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cash flow management is critical for your business

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.

Avisar Charter Professionals - Pay The CRA

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.

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.

small business employee benefits

Small Business Employee Benefits: What You Should Offer

Small business employee benefits can be a great equalizer when competing for talent against larger companies. The big guys have more resources to offer top talent, and small and medium-sized businesses can’t always compete with the salaries offered by larger firms. A more innovative way to approach hiring as a small business is with the help of employee benefits.

A great employee benefits plan helps small businesses attract more talent and reduce employee turnover. However, there are always tax implications to keep in mind. If you are thinking about offering benefits to your employees for the first time or want to change or increase your current benefits package, then this article is for you.

The Landscape of Employee Benefits in Canada

Canadian employee benefits are usually considered standard for all full-time employees. However, each province has different regulations for employee benefits and probationary periods. Some of the more common benefits offered by small businesses in Canada include:

  • Paid time off
  • Flexible working hours
  • Personal leave
  • Medical leave
  • Family violence leave
  • Critical illness and compassionate care leave
  • Extended maternity and paternity leave
  • Holiday pay
  • Health insurance
  • Healthcare spending accounts (HSAs)
  • RRSP contribution matching

Picking the right benefits to attract talent to your company depends on the demographic you want to hire. For example, younger recruits might be more attracted to flexible hours and personal leave benefits. At the same time, older applicants might be more interested in RRSP contribution matching and compassionate care leave.

Key Small Business Employee Benefits and Their Tax Implications

While you can offer your employees a wide range of potential benefits, there are a few that can make a big difference in your recruitment and retention strategy. These are some of the most common benefits, along with their tax implications for business owners.

Health and Dental Insurance

Offering health insurance plans or dental insurance coverage can benefit small businesses. It signals to prospective employees that you care about their well-being and can help keep them healthier, leading to fewer sick days.

For business owners, there are additional benefits to offering health and dental insurance. There is deductibility for the employee and non-taxable benefits for the employer. This helps employers and employees get more out of health and dental insurance coverage.

Retirement Savings Plans (Group RRSPs)

Another benefit small or medium-sized business owners can offer employees is a Registered Retirement Savings Plan, or RRSP, matching program. This type of employer-sponsored retirement plan uses matching contributions from employers and employees with the plan option.

The tax implications from retirement plans and RRSPs involve deductions and deferrals. Typically, the amount of money that the employer contributes is tax-deductible. The employees who contribute can also enjoy tax deferrals until they withdraw the money from the retirement savings account.

Stock Option Plans

Depending on your company structure, stock options are another type of employee benefit that can make you stand out among your competitors. This type of benefit allows you to offer stock options to employees as a benefit, usually after a certain number of years worked for the company. 

This kind of benefit gives employees an ownership stake in the company and a vested interest in its success.

This type of benefit also allows the employee and employer to defer tax implications until later. That can help save money in years when taxes are high. The value of shares is also included in taxes for the employees, so deferring the taxation on stock options can help add more value to the benefit.

Professional Development and Education

Another valuable benefit you can offer to employees is professional development and education courses and training. By helping employees gain more knowledge and learn valuable and applicable skills, you can make a job more appealing and more beneficial to their future careers.

Many professional development and education programs are tax-free or are tax-deductible for the business. So not only are you helping your workforce learn more and grow more robust, but you can also avoid taxes or deduct the expense from your yearly tax report.

Special Considerations for Small Businesses

Small businesses operate differently from large corporations, so there are some special considerations to consider as you work on your employee benefits plan.

Tax Credits and Incentives

There are some specific Canadian tax credits available for small businesses offering certain benefits, including:

  • Apprenticeship job creation tax credit (AJCTC)
  • Film and television tax credits in Ontario
  • R&D tax credit
  • Union dues tax credits in Québec

Navigating the Complexity

Trying to figure out the best types of benefits to offer your employees and track the tax implications of those benefits is challenging. Navigating the complexity on your own can be overwhelming, especially for new small businesses that haven’t offered benefits before. In these cases, it’s best to consult with a professional accountant or tax advisor to remain compliant and maximize your tax advantages.

