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Case Study - How we Helped this Business Grow & Improve their Profit

 

Overview

A new Small business client came to us for Accounting and Income tax Help. They were a local Edmonton Renovation Company. We were very happy to sit down and work with them to grow their business and increase their profit. 

The complaint they brought to us, was that the previous Accounting firm did not educate them, and did not encourage the adoption of technology to grow their business. 

 

We started by introducing new Cell Phone Apps:

To start with we demonstrated we are a virtual firm. We utilize digital and cloud systems to efficiently work with our clients. 

With that adoption of Software, and the use of the smartphone as well as an Ipad to conduct business. The Smartphone replaced many tasks that were taking up valuable time and helped to keep their files more organized. 



Steps in the Success Journey 

  1. No need to supply paper copies of Source documents such as bank statements, receipts etc. 
  2. No need to provide paper copies of prior years Accounting year ends.   
  3. Smartphone took pictures and emailed forms and receipts directly to Analysis360°.
  4. Auto-posting into a Document management system.  The client could then login and confirm and view the document that had been posted. Comments could be left directly on that document by the client. For Example, they could state that a purchase was for a Cut-off Saw on the small tools account.  
  5. Setup Accounting records on Quickbooks online. Provided training for the client to access his file online via the iPad. We also trained them on how to view reports and Finacial statements. 
  6. Setup payroll within Quickbooks online, so that payroll costing would be done correctly. 
  7. Six-month review. We identified that there was a need for planning. Embarked on Cash flow Enhancement, and Collections program. Setup Electronic billing to the Clients, Recording time by GPS (at the job site) used APP (jobber) to do job quotes and email to clients. 
  8. Previous year /Previous year-end. The process was Shareholder draws, at year-end, we calculated the tax owing, and both the tax and accounting fee was payable. 
  9. The client Reduced the year-end Accounting fee From $6000.00 to $2500.00 
  10. The client Reduced the bookkeeping fee prior year of $12500.00 to $1250.00 as he moved to the DIY bookkeeping program (with a small coaching fee).
  11. 2nd year saw tax savings, bookkeeping savings, and planning savings.   See Chart Below.
  12. Also as a result of planning, He claimed on CI  Insurance for the protection of his company, when he got sick.  

A change in business value and personal income does also incorporate savings on personal income tax. These are the steps we took to help this business refine their process so they could save and make more profits. Each business is unique so these steps may change depending on the goal and business structure. 

 

Profit  Chart.    

Year end of March 31 2020

                                                                                               Prior Acct Firm                   Analysis360               Analysis360       Analysis360

Description

2 Year Prior

Last year

Current Year

Next Year

Gross sale

 525,000.0

 600,000.00

 675,000.00

 750,000.00

Operating Expense

 300,000.00

 310,000.00

 355,000.00

 385,000.00

Direct Labour

 200,000.00

 150,000.00

 100,000.00

 125,000.00

Total Expense

 500,000.00

 460,000.00

 455,000.00

 510,000.00

Gross Profit

 25,000.00

 140,000.00

 220,000.00

 240,000.00

Corp Tax (@ 12 %

 3,000.00

 16,800.00

 26,400.00

 28,800.00

Net Income After Tax 

 22,000.00

 123,200.00

 193,600.00

 211,200.00

Less Dividends

 20,000.00

 83 200.00

 100,000.00

 0.00

Net  R/E after Dividends

 2,000.00

 42,000.00

 135,600.00

 211,200.00

Non Taxable Insurance Proceeds (claimed On CI)

 0.00

 0.00

 500,000.00

 0.00

Adj R/E 

 2,000.00

 42,000.00

 635,600.00

 846,800.00

Accounts Past due 

 295,000.00

 10 000.00

 25,000.00

 20,000.00

Bank Balance

 10,000.00

 295,000.00

 695,000.00

 810,000.00

Other Assets- Auto - Rental Property

 10,000.00

 10,000.00

 100,000.00

 100,000.00

Personal tax


Personal Net Income 

 35,000.00

 All Salary

 55,000.00

 19,020.00

 Mix Sal& Div

 85,000.00

 11,000.00

 Dividend only

 125,000.00

          0.00 

 All income from Loans On   Insurance Plan 

 200,000.00 

 

Summary:

 

Client Goal: Year 1: Year 4:
Client wanted to PAY Zero Personal Income tax.    0 personal tax
Increase Bank balance  $10,000.00  $810,000.00
Collect on Bad Debts AR  $295,000.00  $20,000.00
Wanted to have a New Company truck  0  $100,000.00
Wanted an increase in Profit after tax  $22,000.00  $211,000.00
Wanted to increase sales  $525,000.00  $750,000.00

Of course, transformation and improvement in Cash, bank, sales, required collaboration with the Accountants, Training the small business owner, Adoption of Technology and following Tax planning, financial planning, and utilizing targeted business services from Analysis360°. 

