Small Business Owners: Wondering What It Will Entail to Get Organized?

You have registered your company. You have found the perfect, cozy spot to serve your customers. You have hired your staff. You have stocked up the shelves. You have put up the signs. And you are now open for business.

After a grueling period of working towards your business launch, the dust has finally settled. Now what? While you can still afford to sit back, and before you get fully occupied with customer-servicing, you can spend some time setting up some housekeeping procedures to set everything in motion when it comes to record-keeping.

Bank and Credit Card Statements. For small businesses, bank and credit card statements serve as the cornerstone for record-keeping. It is therefore imperative to maintain these two accounts separate from your personal account.

  • Corporate or business bank account

Open a separate bank account for your business. Use this for all business banking. Try to avoid using a personal account for business transactions as this practice increases the risk of items being overlooked.

  • Corporate or business credit card

Obtain a separate credit card to be used exclusively for your business (it can be a personal card, but different from the card you use for personal transactions). Use monthly statement as a way to keep track of expenses to be supported by slips with details of the expense (like name of the client, description of the item and so on). Slips should be filed regularly in files preferably by expense type. This will facilitate accounting based on the credit card monthly statements.

Cash transactions. All items paid for in cash are to be receipted and receipts kept. Ideally, expenses paid out-of pocket or personally should be summarized and reimbursed by the company by way of an expense report. The form should show detailed description of the expense. There should be separate envelopes or folders where items paid for in cash should be kept to facilitate accounting.

Home-office expenses. Personally paid items such as rent or home mortgage, interest, utilities, insurance, repairs, property taxes, condo fees, etc. should be tallied or at least closely estimated to allow proper calculation of business use of home/rent expense. Home office space should be calculated at the start of the business.

Vehicle usage. Car usage should be tracked to identify and collect information on all business-related trips. You should be able to calculate/estimate the business use percentage and total kilometres driven.

Vehicle-related expenses. All car expenses including loan interest, lease payment, car depreciation or capital cost allowance, gas, repairs, insurance license, CAA etc. are deductible expenses but need to be pro-rated based on the percentage of business use. It is therefore important to track all costs of car operations. Parking is generally 100% deductible.

Telephone and communication expenses. Long distance phone should be tracked to allocate claims. Separate business phone line, cellphone, internet bills are all deductible. Bills for home phone lines are not claimable.

Document-keeping. All source documents should be filed according to expense type or supplier reference to facilitate location should questions arise or if bank and credit card records are not sufficient. This need not be filed as a monthly breakdown; yearly filing is fine.

Corporate year-end. Determining fiscal year-end for corporation is flexible during the first year of operations as no pre-setting of fiscal year-end is required until the first tax returns are filed. This decision depends on profitability and the possibility that income from employment or other sources will come back into earnings in the near future.

Unincorporated entities’ year-end. For sole proprietorship, self-employed, and partnerships, it’s a calendar year-end: December 31st. If you are an eligible individual, you may be able to use an alternative method of reporting your business income that allows you to use a fiscal period other than calendar year-end, but you will have to make a reconciliation of business income for tax purposes to calculate the amount to report in your year-end personal tax return.

Corporate earnings. It makes sense to leave surplus income in the corporation. It provides an opportunity to pay lower tax rates (approximately 15.5% for income eligible for small business deduction generally up to $500,000) on the taxable income while it remains in the company’s books. Personal taxes will only be imposed and payable when funds are actually paid to the owner/s in the form of dividends and/or salary. Tax rates are so designed to ensure equitable taxation across the different business structures (corporation, sole proprietorship or partnership) so that the total corporate plus personal taxes never exceed regular personal taxes.

Incorporation versus unincorporated business structure. In deciding whether to incorporate or to remain unincorporated, from a taxation standpoint, considerations need to be made with regard to the possibility of short-term losses (which favours unincorporated structure), size of business, family ownership, income splitting, estate planning and other considerations.

Year-end preparation. By using the above suggestions, accounting and bookkeeping costs can be minimized at year-end. Organize your year-end documents as early as possible. This will give ample time to plan ahead and ensure that total corporate and personal tax burden are minimized. This will also allow the most time possible to plan for the use of taxes recoverable or to ensure that funds will be available to cover the taxes payable on due date.

Landing A Small Business Loan In This Environment

Banks are not currently and probably will not be lending to small, growing businesses anytime soon. They view these small firms as too risky and banks are just not taking on any risk (any risk at all).

But, that does not mean that your business cannot get the money its needs to start or grow. You just might have to go about it in a different manner which, in the long-run, may be a benefit to you and your business.

For most small business, banks are not lending as they don’t want any loans with any risk on their books. While they do want your deposits and other account business, they are just unwilling to let money walk out the door.

They blame these small businesses for items like poor credit, inadequate cash flow or undervalued collateral but in truth, many of these banks are just not in a position to lend to what is deemed risky businesses. And, if your business does not really need a loan, then it is deemed risky.

What Can Your Small Business Do?

For established small businesses, if your banker is refusing to take your call (and most are) then you should be looking at some of the alternatives methods of financing that have been around for decades or that have recently cropped up to fill the lending gaps left behind by the banks.

Know that banks are not nor have always been the only and best options for small businesses. Banks tend to look at your overall business’s profits before making a business loan decision. Alternative financing options tend to look more at the need of the business and its ability to covert financial assets to cash.

1) Look to factoring. If you have customers in the wings but lack the working capital to get these jobs started, factor those job orders for 100% of the cash you need to complete those jobs. Or, if you are sitting on a bunch of unpaid invoices, look to use them to get the working capital your business needs to meet immediate expenses or start that next order.

2) Look to SBA loans. While these types of government guaranteed loans still have to go through banks – the SBA’s 504 program is leading the way in helping many local small businesses acquire and finance property and equipment. With the SBA’s 504 program, your local community development corporation will work with the SBA and your bank to finance hard assets. As they all spread and share the risk, your chances of getting funded increase dramatically.

3) Let your business finance its own growing needs. There are a lot of growing businesses that tend to have a lot of sales but are still losing money (more cash out then in). This is not a reflection of the economy or any market but that of how the business is managed.

Look for ways to reduce costs while maintaining your current level of sales or if that is not possible then look for ways to increase prices. You should always be looking for ways to reduce costs – even if your business is highly profitable.

Keep shopping around for lower cost suppliers and vendors. Look to technology to improve processes or for ways to reduce staff expenses. And, constantly review your service providers – no sense in over paying for services like phone, internet, etc. If you can get your costs down and bring your profits up, you might not need outside financing at all. The best business loan is not having to get one in the first place.

Business is not easy and is getting harder the longer our economy remains stagnate. However, people and businesses still need products and services to get through their days. They look for products that either make their life easier or save them time and money. And, while many are being more selective in what they spend their money on, they are still spending – good news for your business.

Getting and keeping customers (letting them know who you are and what your business offers as well as keeping your business on the top of their minds) is always a challenge. But, successful businesses get out there and find creative ways to meet and overcome those challenges. The same is true in financing your small business.

If you need capital to either get your business off the ground or to finance your current growth, you might as well just forget about the banks and get creative. Banks are just not ready to take chances.

If you can’t demonstrate (sell) your business’s potential to the many different financing options out there (some that really want to work with your business) then you might start thinking about another career.

Finding new ways to capitalize your business is just one of the many challenges that all businesses face in their development. But, the good news is that it is not the most daunting challenge you will face. If you need a business loan to start or grow your company, then get out there and get one!