Business owner reading reports and looking confused

Working Capital for Growing BC Businesses: Why Growth Can Drain Cash

Your sales are up. Orders are strong. You have added employees or inventory to keep pace. Your income statement may even show a healthy profit.

So why does cash feel tighter?

Rapid growth can create cash-flow pressure because the cash required to deliver new sales often leaves your business before the cash from those sales arrives. More revenue can mean more money tied up in receivables and inventory, while payroll, supplier payments, deposits and tax obligations continue coming due.

That gap is a working capital issue, and understanding it can be the difference between simply growing revenue and growing a financially healthy business.

Why Can Growth Create Cash-Flow Problems?

Revenue, profit and cash are connected, but they are not the same thing.

You can make a profitable sale today, record the revenue, and still wait 30, 60 or even 90 days to receive the money. In the meantime, you may already have paid employees, purchased materials, covered shipping costs or made supplier deposits required to complete that sale.

Working capital helps you understand your short-term financial capacity and have better cash flow management.

Working Capital = Current Assets − Current Liabilities

The BDC defines working capital this way and describes the working capital cycle, also called the cash conversion cycle, as the period required for a business to turn its investment in inventory and receivables back into cash after accounting for supplier payment timing.

As your business gets bigger, the amount required to support that cycle often gets bigger too.

A growing company may therefore need substantially more cash at $5 million in revenue than it needed at $3 million, even when its margins remain strong.

And the composition of your working capital matters. $500,000 sitting in accounts receivable is not as useful for tomorrow’s payroll as $500,000 sitting in your bank account.

Revenue tells you how much you’re selling. Working capital tells you whether you can finance the time between spending the money and getting it back. This all becomes easier when you know how to read your financial statements.

Where Growing Businesses Tie Up Their Cash

The mechanics behind growth-related cash pressure are usually not mysterious once you know where to look.

Growth driverWhat happens as you growWhy cash can get tighter
Accounts receivableMore sales create more unpaid invoicesRevenue may be recorded weeks before you collect the cash
InventoryMore product is purchased to meet demandCash is invested before the inventory is sold
PayrollMore employees may be needed to deliver the workEmployees must be paid regardless of when customers pay
Deposits and prepaymentsLarger orders may require commitments upfrontCash leaves before the related revenue arrives
Supplier termsSuppliers may require payment faster than customers pay youYour business finances the timing difference
Taxes and remittancesMore activity can mean larger tax and payroll obligationsPayment dates may arrive before related receivables are collected

Accounts receivable: a sale is not cash until you collect it

Suppose you grow revenue substantially while customers continue paying in 45 days. Even with no deterioration in your collection process, more sales mean more dollars sitting in receivables.

If customers begin paying more slowly at the same time, the problem compounds.

That is why accounts receivable deserves more attention during periods of rapid growth. Your sales team can be succeeding while your cash position becomes progressively more strained.

Inventory: cash sitting on the shelf

Growth can require additional inventory, more product lines or higher safety stock to protect against shortages.

Some of that inventory may be entirely justified. The financial question is how long your cash remains tied up before the inventory is sold.

The BDC defines inventory turnover as cost of goods sold divided by average inventory. Slower inventory turnover generally means cash remains invested in stock for longer.

Payroll, deposits and supplier terms: timing matters

Hiring often comes before the revenue those employees will help generate. Payroll keeps moving every pay period even when customer invoices do not.

The same principle applies to supplier deposits and payment terms. If an important customer pays you in 60 days but your supplier expects payment in 30, your company has to finance that 30-day difference.

Growth magnifies these gaps because the dollar amounts become larger.

Tax timing: money in the bank may already have another purpose

Taxes add another layer.

For GST/HST registrants, CRA states that the invoice date generally determines when GST/HST has to be reported. If an invoice is included in a GST/HST return, the tax may have to be remitted even when the customer has not paid the invoice yet.

B.C. businesses that make sales subject to PST can face a similar timing issue. The Province requires businesses to report and remit PST they have charged whether or not it has actually been collected from the customer.

The specific tax treatment depends on your transactions and filing obligations. The cash-flow lesson is simpler: not every dollar showing in your bank account is necessarily available to finance growth.

A BC Example: 25% Growth and Almost $400,000 More Cash Tied Up

Consider Fraser Valley Industrial Supply Ltd., a fictional Langley-area distributor with 18 employees.

The company begins the year with $4 million in annual revenue and a 40% gross margin. On average, customers take 35 days to pay. Inventory remains in stock for approximately 45 days, while the company pays suppliers in about 40 days.

Business is strong. Revenue grows 25% to $5 million.

But larger customers negotiate longer payment arrangements, pushing average receivable days from 35 to 50. Management carries additional stock to support the higher sales volume, increasing inventory days from 45 to 55. Supplier payment timing remains at approximately 40 days.

Using rounded figures and assuming supplier purchases broadly track cost of goods sold for this simplified example, here is what happens:

Receivables increase by approximately $301,000.

Inventory increases by approximately $156,000.

Higher purchasing volume provides approximately $66,000 of additional supplier financing through accounts payable.

The result is about $392,000 in net cash invested in working capital.

And that is before considering additional employees, deposits, financing costs or tax timing.

Nothing in this example suggests the company has become unsuccessful. In fact, sales are growing rapidly.

The company has simply become more expensive to finance because of its success.

If management sees only the 25% increase in revenue, the pressure on the bank account can feel surprising. If management understands the working-capital mechanics behind the growth, it can plan for that pressure before it becomes a problem.

