What Is The Best Corporate Structure for My Business? Find Out Here!

For those starting out with a new business or self-employment now is a good time to consider the best legal structure for your business.  Having an appropriate corporate structure for your business will allow the owner to take full advantage of tax planning opportunities, manage operating risk and facilitate decision-making at future points in the life of the business.

For small or family-owned businesses there are most often two choices to make – to operate as a proprietorship or a corporation.  Partnerships are another type of corporate structure, but are beyond the scope of this article.  Which type of corporate structure to select will depend on the objectives and goals of the business which generally include a number of factors: operating risk, tax planning considerations, financing needs, and factors affecting business transitions, each of which will be discussed below.

Business Objectives

 Having an understanding of not only the nature of the business today, but also that of tomorrow will allow you to select the appropriate structure that will allow for timely decision making and reduce legal and other related costs along the way.  Will this be a full-time or part-time business venture? How will the business receive financing?  Who will manage the business?  Will the business engage is contracts with external parties or the public for products or services?  Will the business operate with parties outside of the province or country?  The answers to these questions and more will determine an appropriate structure for your business.

The selection of a business structure is highly dependent on the nature of a particular business, its owner and family situation.  Generally speaking, where an owner can answer ‘yes’ to one or more of the questions below regarding the operation of the business, then a corporation structure would be appropriate:

-          Will the business operate outside of the home?

-          Will more than one individual be actively managing the business?

-          Will financing be obtained from a bank or other third party?

-          Will the company enter into contracts for goods or services with other companies?

-          Will the company delivering goods or services to the general public?

Tax Planning Considerations

 Operating a business as a corporation provides some tax planning opportunities not available with a sole proprietorship.  Tax advantages may be achieved with a corporation structure when family members are employed or are shareholders in the corporation.  With a sole proprietor, net income is reported as personal income and taxed at the individual’s marginal tax rate with less opportunity to share this income across the family (unless family members were employed and paid fair wages).  In a corporation, income from the corporation may be distributed as wages (when family members are employed), or as dividends (when family members are shareholders), or retained in the corporation to finance operations and distributed at a later date.  Wages and dividends may be allocated accordingly to minimize the collective family taxes for shareholders who are active in the corporation.

Tax planning considerations should also include eventual business transitions – succession planning or the sale of the business.  In a sole proprietor arrangement, selling the business may take the form of selling of assets and goodwill, again taxed in the hands of the owner, at a higher rate of tax than may be obtained if sold as shares of a small business corporation.

A further consideration may be the maintenance time and costs of the selected corporate structure.  A corporation is required to file an annual tax return (often prepared by an accountant) and maintain a corporate minute book containing records of shareholders, directors, and resolutions approving the distribution of dividends (often maintained by a lawyer).  A sole proprietor does not need to report separately to tax authorities and need only retain records related to the daily operation of the business to meet normal tax reporting requirements.   Relative to the other considerations, this one is less critical, however is important for financial budgeting and planning purposes.

Before deciding on or changing entities, a thorough review of the options and a consultation with both an accounting and legal professional are recommended.

Additional resources & Links:

1.       Business Start-up Assistant (**Good source of information for those starting out**)

http://www.canadabusiness.ca/eng/

2.       Canada Revenue Agency (CRA) Information for New Businesses:

http://www.cra-arc.gc.ca/tx/bsnss/sm/menu-eng.html

3.       Canada Revenue Agency guides to setting up your business:

http://www.cra-arc.gc.ca/tx/bsnss/sm/sttng/menu-eng.html

Stay tuned for more articles for small business owners!

Regards,

Stephen Beech MBA, CMA

www.smallbizprosmississauga.ca

Like this article?  Have additional commentary?  Write a comment on this article below

© Stephen Beech 2010

Developing SMART Goals for Personal and Business Success 2011

Goal Setting Tips for 2011

As a new year begins, it is a new opportunity to set goals and objectives and plan for results in 2011.  Below you will find my goal setting tips to help you realize your results and avoid wasting your valuable time and money!

As a first step in your goal setting process, start with the end in mind – defining the end state you seek

  

     What outcomes or goals do you want to achieve? By starting at the end and working back to your current state, you will be able to visualize the milestones, processes and actions that will need to be put in place to achieve your goals.

The goal setting process can be defined using SMART goals – in order to avoid disappointment and wasted valuable time and effort, ensure that you define a Specific, Measurable, Achievable, Realistic and Time-based (SMART) goal. 

Specific – reduce the tasks and goals to specific items that can be seen, felt or measured.  Some examples goal could be increase new clients by 5% this calendar year, or increase net new sales 3% in fiscal 2011.

Measurable – how will you know if you are on-track and how will you know if you have succeeded?

Metrics that can highlight hat you are making progress or to indicate that adjustments to the plan may be required to ‘right the ship’ on course toward the overall goal or objective.  Some examples may be to endeavour to make 20 prospecting calls per week, and to track against this goal.  Then, of the prospects contacted, how many appointments or follow up contacts were made?   Then of these follow-up contacts, how many lead to a close or sale?  Having these results to review will allow you to identify successes and failures in the process and any areas for adjustment along the way.

Achievable and Realistic– is the goal achievable in the stated timeframe provided? Given the current uncertainty in the economy, are the goals realistic?  Goals should stretch just beyond what would normally be expected to provide some incentive or motivation to strive, however goals that stretch too far will be discouraging when results appear to be beyond reach.