We have only expressed the growth in the actual numbers without reflecting the various % increases and ratio improvements. Small business owners often are more interested in the basic business indicators of Growth, Gross sales, profit after tax, and disposable income. 

Personal income could be an issue, if you could not live on a net income of 200,000.00 then that might mean further work on personal goals, personal budgeting and financial planning. 

Peace of Mind for this client could be measured this way. 

  • Security- Assets, Growth in business, and Cash in the bank. 
  • Could the Owner Afford to pay his Brother to run the business for a year?  Yes.
  • Could the Owner Afford to take a 1-year sabbatical/vacation?   Yes. 
  • Lowered cost of Bookkeeping and Income tax Preparation (use of Virtual Accounting Firm)
  • Tax filing was compliant and up to date- Current filings (due to use of Technology)
  • Monthly Financial reviews with His Accountant - always knew where he stood. 

We appreciate the trust this client gave us to let us come in and work together to help them reach their goals! 

 

If you would like support in reaching your goals, book a FREE Consultation here.




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8 Signs Your Business is Ready for an Accountant

 

#1. You own a business. 

The end. 

Well... it’s not quite this simple. We do recommend that every business owner has a trusted accountant to support their business, but here are 7 more signs you are ready to receive the support of an accounting professional. 

 

#2. Bookkeeping tasks are becoming tedious. 

We understand that it can be very time consuming to manage and record your finances. Accounting errors can cost your business more time, money, and credibility. These tasks may include:

  • Creating a financial statement
  • Preparing documents for year-end
  • Monitoring cash flow
  • Balancing financial statements
  • Prepare and send invoices 
  • Collect on overdue payments
  • Make Payments
  • Complete payroll
  • etc.

If you are finding that you don't have time to complete these tasks or if you don't know how, then it is time to seek the help of a professional to keep your business organized and structured. 

#3. You will be hiring soon. 

Hiring employees or contractors is a very exciting time in business! It means your business is growing and expanding, you are ready to take things to the next level. When you are starting to consider this, it is important to seek professional advice to ensure your business is set up financially to make this move. You need to have the proper structures in place to ensure your business can sustain the new team member.

#4. You are missing important deadlines. 

We understand that things can slip through the cracks. It happens to the best of us. When bill payments, invoices, and contracts are overdue and you are missing the deadlines, this can cause negative consequences on your business and your personal reputation. Use the services of an accountant to help you meet and manage deadlines. 

#5. You are considering Incorporating your Business.

Should you register as a sole-proprietorship or Corporation? An accountant can advise on the ideal business structure. Accountants are also able to assist in the incorporation process to set up your finances correctly. 

#6. You are paying a large amount of taxes at year-end. 

We are trained to help you optimize your records to ensure you aren't paying too much or too little. 

#7. You are getting audited. 

We recently went over how to avoid audits in our last blog post. If you are getting audited it is important to use a professional accountant to guide you through this process. 

#8. You are going over budget, or you don’t have a budget. 

Budgeting is important for both your business and personal finances. A Budget will help you stay on track with your spending. An accountant can help you create and follow your budget. 

 

If you are feeling overwhelmed by your finances, we want to help you! Business growth can be a very exciting and overwhelming time for business owners. You are exploring new territories but you want to make sure you are on the right path. We will support you through your business changes.

 

Big or small, Analysis 360° will guide you to make the best decisions for you and your business. 

 

Start by booking your Free Consultation today! 

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Top 9 Tips - To prevent CRA Audits

Top 9 Ways to Avoid Small Business Audits

Owning a small business can be taxing enough without involving the Internal Revenue Service, so take care to avoid small-business audits. 

Small-business owners, especially sole proprietors, are at special risk of being audited. This is because many self-employment incomes can be underreported. 

 

The CRA increased its number of small-corporation audits by 145 percent from 2004 to 2005, and in 2006 issued a report in which it estimated that unpaid taxes topped $6.5 billion in 2001, with about 32 percent stemming from unreported business income. 

 

In 2018 the new government of the day brought in a new audit called net worth audits, as such they have Federal authority to examine bank records back as far as 1970- Additionally the Mainframe computers of CRA received significant Upgrades to AI and Data mining to uncover inconsistencies in your both your personal tax and business tax files. 