Four Numbers That Help You See Cash Pressure Earlier

You do not need dozens of financial ratios to get a clearer picture. Four measures can reveal a great deal about how efficiently your business is converting activity into cash.

1. Accounts receivable turnover and average collection days

Accounts Receivable Turnover = Net Credit Sales ÷ Average Accounts Receivable

This tells you how efficiently you are turning receivables into collections.

For many owners, average days receivable is even easier to interpret:

Average Days Receivable = Average Accounts Receivable ÷ Net Credit Sales × Days in Period

If your customers are supposed to pay in 30 days but your average collection period keeps moving from 35 to 42 to 50 days, your growth may be amplifying a collection problem.

There is no single ideal number for every business. What matters is the relationship between your payment terms, your industry, your historical performance and the direction of the trend.

2. Inventory turnover

Inventory Turnover = Cost of Goods Sold ÷ Average Inventory

You can convert that into days:

Days Inventory = 365 ÷ Inventory Turnover

A deteriorating trend can signal that increasingly large amounts of your cash are sitting in stock.

3. Average days payable

Average Days Payable = Average Accounts Payable ÷ Credit Purchases × Days in Period

This estimates how long, on average, you take to pay suppliers.

Longer supplier terms can help finance your operating cycle, but simply paying suppliers late is not a sound working-capital strategy. Relationships, discounts, interest and agreed terms all matter.

4. Cash conversion cycle

The cash conversion cycle brings the three timing measures together:

Cash Conversion Cycle = Days Inventory + Days Receivable − Days Payable

In plain English, it estimates how long your cash is tied up between investing in the sale and getting the money back.

A longer cash conversion cycle means cash remains tied up for longer, while reducing receivable days or inventory days—or appropriately using supplier payment terms—can shorten the cycle.

For a service business with little inventory, receivable and payable timing may matter much more than inventory days. The formula is a management tool, not a score you should optimize blindly.

More on key financial ratios here.

How to Make Sure Growth Is Financially Healthy

Working capital management for a growing small business should begin before the growth arrives.

If you expect sales to increase by 20%, model what that does to receivables, inventory, payroll and supplier requirements. Ask how much cash has to leave before the new revenue comes back in.

Then watch the trends rather than relying only on year-end balances.

A $600,000 receivable balance tells you very little by itself. If receivables are growing twice as fast as sales, or customers are taking progressively longer to pay, that tells you something much more useful.

A rolling cash-flow forecast can help you connect expected collections with upcoming payroll, supplier, tax and debt payments. You can also look for practical ways to shorten the gap: invoice promptly, strengthen collection processes, request deposits where commercially appropriate, identify slow-moving inventory and negotiate workable supplier terms.

Finally, establish your own warning signals. Perhaps receivable days should trigger a management discussion when they rise beyond a set range. Maybe inventory days should not deteriorate beyond a particular level without an explanation. Or perhaps a line of credit that rises month after month despite profitable growth deserves investigation.

Understanding What Your Growth Is Really Costing You

When sales are increasing but cash keeps getting tighter, the answer may not be that your business is unprofitable. The issue may be how much working capital your growth requires.

Avisar Chartered Professional Accountants works with BC business owners to understand what their numbers are really saying—from profitability and cash flow to working capital, forecasting and growth planning.

When you can see where cash is being absorbed and what future growth is likely to require, you can make decisions with greater confidence rather than discovering the financial impact after the fact.

Talk to an Avisar advisor about what your growth is really requiring from your cash flow.

Frequently Asked Questions

Why can a profitable growing business run out of cash?

Profit and cash do not arrive at the same time. A growing company may pay for inventory, employees, deposits, suppliers and taxes before collecting the revenue associated with those costs. As sales rise, the dollar value of that timing gap can rise as well.

What is the cash conversion cycle?

The cash conversion cycle estimates how many days cash is tied up in your operating process. It is generally calculated as days inventory + days receivable − days payable.

What is a good cash conversion cycle for a small business?

There is no universal target that fits every business. In general, a shorter cycle means cash is tied up for less time, but appropriate levels vary substantially by industry, business model, supplier arrangements and customer terms. Comparing your own trend over time can be more useful than relying on a generic benchmark.

How much working capital does a growing business need?

There is no single percentage that applies to every company. Your requirement depends on factors such as receivable collection time, inventory needs, supplier terms, payroll, deposits, taxes, seasonality and the speed of growth. The most useful approach is to model how those factors change as revenue grows.

Creating a 13 week cash flow forecast

Cash Flow Forecast Template Canada: How to Build a 13-Week View of Your Business

Cash flow trouble rarely arrives all at once.

It usually starts quietly. A few customers pay late. Payroll lands before receivables clear. Inventory needs to be purchased before the next sales cycle begins. GST, PST, loan payments, tax instalments, and owner draws all compete for the same dollars.

On paper, the business may look profitable.

In the bank account, it may feel very different.

That is why a 13-week cash flow forecast is one of the most useful financial tools a growing business can build. It gives you a practical, week-by-week view of what cash is expected to come in, what cash must go out, and where pressure may appear before it becomes urgent.

For BC small-business owners with payroll, inventory, debt payments, tax obligations, and seasonal revenue patterns, this kind of forecast is not just a bookkeeping exercise. It is a business tool. Used well, it can help you make better decisions about hiring, spending, purchasing, borrowing, tax planning, and owner compensation.

What is a 13-week cash flow forecast?