The Impact on Employee Retention and Recruitment

The benefits you offer can be a game-changer for small businesses in the competitive job market. Small companies like Willful have maintained their competitive edge and thrived during the pandemic thanks to their benefits packages. With only 15 employees, Willful attracted top talent with benefits like medical and dental insurance, stock options, education budgets, summer hours, and a vacation fund. 

By offering benefits that your competition hasn’t even considered, you can attract the best potential recruits to come to your business, no matter what size company you have. Benefits can help level the field for your hiring and employee retention strategies.

Conclusion

Benefits can offer important tax implications and better recruitment practices for small businesses. The benefits you offer and the depth of your coverage can help you attract top talent, keep your current workforce happy, and give you a break during tax season. Reviewing your current benefits strategy and seeking expert advice from tax professionals can help you get the most out of your plans. If you need help with your benefits planning, book a free consultation to discuss your benefits plan with certified professionals.

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.

Setting up a My Business Account with the CRA

Setting up a My Business Account with the CRA

A My Business Account gives directors, officers, and partners access to their corporate taxes, GST, and payroll accounts online. Follow these steps to set up a My Business Account with CRA.

Having a My Business Account with the CRA will make your tax life much easier. Whether you’re looking to review outstanding balances or expected refund amounts, check your past returns or add information to your account, My Business Account is the one place where you can do it all.

Once you have set up your My Business Account, you will be able to:

  • Update any information related to your business (name, address, banking information, etc.)
  • View and file GST returns, payment transactions and GST instalment schedules
  • View T slips that were filed and transactions made
  • View notices of assessment for corporate tax returns filed and any account transactions and balances

What You Need For Setting Up A My Business Account

Setting up a My Business Account with the CRA is a straightforward process, but you will need your CRA business number and your program account identifiers (GST/HST, payroll, corporation income tax, exercise tax and others) to complete the registration process.

In addition, you will have to provide some personal information, including your social insurance number (SIN), postal code, date of birth and information from a previously filed personal income tax return.

Follow these simple steps to register for your CRA My Business Account.

  1. Navigate to the CRA’s sign in services webpage and select “My Business Account” from the list of services.
  2. Scroll down the page to “Option 2 – Using a CRA user ID and password” and select “CRA register.”
  3. Enter your SIN and click next to continue.
  4. Enter your postal code, date of birth, and the requested tax information from a previously filed tax return. Click next to continue.
  5. Confirm that the mailing address CRA has on file for you is correct before selecting next to continue.
  6. Create a CRA user ID consisting of 8 to 16 characters, no more than 7 digits, no spaces, and no special characters except: dot (.), dash (-), underscore (_), and apostrophe (‘).
  7. Create a password consisting of 8 to 64 characters with at least 1 upper-case letter, 1 lower-case letter, and 1 digit. No spaces, accented character or special characters except: dot (.), dash (-), underscore (_), and apostrophe (‘) will be accepted.
  8. Select and provide the answers to five security questions.
  9. Enroll in mandatory multi-factor authentication by selecting your preferred method (telephone or passcode grid).
  10. Enter your business number.
  11. Review and agree to the terms and conditions of use by entering your password and selecting “I agree.”
  12. Registration is now complete until you receive your security code in the mail. Once you do, log in to My Business Account using the CRA user ID and password created in steps 6 & 7 and enter the code when prompted.
  13. Review and agree to the My Business Account terms and conditions of use.
  14. You will now have full access to My Business Account.

Note: Internal accountants and employees (that are not officers) should not use the My Business Account system but are welcome to create a CRA RepID and access the company’s information using the Represent a Client system.

When you work with Avisar CPA, you can authorize us as your representative with the CRA through your My Business Account.

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.