 

While many  tax professionals say it is unlikely the CRA will come knocking at your door, "if you're the one, it's not a good place to be," says Barbara Weltman, author of Small Business Taxes 2019  After all, audits cost time and money – two things most small-business owners have in short supply. 

 

This year more than ever, small businesses have had to shift and optimize. Make sure you are on the right track with your finances by keeping them organized, timely, and accurate. We have compiled these tips to help your business avoid an audit and to support you through one. 

 

Tip # 1  Keep Excellent Records. 

  • Tax time is easier when you have records detailing income, expenses, debts and deductions. This professionalism will show on your returns. Less than 4 percent of sole proprietors are audited, according to Weltman, and the CRA questions only 3 percent of Canadians about their tax returns, the Canadian Federation of Independent Business reports. Still, the CFIB advises keeping records and receipts for at least seven years. 10 years is more completed- digital formats are ok too. We work with our clients often to help them digitize their documents for safe keeping. BONUS TIP: Make sure to keep a backup of your files and records.

Tip # 2  File Complete Forms

  • CRA - Canada Revenue Agency is forced to take a second look if you leave parts of your schedules or returns blank. Double-check to make sure your documents are complete before submitting them. And don't forget to sign the forms. An accountant can help you look over your forms to make sure they are complete. 

Tip # 3  Report All Income

  • The government is particularly interested in whether the self-employed individual reports their full income, so be sure to properly list all earnings. Use the exact figures that appear on your T4a forms. "If you don't, the CRA computers are going to know it," Weltman warns. The IRS has also been on the alert for errors in Schedules  124 (bus income) Schedule 5018, the form used to report incomes from partnerships, Shell corporations and some trusts on individual tax forms. The government is more likely to investigate cash-based businesses, so make sure your accounting is tight if you own a restaurant, for example. Cash transactions of more than $10,000 need to be listed on separate tax Forms. 

Tip # 4   Keep Accounting Consistent  (year over year.)  Accounting treatment  and  Small business GAAP   (Generally Accepted Accounting Principles)

  • Most small businesses with sales of under $5 million can choose one of two accounting methods: cash or accrual. The cash method reports income in the tax year it's received, while expenses are deducted in the tax year they are paid. You may be required to use the accrual method if you produce, sell or purchase merchandise. This method requires income to be reported in the tax year it is earned and expenses deducted in the tax year they are incurred. You need to first receive CRA approval if you change your accounting method. Switching accounting guidelines on your own or mixing the two nearly guarantees the CRA will take a hard look at your returns. 

 

Tip # 5  - Employee VS Independent contractors

  •  The National Body of Accountants (CA’s  CMA’S CPA’s ) warns that CRA is on the lookout for business owners who qualify employees as independent contractors. If you tell your freelancers when and where to work and don't use contracts, for example, the government might consider the workers employees and expect you to pay payroll taxes.  This could amount to significant penalties and back tax assessments by Canada Revenue Agency. If you don't know wether to qualify your team as contractors or employees, seek professional help to ensure your records are correct. 

 

Tip # 6 -  Professional / Personal Expense Recording and classifications

  • The CRA  is strict about not mixing the personal and the professional when it comes to write-offs. To qualify for a home-office deduction, your kitchen table can't double as your desk. We advise taking a photograph of your workspace for tax purposes. You and your employees can use personal vehicles for business, but record when, where and why you used them, as well as the exact mileage. And it's fine to take the family to Florida while you attend a conference, but only your business expenses are deductible and must be recorded accurately. A personal portion of the expense must also be accounted for.  We use apps to help us keep this information organized in an easy to access format. 

 

Tip # 7  - Pay your tax dues on time. (Payroll, GST, Corporate Tax) 

  • Depending on how complex your taxes are, you may be required to pay corporate taxes on monthly installments or quarterly installments. 
  • Payroll Source deductions- even if you have no employees in 1 month the reporting must be completed, For payroll and GST accounts these accounts are Trust accounts, Money you collect on Behalf of the Federal government. So it is highly important to make the relevant payments on time.  

 

Tip # 8  - Phone calls, information requests and Desk audits. 

  • Respond to CRA phone calls (always get the Agents ID # Name and Contact phone #) Letters and Information requests: Make sure you reply in writing by the given due dates.  If letters are desk audits and ask for accounting reports , such as payroll wage report, or Detail GST collected-expense report, Provide the reports by the Filing due date. If you aren't sure how to respond or if the request is a scam, we can help you move forward! 

 

Tip # 9  - Utilize An Accounting Professional to do your Business Taxes. 