A 13-week cash flow forecast is a short-term projection of your business’s cash inflows and outflows over the next three months.

Unlike an annual budget, which often looks at profitability over a longer period, a 13-week forecast focuses on timing. It answers a more immediate question:

Will the business have enough cash available each week to meet its obligations?

That distinction matters. A business can be profitable and still run short of cash if money comes in after major expenses are due. A 13-week forecast helps you see those gaps in advance.

Why 13 weeks?

Thirteen weeks is long enough to show meaningful patterns, but short enough to stay practical.

It captures roughly one quarter of business activity. That makes it useful for tracking payroll cycles, customer collections, supplier payments, GST/PST remittances, loan payments, tax instalments, and inventory needs. It also gives you enough time to respond if a shortfall is coming.

small business profitability

How to build a 13-week cash flow forecast

To build a 13-week cash flow forecast, start with your current bank balance. Then map expected cash receipts and cash payments by week. Include customer collections, payroll, rent, suppliers, inventory, GST/PST, loan payments, income tax instalments, and owner draws. Subtract each week’s cash outflows from available cash to estimate your ending cash balance. Then update the forecast weekly using actual results.

The goal is not perfection. The goal is visibility.

Step 1: Start with your actual cash balance

Begin with the cash you have today.

Use your real bank balance, not your accounting software balance, unless you have fully reconciled the account. If there are uncleared cheques, pending transfers, credit card payments, or scheduled withdrawals, account for them.

Your opening cash balance should reflect what the business can actually use.

Step 2: Forecast cash receipts by week

Next, estimate when money will come in.

Start with accounts receivable. Look at open invoices and assign each expected payment to the week you realistically expect to receive it.

Do not assume every invoice will be paid on the due date.

If a customer usually pays 15 days late, build that into the forecast. If a large client has a history of paying in batches, reflect that pattern. A useful cash flow forecast is based on expected behaviour, not wishful thinking.

Then add other receipts, such as:

  • Service deposits
  • Retainers
  • Financing proceeds
  • Tax refunds
  • Owner contributions
  • Asset sale proceeds

For a growing business, this is where the forecast starts to become useful. You may discover that your sales are fine, but your collection timing is creating pressure.

Step 3: Add payroll and payroll remittances

Payroll is often one of the largest and least flexible cash outflows in a growing business.

Enter each payroll date in the correct week. Then add related payroll remittances, including source deductions and employer contributions.

For forecasting purposes, the key is simple: do not only include net payroll. Include the full cash impact of payroll, including remittances.

Step 4: Map GST/HST and PST obligations

Sales tax can create a misleading sense of cash availability.

When your business collects GST or PST, that money may sit in your bank account temporarily, but it is not truly available for operating expenses. In your forecast, enter GST/HST and PST payments in the week they are due.

This helps prevent one of the most common cash flow mistakes: spending tax money before it is remitted.

Step 5: Add supplier payments and inventory purchases

For businesses that carry inventory, cash often leaves before revenue arrives.

You may need to buy materials, products, or supplies weeks before the related sale is collected. That timing gap can become a major source of pressure, especially during periods of growth.

List expected supplier payments by week. Then separate regular supplier payments from inventory purchases if inventory is significant in your business.

Step 6: Include loan payments and financing obligations

Debt payments should be entered by date and amount.

Include:

  • Term loan payments
  • Line of credit interest
  • Equipment financing
  • Vehicle loans
  • Merchant cash advances
  • Credit card payments
  • Shareholder loan repayments

Be careful with lines of credit. If your business relies on a line of credit to smooth timing gaps, your forecast should show both the available borrowing room and the expected repayments.

Step 7: Add corporate tax instalments

Many incorporated businesses in Canada are required to pay corporate income tax through instalments during the year, followed by a balance of tax after year-end.

If tax instalments are part of your business’s cash cycle, include them in the correct weeks.

This is where many owners get caught. Tax obligations can feel distant until they become immediate. A 13-week forecast brings them into view early enough to plan.

Step 8: Be honest about owner draws

Owner draws, dividends, bonuses, and shareholder loan repayments should be included in the forecast.

The business has to support its operating needs, tax obligations, debt payments, reinvestment, and owner compensation. If owner draws are not included in the cash flow forecast, the forecast is incomplete.

This does not mean owners should not pay themselves. It means owner compensation should be planned with the same care as payroll, inventory, and tax payments.

A growing business needs both a healthy owner and a healthy balance sheet.

Step 9: Calculate ending cash balance each week

Once receipts and payments are entered, calculate:

Opening cash balance + cash receipts – cash outflows = ending cash balance

The ending cash balance for Week 1 becomes the opening cash balance for Week 2.

Repeat this across all 13 weeks.

Now look for warning signs:

  • Negative cash balances
  • Weeks where cash drops below your comfort level
  • Large payments clustered together
  • Receivables that arrive after obligations are due
  • Tax payments that are not funded
  • Inventory purchases that strain working capital
  • Owner draws that create pressure

These are the moments where the forecast earns its keep.

Step 10: Update it weekly

A cash flow forecast is not a one-time document.

Each week, replace last week’s forecast with actual results. Then roll the forecast forward by adding a new thirteenth week.

This weekly rhythm helps you improve accuracy. It also creates accountability. Over time, you will see where your assumptions are strong and where they need work.

How a 13-week forecast improves decision-making

A good forecast helps you act earlier.

