in progress and inventory are fairly common, and businesses may have specialized expenses, too. Any of these can lower the bottom line when comparing the accurate documents to the unadjusted ones.

Learn how to better read and understand your financial statements with our Guide to Reading and Understanding Financial Statements for Business Owners.

Get Complete and Accurate Financial Documents

While you should always do your best compiling financial documents, realize that they likely won’t fully reflect your business’s finances until an accountant reviews them. You could very well see some adjustments that lower your business’s profits. If you’d like a review of your financial statements book a free consultation with us and let’s talk.

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.