  • Depending on how complex your taxes are, you may want to seek help in filing taxes for your small business. By using tax-advice resources, you'll have a better chance of submitting returns that won't raise red flags -- thus avoiding an audit. If you don't think you need a professional you can try using tax software. Depending on what you get, Price and complex operations. What are Red Flags? As your Accounting and Tax advisors normally the following list. 
    • Non Payment of Payroll taxes
    • Non Payment of GST Owing
    • Non Payment of Corporate taxes owing
    • Filing Personal or Corporate Tax returns where year over year variances are more than 10 percent , Shareholder loans or capital accounts do not reconcile and other technical variances that Alarm CRA.  



Bonus Tips:

A:  If in doubt of a transaction, you can submit a transaction to CRA for a ruling. 

     Once you get a ruling back, that is the final arbitrated decision and you must follow it. 

     For example: Not sure if a person is a contractor or Employee, submit the Subcontractor contract and CRA Review form- a ruling will be made and eliminates all doubts or misunderstandings. 

 

B: Submit your business to a Pre-audit process- Ask Your Accountant if they provide such a service. The accountants at Analysis360° can assist with pre-audit assessments which will assist in the event an Independent audit is needed by a 3rd party Audit Accounting firm. 

 

If you have any questions about your small businesses' finances, we are here to help! Please book a free consultation and we can walk you through the process and best practices. 

 

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8 Winning Tips to Make Your Financial Plan Profitable

Here are our top 8 Tips to Profit Planning for your Business. We have gathered these ideas from our clients while working with them to prepare their financial plans. 

As we near the end of the year it is time to start reviewing your previous year and planning for the next. Developing your financial plan is an important aspect of your business so you always know where you are financially. If you don't keep track of how much money you're making, you have no idea whether your business can be successful or not. You can't tell how well your marketing or other business-building activities are working. You need to know what your net profit is. If you don't, there's no way you can know how to increase it. To be successful in business, you need to make a financial plan and check it against the facts on a monthly basis, then take immediate action to correct any problems. 

 

Let's get into the tips:

 

  • Create a Financial Plan & Business Plan:
    • Estimate how much revenue you expect to bring in each month, and project what your expenses will be. If you need it, get help from business planning books, software, or an accountant. This will help you to plan your business steps moving forward. 
  • Review the Plan Monthly:
    • Even if time is taken to prepare a financial plan with profit and loss projections, it often sits in a desk drawer. It's not enough to have a plan -- you have to review it regularly. This is why we use forecasting and enter budgets in your Accounting system on a continual basis.
  • Lost Profits Can't be Recovered:
    • When comparing your projections to reality and finding earnings too low or expenses too high, the conclusion often is, "I'll make it up later." The problem is that you really can't make it up later; every month profits are too low is a month that is gone forever. 
  • Make Adjustments Right Away:
    • If revenues are lower than expected, increase efforts in sales and marketing or look for ways to increase your rates. If overhead costs are too high, find ways to cut back. There are other businesses like yours around. What is their secret for operating profitably? Here at Analysis360 we also provide a business review that includes benchmarking to other businesses similar to yours.
  • Think Before you Spend:
    • When considering any new business expense, including marketing and sales activities, evaluate the increased earnings you expect to bring in against its cost before you proceed to make a purchase. You can often increase your profitability simply by delaying expenses to a later month, quarter, or year.
  • Don't Be Afraid to Hire:
    • Retailers and restaurateurs wouldn't consider operating without employees, but many service businesses limit themselves by being understaffed. Almost any business can benefit from hired or contracted help. You can better use your talents for generating revenue than for running errands and filing.  How can Analysis360 help you- We provide ANALYSIS of Pro-Con cost reviews Staff vs Contractor including supplying you related employment contracts or sub-contractors contracts. 
  • Pay Yourself a Salary:
    • If you are incorporated, you may already be doing this. If not, allocate an amount to the owner's compensation on a monthly basis. Each month that your business meets its profitability goal, pay yourself the full amount. When you miss your target, dock your "pay" and when you exceed it, pay yourself a "bonus." Writing yourself a monthly paycheck will give you a strong incentive to keep your business profitable. Work with your Accountant to determine the best compensation level, and how much dividend should be taken.  Dividends on the common stock of a corporation are taxed at one of the lowest tax rates in the Canadian Income Tax System.
  • It's About Profit, Not Revenue:
    • It doesn't matter how many thousands of dollars you are bringing in each month if your expenses are almost as high, or higher. Many high-revenue businesses have gone under for this very reason -- don't be one of them. For many clients, we teach and coach our Profit First Program. Which can increase the net value of your business to enhance a future sale.

If you are looking for help in creating your Financial Plan, book your Free Consultation with us today! 

 



 

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