If you see a shortfall six weeks out, you have options. You can accelerate collections, adjust spending, delay a purchase, discuss terms with a supplier, plan financing, or revisit owner compensation.

If you discover the problem six days out, your options are fewer and usually more stressful.

This is why cash flow forecasting belongs in the advisory category. The spreadsheet is only the tool. The real value is the decision-making it supports.

Common mistakes to avoid

The most common mistake is being too optimistic about collections. If customers usually pay late, forecast late.

Another mistake is forgetting tax. GST, PST, payroll remittances, and tax instalments should not be treated as available operating cash.

A third mistake is leaving out owner draws. Your business exists to support your lifestyle, but it also needs enough cash to stay strong.

Finally, many businesses build a forecast once and then ignore it. The real benefit comes from updating it weekly.

The bottom line

A 13-week cash flow forecast does not remove uncertainty from business ownership, but it does reduce surprises.

It gives you a clearer view of what is coming, where pressure may build, and what decisions need to be made before cash becomes tight. For growing BC businesses, that visibility can be the difference between reacting under stress and leading with confidence.

At Avisar Chartered Professional Accountants, we help business owners understand the numbers behind their business so they can make better decisions. If your cash flow feels harder to manage as your business grows, a practical forecasting conversation may be a good next step.

Ready to take a deeper look at your cash flow? Book a free consultation.

FAQ

What is a 13-week cash flow forecast?

A 13-week cash flow forecast is a short-term projection of your expected cash receipts and payments over the next 13 weeks. It helps you see whether your business will have enough cash to meet obligations as they come due.

Why is a 13-week forecast useful for small businesses in BC?

It helps BC business owners plan for payroll, supplier payments, inventory, GST/PST, loan payments, tax instalments, and owner compensation. It is especially useful for growing businesses where cash timing can change quickly.

What should be included in a cash flow forecast?

A cash flow forecast should include opening cash, customer receipts, payroll, rent, suppliers, inventory, GST/HST, PST, debt payments, tax instalments, owner draws, and other operating expenses.

Is a cash flow forecast the same as a budget?

No. A budget usually focuses on expected income and expenses over a longer period. A cash flow forecast focuses on when cash actually enters and leaves the business.

How often should I update my cash flow forecast?

For most growing businesses, weekly is best. Updating weekly allows you to compare forecasted results to actual results and adjust the next 13 weeks based on current information.

Can a profitable business still have cash flow problems?

Yes. A business can show profit on its income statement while still running short of cash because of late receivables, inventory purchases, debt payments, tax obligations, or timing gaps between sales and collections.

a group of not-for-profit board members sitting at a table reviewing financial statements

The Board Member’s Guide to Reading NFP Financials

If you have ever sat in a board meeting hoping no one asks you to explain the financial statements, you are not alone.

Many executive directors and volunteer board members join a not-for-profit because they care deeply about the mission, not because they want to become financial experts. Whether you lead a community association, charity, faith-based organization, or any type if not-for-profit, your focus is likely on serving people, supporting programs, stewarding donations or member funds, and keeping the organization moving forward.

But even if you are not an accountant, the numbers still matter.

Financial statements help leaders understand whether the organization is stable, whether programs are sustainable, whether funds are being used as intended, and whether the board has the information it needs to govern with confidence.

The short answer: A CPA for not-for-profit organizations in British Columbia helps executive directors and boards understand financial statements, meet reporting obligations, track restricted funds, improve financial oversight, and make more confident decisions about the organization’s future, but you don’t need to become a CPA to read not-for-profit financials more confidently.

Financial statements are a leadership tool, not just a compliance task

Many not-for-profit leaders think about financial statements mainly when the annual general meeting is approaching, a funder asks for reporting, or year-end work begins. That is understandable. There are real requirements to manage.

In British Columbia, the directors of a society must call an annual general meeting so that one is held in each calendar year, unless an exception applies. The Societies Act also requires financial statements, and the auditor’s report if there is one, to be presented to members at each AGM.

But the real value of financial reporting goes beyond meeting a requirement.

Strong financial information helps an executive director answer practical questions: Can we afford to continue this program? Are we relying too heavily on one funder? Do we have enough cash to meet payroll and upcoming commitments? Are restricted funds being tracked properly? Are we financially prepared for the next six to 12 months?

For board members, the numbers help turn good intentions into responsible oversight. You are not expected to manage every transaction. But you should be able to understand the organization’s financial position well enough to ask thoughtful questions and make informed decisions.

Start with the story the numbers are telling

A useful way to approach not-for-profit financials is to resist the urge to decode every line item immediately.

Start with the bigger story.

Did revenue increase or decrease compared to last year? Are expenses rising faster than funding? Is the organization ending the year with a surplus or deficit? Are there enough unrestricted funds to cover core operations? Did the organization spend money in a way that aligns with its mission?

This is especially important for not-for-profits because financial success does not look the same as it does in a private business. The goal is not to maximize profit. The goal is to use resources responsibly so the organization can continue serving its mission.

A surplus is not automatically “good,” and a deficit is not automatically “bad.” A surplus may mean the organization is building reserves, preparing for a future project, or holding restricted funding that has not yet been spent. A deficit may be planned, temporary, or related to timing. Or it may signal a deeper sustainability issue.

The key is context.

That is where a CPA can be valuable. A CPA helps leaders understand not just what happened, but what the numbers mean.

Pay attention to cash, not just the annual result

One of the most common misunderstandings in financial reporting is confusing surplus with cash.