Time-based – Goals should be created and plotted against calendar milestones, weekly and daily tasks to provide you with some manageable tasks on a daily basis to keep you on track toward your goals for 2011.  Once the tasks have been defined, you can use calendar tools such as a PDA, or Microsoft Outlook to create repeating tasks, milestone tasks and daily tasks to keep you organized, motivated and focused on the tasks to be accomplished.

Note that smaller more specific goals in a shorter timeframe are more easily managed than larger, multi-year objectives where progress and results along the way may be harder to measure and may reduce momentum, motivation and ultimately miss the desired results.

Following these steps will certainly put on the path to success in 2011!

References:
SMART Goals – detailed guidance notes and tips for effective SMART goals:
http://www.smart-goals.org/

Download a free SMART Goal setting worksheet – tailor this to your particular situation.
http://www.executive-and-life-coaching.com/support-files/smartgoalsettingworksheet.pdf

Stay tuned for more Small Business Tips for 2011!

Regards,

Stephen Beech MBA, CMA

Padgett Business Services

(905)949-4388 ext. 24

http://www.smallbizprosmississauga.ca/

 (c) Stephen Beech 2010

Finding the Right Accountant for Your Business – They’re Not All Alike!

Generally people I speak with understand that not all doctors or lawyers are alike.  Many specialize in only one or two areas such as family medicine, internal medicine or real estate law or commercial law.  Similarly accountants also specialize in a limited number of areas including audit, tax, corporate law, mergers or acquisitions, or even small business accounting!

Consider the following when deciding on the right accountant for your small business:

1.       If you already have an accountant, how often do you see your him/her ? Do you meet with him or her annually?  Quarterly?  Would you appreciate an opportunity to speak with him/her on a monthly basis or only when needed?  When you have reached out to your accountant, how responsive were they?

2.       What do you want your accountant to do for you?

Do you want them to only prepare the year-end financial statements and tax returns, or would you like to receive advice on business issues such as tax planning for future acquisitions, improving the profitability of your business or assist with financing, succession or business plans?

At a minimum, a good accountant for your small business should allow you to save MONEY, save you TIME, and provide you PEACE OF MIND.  Each of these will be discussed in more detail below.

An accountant should be working in the interest of the client to save MONEY.  This effort can take several forms including tax planning to minimize the tax you pay (not to avoid paying tax, because of course this is illegal), maximizing the profits of the business, avoiding tax penalties from inaccurate or late tax filings for payroll, GST/ HST or corporate income tax remittances, or increasing cash flow through management of payables, receivables, or merchant services (a.k.a. credit card processing) fees.  By meeting and discussing the results of your business performance the accountant can help identify areas for reducing cost, improving performance in the short term and plan the course for improving performance in the future.

 Your account should be also working to help reduce the amount of TIME consumed by the client in preparing, delivering, and interpreting the results provided by the accountant.  The accountant can help to introduce record keeping systems to streamline the collection of receipts, invoices, recording of transactions (cheques, automatic deposit/withdrawals), manage payroll calculations and remittances and in some cases pick up and deliver the accounting information for bookkeeping processing on a regular basis.  The accountant should be able to meet with the client on a regular basis to evaluate the performance of the business against pre-established goals for cost containment, profitability and growth or other objectives to allow the owner-manager to adjust throughout the year in order to respond to market conditions or other operational events.

Finally, through the accomplishment of the first two elements above, the accountant should seek to provide PEACE OF MIND to the small business owner.  This should be achieved by providing sound and timely financial advice, avoiding unnecessary interest charges and late filing penalties for payroll and other taxes, open communication regarding business plans and objectives, accurate and complete record keeping including capital and other assets in the business, and through timely and well developed tax planning for business and life events which may include as succession planning, purchase and sale, mergers and acquisitions, changes in shareholder arrangements.

Some small business owners say “I prefer to use a Chartered Accounant (CA)”.  In response I would say that there are several types of qualified parties that may be able to provide the services you require. CA’s are often used when a business requires several type of accounting services such as cross-border tax advice, servicing complex issues related to multi-location, multi- shareholder groups, or when an audit is required by a bank.  If this does not apply to your business, then it may be possible to reduce the fees you pay for accounting and bookkeeping services.  If you are a business owner and sole shareholder, you may only wish to maintain your records for tax purposes.  For this purpose you may only need the services of a bookkeeper for the regular accounting and an accountant for the year-end tax return.  This may be one in the same individual who may or may not be a designated general (CGA) or management accountant (CMA) and may also be able to provide you with tax return preparation and tax planning services based on an intimate understanding of your business gained through the regular bookkeeping performed for your business.

When selecting the accountant for your business, develop a clear understanding of the needs and goals of your business, and an understanding of the qualifications of who exactly will be providing the accounting services - a CA firm partner, manager or intern - and whether this will provide the level of value you receive for the fees that you pay.  Having considered these and the other factors discussed above will position you well to obtain value for service provided, and above all your business success.

Good luck and stay tuned for the next instalment of Small Business Tips!

Regards,

Stephen Beech, MBA CMA
Padgett Business Services
(905)949-4388 ext. 24
http://www.smallbizprosmississauga.ca/

 (c) Stephen Beech 2010

Small Business Accounting and Tax Tips - Welcome and Introduction

Welcome to our blog for Small Business owners and those interested in small business ownership.

This blog is intended to discuss issues around bookkeeping, accounting, finance and tax planning for the small business owner and owner/manager.

Please visit regularly for the latest articles related to managing the finances of a small business, Tax rules changes and advice around bookkeeping, accounting, payroll, tax and general small business management.

I welcome any comments and recommended topics for discussion related to small business ownership and look forward to your participation and discussion!

Regards,
Stephen Beech

http://www.smallbizprosmississauga.ca/
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