An organization may show a surplus on paper but still feel cash-strapped. This can happen when funds are restricted, receivables are delayed, grants are reimbursed after expenses are incurred, or commitments are coming due after year-end.

For an executive director, cash flow is often the more immediate concern. Can the organization meet payroll? Can it pay vendors on time? Can it continue programming if a grant payment is delayed? Can it handle an unexpected repair, staffing gap, or funding change?

Board members should become comfortable asking about cash position and timing. The question is not simply, “Did we end the year with a surplus?” It is also, “Do we have enough available cash to operate responsibly?”

This distinction is particularly important for community associations and faith-based organizations that may receive funds in uneven cycles, such as annual giving campaigns, seasonal fundraising, membership renewals, or project-specific grants.

Know the difference between restricted and unrestricted funds

For not-for-profits, not every dollar can be used the same way.

Some funds are unrestricted, meaning the organization has flexibility in how they are used to support operations and mission. Other funds may be restricted by a donor, grant agreement, or specific campaign. Those dollars may need to be used for a particular program, project, location, or purpose.

This is one of the most important areas for board members to understand.

An organization may appear to have a healthy bank balance, but if a large portion of that balance is restricted, it may not be available to cover general operating costs. Using restricted funds for the wrong purpose can create reporting issues, funder concerns, and reputational risk.

For not-for-profit organizations, a CPA’s value is not only in preparing financial statements, but in helping leaders understand whether the organization has the financial clarity, controls, and cash flow needed to support its mission sustainably.

Read expenses with the mission in mind

Not-for-profit expenses should not be viewed only as costs to minimize. They should be evaluated in relation to mission delivery, funding requirements, and organizational sustainability.

For example, staffing costs may be one of the largest expenses for a charity or community organization. That does not make them a problem. In many cases, staff are essential to delivering programs safely, consistently, and effectively.

The better question is whether expenses are aligned with the organization’s priorities and funding realities.

Are program costs adequately funded? Are administrative costs realistic? Is the organization underinvesting in financial systems, leadership, facilities, or staff capacity? Are programs being continued because they are mission-aligned and financially viable, or simply because they have always existed?

Healthy financial discussion should help leaders make better decisions, not create fear around spending. Good stewardship is not about spending as little as possible. It is about using resources wisely.

Do not wait until year-end to understand the numbers

Year-end financial statements are important, but they are backward-looking. They tell you what happened during a completed period.

Executive directors and boards also need timely financial information during the year. If financial reporting only becomes a serious conversation at year-end or before the AGM, leaders may miss opportunities to adjust course earlier.

Regular financial review helps organizations spot issues such as rising expenses, delayed funding, budget overruns, cash flow pressure, or program shortfalls before they become urgent.

This is one reason a CPA relationship can be helpful beyond annual statements. The right advisor can support better financial rhythms throughout the year, helping leaders understand the numbers while there is still time to act.

Financial confidence supports stronger governance

When executive directors and board members understand the financial picture, conversations change.

Meetings become less reactive. Decisions become more informed. Funders receive clearer reporting. Members have more confidence. Leaders can explain not only what the organization did, but how its resources supported the mission.

For volunteer board members, financial confidence also reduces the discomfort of reviewing statements that may feel technical or unfamiliar. They do not need to know every accounting detail. But they should be able to understand the organization’s financial health, ask useful questions, and recognize when more professional guidance is needed.

For executive directors, clearer numbers can reduce stress. Instead of carrying financial uncertainty alone, they can lead with better insight and a stronger relationship with the board.

When to involve a CPA

A CPA for not-for-profit organizations in British Columbia can help when your organization needs more than basic bookkeeping or once-a-year reporting.

That may include support with financial statements, board reporting, funder reporting, restricted funds, cash flow questions, internal controls, budgeting, and understanding which reporting obligations apply. It may also include helping the board and executive director have more productive financial conversations throughout the year.

Avisar Chartered Professional Accountants is a Langley, BC CPA firm supporting small businesses, not-for-profit organizations, and community-focused leaders across British Columbia. We believe financial reporting should help leaders make better decisions, not leave them feeling overwhelmed by numbers.

If your board wants more confidence in the financial information behind your mission, Avisar can help you understand what the numbers are saying and where stronger reporting may support better decisions.

Book a consultation with Avisar to start the conversation.

FAQs

Do BC not-for-profits need audited financial statements?

Not always. Audit requirements may depend on the organization’s bylaws, funders, members, structure, or other obligations. BC societies must present financial statements to members at the AGM, along with the auditor’s report if there is one. (BC Laws)

What financial information should an not-for-profit board understand?

Board members should understand the organization’s overall financial position, revenue and expense trends, cash flow, budget-to-actual results, restricted funds, and any risks that could affect the organization’s ability to deliver its mission.

What does a CPA do for a not-for-profit organization?

A CPA can help prepare, review, explain, and improve financial reporting so executive directors and boards can make informed decisions, meet applicable obligations, and strengthen financial oversight.

Why are restricted funds important for not-for-profits?

Restricted funds may only be used for specific purposes. Boards need to understand which funds are available for general operations and which are committed to donor, grant, or program-specific requirements.

When should an executive director contact a CPA?

An executive director should consider contacting a CPA when financial reports are unclear, the board needs better insight, funder reporting is becoming more complex, cash flow is difficult to forecast, restricted funds are hard to track, or the organization is preparing for growth or change.

Understanding Tariffs: What Should You Actually Worry About?

If you’re running a business that trades across the border, you’ve likely seen the headlines about U.S. tariffs on Canadian goods. But for many entrepreneurs and business owners, the big question is:

“How does this actually affect me?”

Rather than getting caught up in the noise, we recommend focusing on a few clear and trustworthy resources that can help you make sense of the current landscape:

Tariff Toolkit – Greater Langley Chamber of Commerce – Created by our colleagues at the Chamber, this is a straightforward, practical guide to help business owners understand how tariffs work and what they might mean for your operations.

Canada-U.S. Trade Tracker – Canadian Chamber of Commerce – Want to explore how trade flows are affecting your sector or region? This online tool lets you dive into real-time data and trends to get a clearer picture.

CanExport SMEs Program – Thinking of entering international markets? This federal program may provide funding to help small and medium-sized businesses explore and expand globally.

We’re Here to Help

While we don’t specialize in trade policy or tariff consulting, we’re always happy to be a sounding board or point you toward trusted resources. Whether it’s helping you understand how new developments might fit into your bigger financial picture or simply knowing where to look next—we’re here to support your business however we can.

tax deductions 2023

Don’t Miss These Deductions On Your 2023 Tax Return

As small businesses gear up to file their 2023 tax returns, it’s important to know which deductions to look for. Knowing about common and new deductions can save money and reduce your ongoing tax burden.

Knowing the common deductible expenses and changes to the tax code can help you save money on your 2023 returns and plan for 2024 spending and tax obligations.

Common Small Business Tax Deductions

Businesses who qualify can take the Small Business Deduction. The Small Business Deduction is the most common deduction small businesses use.

The Canada Revenue Agency (CRA) lowers the overall tax rate for businesses that meet the following criteria:

  • Based in Canada, though it may conduct business across borders
  • Private corporation
  • Less than $10 million in taxable capital employed in Canada, including shareholder equity, loans, advances, surpluses and reserves

The credit applies to the first $500,000 of taxable capital deducted from active business in Canada.

There are other common tax deductions small businesses can take. Tax-deductible expenses generally fall into one of three categories:

  1. Items used exclusively in your business’s operations
  2. Expenses incurred within the space in which you conduct business, such as utility costs in rented office space
  3. Things used while conducting your business

Deductions Many Small Businesses Miss

  • Start-up costs, including machinery, equipment and supplies, along with fees for legal advice or accounting services
  • Marketing and advertising costs, such as business cards, flyers, trade show fees, or the cost of ads on Canadian television and radio shows
  • Office supplies, such as pencils and pens, stamps, stationery and cleaning supplies
  • Business supplies that your business uses to provide its goods and services
  • Rent provided for the space you use for the business, including land and buildings
  • Utility charges, such as heat and electricity, along with insurance, maintenance, mortgage insurance and property taxes
  • Telephone and internet charges
  • Home office expenses, for the percentage of your home that is used exclusively for your business

What You Can’t Claim

In addition to knowing what you can deduct, it’s smart to understand what expenses you can’t claim, including:

  • Wardrobe and clothing
  • Parking tickets and fines
  • Commuting costs
  • Club and gym membership fees
  • Life insurance premiums

Alternative Minimum Tax Changes

There are many changes to 2023 tax returns that could apply to your small business and personal returns.

One of the most notable changes is to the alternative minimum tax law (AMT). The alternative minimum tax ensures that high-income taxpayers still pay a minimum amount of tax, even when their income includes sources that are tax-exempt.

The proposed changes to the AMT would shift the exemption from the first $40,000 of income, with the balance subject to a 15% tax rate, to the first $173,000 with the balance is taxed at a 20.5% rate. Most provinces have their own AMTs based on a portion of the federal AMT.

In addition, capital gains are now fully included in the AMT calculation at 100%, compared to the previous 80% rate. Additional trusts, including Graduated Rate Estates and Qualified Disability Trusts, are now eligible.

Capital gains on donated property are now taxed at 100%, while donations of securities or employee stock options are now taxed at 30%. Capital loss carryovers are now deducted at 50%, down from 80%.

Other deductions, including employment and moving expenses, are now deductible at 50% instead of 100%.

For business owners, the AMT changes could mean an increased tax liability for high-income individuals due to the change in the tax rate, donation rule changes, and potential exposure for those who receive stock-based compensation.

New Tax Rules for 2023 Returns

In addition to the changes to the AMT, here are some of the other changes that could apply to your small business and personal returns.

  • Adjusted Tax Brackets. Due to the dramatic inflation rates in the past year, the federal government has changed the tax brackets, each with increased thresholds. The new brackets and tax rates are:
    • Up to $53,359 (15%)
    • Up to $106,716 (20.5%)
    • Up to $165,430 (26%)
    • Up to $235,675 (29%)
  • Change to Home Office Deductions. During the COVID-19 pandemic, the federal government made it easier to claim home office deductions in the 2020-2022 tax years. However. The flat-rate method no longer applies, meaning taxpayers need to use the detailed method, which requires more documentation
  • Basic Personal Amount (BPA) Change. The BPA is the income a person in Canada can earn without being subject to federal income tax. In 2019, the federal government announced that the BPA would increase annually until it reached $15,000 in 2023. However, the rate will be adjusted for inflation, with the 2024 level set at $15,705. There are also provincial BPAs that vary by province and territory
  • Tax-Free Savings Account (TFSA) Dollar Increase. The TFSA limits continue to increase, from $6,500 in 2023 to $7,000 in 2024. Individuals can contribute to a TFSA as soon as they turn 18; any unused amounts from previous years can carry over
  • Registered Retirement Savings Plan (RRSP) Limit Increase. The RRSP contribution limit increased in 2023 to $30,780, an increase of $1,570. Note that the RRSP contribution level is still capped at 18% of total income

Payroll Changes for 2024

  • Employment Insurance (EI) Premium Increases. As of January 2024, the EI premium rate has been set to $1.66 per $100 of employee earnings, up from $1.63, and $2.32 per $100 for employers, up from $2.28. The maximum employee contribution is $1,049.12 plus an employer contribution of $1,468.77.
  • Canada Pension Plan (CPP) Premium Increases. As of January 2024, the CPP premium rate remains at $5.95 per $100 of employee earnings with a matching employer contribution. The maximum employee contribution is $3,867.50 plus an employer contribution of $3,867.50. Self-employed individuals pay both portions on filing their personal tax returns. In addition, on earnings above $68,500 up to $73,200 there is an additional 4% contribution, plus employer portion, required as an enhanced CPP contribution.

When looking to save money on your tax returns, it’s a good idea to have a professional help with the preparation and planning. Tax laws are complicated and constantly changing.

Book a free consultation and get advice on how to make sure you aren’t missing out on deductions and paying more tax than you need to. .

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.

build your own pension plan

Build Your Own Pension

This week’s guest experts are Matt Redshaw, Portfolio Manager, Raymond James Ltd., and Jacqueline Knoblauch, Insurance Planning Specialist, Raymond James Financial Planning.

As a business owner, you may not have a gold-plated pension plan that often comes with a more secure job – such as being a teacher or government employee.

Thankfully, you have some tools in your toolbox that most employees don’t have.

With some planning, you can create a secure and enjoyable retirement – in effect, you can build your own pension. In other words, you can create your own dependable sources of retirement income.

The first step is to determine how much you need to put aside each year to meet your future lifestyle goals in retirement. This is best done with a qualified financial advisor, although there are some great tools online to get you started.

The next step is to identify which vehicles are best for you given your unique circumstances. Then you can start building your plan.

Here are some of the tools to consider:

Invest Inside Your Corporation

When you invest inside your company you defer tax into the future. Your corporate profits up to $500,000 are taxed today at 11% and then 27% on income above $500,000 (using BC corporate tax rates). These tax rates are much lower than if you take this money out of the company personally. You can invest up to 89 cents on every dollar you earn in the company (assuming 11% active business tax).

Those “89 cent dollars” grow year after year in your company. In contrast, if you were to pull those funds out of the company as salary, you could lose as much as 53.5% in personal tax (this tax rate kicks in at $227,091 of personal income in 2022). That leaves you with “46.5 cent dollars” to invest. Therefore, the key advantage of investing in your corporation is that you can invest the full “89 cents” and let it grow for years and decades to come.

Another benefit is flexibility. You can buy stocks, real estate, other businesses and alternative investments in your corporation. You can also control when that money eventually comes out of the company. Make sure you are utilizing tax efficient investments in your corporation, because tax on income from investments (passive income tax) is significantly higher than active income. Again, a qualified financial advisor can help with this.

Create an Individual Pension Plan (IPP) in Your Corporation

As a business owner, your company can create an official, registered pension plan with you as the beneficiary (you can also include key staff). This is called an Individual Pension Plan (IPP). The main benefit of an IPP is that in many cases it allows you to contribute much more towards your retirement than you could through an RRSP. Contributions are tax deductible to your corporation. There other benefits, such as tax-deferred growth and a high level of creditor protection.

Build up Your RRSPs and TFSAs

Registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs) often form a key part of a business owner’s “pension” plan for the future. Contributing to RRSPs makes sense when your personal income today is high in comparison to your expected income in retirement.

This is because you want to get a high tax refund for contributing today, and ideally pay less tax when you pull that money back out in retirement. TFSAs make sense for most people. While they do not offer a tax deduction when you contribute, TFSAs grow tax free for life and eventually pay out to your beneficiaries completely tax-free. In this sense TFSAs are an ideal retirement and estate planning tool.

Utilize Tax-Exempt Life Insurance in Your Corporation

Often thought of only for mortgage protection or for those with families, cash value life insurance is a highly tax efficient tool to accumulate wealth for retirement. Cash value life insurance has a death benefit like a regular insurance policy, but there is also an investment (cash value) component.

If purchased inside your company, premiums can be paid with “pre-personal-tax” dollars (think of those 89 cent dollars referenced above). A portion of those premiums grow in a tax-exempt environment which generates investment value (cash value) over time. The policy owner has the option to tax-efficiently meet retirement income needs by borrowing against the policy, or to let the policy to continue to grow tax-exempt until life expectancy.

Upon death, a large portion of the policy flows out of the company tax free to beneficiaries. Utilizing these types of contracts has become increasing popular among business owners as tax rates continue to climb and tax saving measures continue to be reduced.

While you may not have a gold-plated pension plan from a government job, you can build your own pension. Just follow these steps:

  1. Define your retirement goals and income needs in the future.
  2. Figure out how much you need to save each year to meet those goals.
  3. Then start using the right tools for your unique situation to build a reliable income stream for retirement.   

If you have any questions about your unique situation and goals, don’t hesitate to contact your team at Avisar or Matt Redshaw at Raymond James.

Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

How Often Should I Review My Financial Statements?

How Often Should I Review My Financial Statements?

For small business owners, reviewing financial statements is one of the key factors in whether the business succeeds. This is something that can be easy for small business owners to overlook. They pay attention to the day-to-day activities of their trade, dealing with customers, and creating their products.

Often, entrepreneurs and small business owners put off reviewing financial statements or wait to go over them with their accountants. But reviewing your financial statements on a regular, more frequent basis can help you spot trends and identify opportunities and issues early on.

Reading and understanding a financial statement is not as difficult as it appears. Learning the basics helps small businesses gather insights about their growth and how to improve. These insights allow business owners to make strategic decisions to scale their offerings for greater success.

According to the Small Business Association, the success rate of small business owners that only go over their financial reports yearly is only 25-35%. As high as 75% of those business owners will fail. At the same time, there’s a 95% success rate for business owners who go over their financial reports weekly.

Setting a Schedule to Review Financial Statements

Many business owners fall into the habit of only reviewing their financial statements once a year with their accountant. Some business owners do their accounting internally and only review statements when it’s time to report income, either quarterly or yearly.

This poses some serious risk because it’s impossible to accurately track business growth, profits, and losses without reviewing the information regularly. Paying attention to bank statements alone won’t provide a good overview of the business’s financial health.

Financial statements, though, can be intimidating. And that may be a big reason that any many small business owners put off reviewing them more often. But a few tips like the ones we shared in this post about how to read financial statements can make it much easier.

Information about each of the reports listed in the section below can help entrepreneurs choose the right reports, learn to compile them, and use them effectively. It’s also an excellent idea to work with a financial professional to determine the right reporting for the business and industry and ensure your financial statements are accurate. 

At Avisar Chartered Professional Accountants, our experienced team works directly with business owners to explain the type of reporting that is most useful for their industry and business model. We understand that our entrepreneurs have a passion and brilliance for their own industry. We cut out the jargon to make understanding and using financial statements simple and effective.

Financial Statements Business Owners Need to Review

Keeping a handle on bank statements is an important consideration for personal finance, but business health needs a more robust approach. Here are some of the financial statements that most businesses should be reviewing on a regular schedule (weekly or monthly). 

  • Income Statement
  • Balance Sheet
  • Cash Flow Statement

We covered these statements in more detail in a post about judging a business’s health. Here, we’ll give a quick overview and tell you how often to review these statements in your business.

Income Statement

We advise that you look at your income statement once a month. For smaller businesses, looking at them quarterly may be sufficient, but you don’t want to push it longer than that.

An income statement is also called a Profit and Loss Statement. These are the same reports, and they might also be called a “P&L”. This statement shows the revenue a business generates from business or services, as well as the costs to generate that revenue. All the expenses and overhead of running a business are accounted for, as well as the income and actual profit.

Income statements are important because they clarify how much the company spends for each project or product, for a clear picture of the profit.

Balance Sheet

Balance sheets should be prepared and reviewed quarterly. Don’t wait a full year to review your balance sheet.

A balance sheet is an overview of the company’s current finances. It shows the assets, debts, and equity the company holds during that reporting period.

Cash Flow Statement

Cash flow statements should be reviewed frequently, on a weekly basis for most businesses. 

The cash flow statement is a report that shows all the data on incoming cash, or income the company receives, as well as the outflowing cash, or expenditures. The cash flow statement is an aggregate report. It includes all revenue streams tied to the business and is especially important for businesses that have multiple revenue streams.

How Business Owners Can Get a Handle on Their Books

For small business owners, the terminology surrounding financial reporting can be intimidating. However, putting off reviewing financial statements can hinder the business. There are numerous sources to learn the basics, and it’s highly advisable for small business owners to work with an expert to set up their reporting and review schedule.

For more on reading and understanding check out our Guide to Reading Financial Statements for Business Owners.

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.

COVID-19 Temporary Wage Subsidy For Employers

On March 18th the Government of Canada announced a Temporary Wage Subsidy (“Subsidy”) as part of its COVID-19 response plan for businesses.  Canada Revenue Agency (“CRA”) has provided further details on the Subsidy, which can be found at the following website. The relevant legislation can be found here.

The Subsidy is a three-month measure that will be available to “eligible employers” to reduce the number of payroll deductions (federal, provincial, territorial income tax) required to be remitted to CRA. 

An “eligible employer” includes the following entities with a business number (or payroll account) on March 18, 2020, and who employ one or more individuals employed in Canada:

  • Registered Charities and non-profit organizations;
  • Individuals (i.e. sole proprietors), other than a trust;
  • Certain partnerships;
  • Canadian-controlled private corporations (“CCPC”) that could claim any portion of the small business deduction and where taxable capital employed in Canada for the preceding tax year (calculated on an associated group basis) is less than $15 million.

The Subsidy amount is equal to 10% of the remuneration that the eligible employer pays between March 18, 2020, and June 20, 2020, up to $1,375 per employee and to a maximum of $25,000 total per employer.    Associated corporations are not required to share the maximum subsidy of $25,000 per employer.

CRA indicates that to claim the Subsidy, the eligible employer can reduce its next remittance of payroll that includes the period of March 18th to June 20th.  For example, a monthly remitter would reduce its next remittance due on April 15th.  Most payroll providers (ex. ADP or Ceridian) will have their own processes for claiming the Subsidy and so the employer will need to check with their provider on this matter.   Also, the Subsidy amount received by the employer will have to be reported as income in the tax year received by the employer.

Please feel free to reach out to us if you have any questions.

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.