10 Vital Signs To Ensure The Health of Your Business

kelowna accountantIn today’s world, business owners face challenges and opportunities on a daily basis and as a Kelowna accountant, I’ve found that most entrepreneurs really need to just focus on their business. Sometimes it’s important to bring it back to the basics so I’ve laid out what I believe are the top 10 most important points when ensuring the health of your business.

1. Understand YOUR business

We talk about business owners that don’t understand their business and think it’s something else. You need to get to know what your business is, understand it and focus on it. Making sure that you keep track of the items that are important for that business.

2. Ensure your business plan is current

I would bet that most businesses, small businesses in particular, don’t have a good up-to-date business plan. A business plan is something they did when they first started out, when they needed some additional financing or when an advisor finally told them they needed to make one only to inevitably put it on the shelf.

It’s really common to hear that a business owner hasn’t updated their business plan in a long time but it is a document that needs to be current.  I like to refer to it as a fluid document rather than a stagnant document because it’s always changing.

Actively use your business plan to grow and improve your business.  Keep it fluid and keep it current!

3. Do a financial health check on a regular basis

It’s critical that you are regularly reviewing your situation to ensure your company’s finances are on track. To look at what’s going on, you need to benchmark some numbers such as:

  • Are you paying things on time?
  • Are your customers paying you on time?
  • Are you losing customers because of unaddressed issues?
  • How are you gaining new customers?

I would even expand this to include your personal life as well. If your business is doing “well” and you’re personally not doing well, then there isn’t equalization. Something is wrong and and perhaps a drastic change in your personal life/priorities is needed. When you’re doing a financial health check, make sure you’re looking at the business’ financial health as much as examining how you are doing in your personal life – both are critically important.

4. Watch your cash flow

I like to talk about how cash is king. When I do a set of financial statements I always say that the cash flow statement is probably the most important statement that is never looked at.

It’s never looked at because if you run your Simply Accounting, QuickBooks or other accounting software, they don’t generate cash flow statements. Understanding where your cash is coming from and where it’s going to will show help you to identify your successes, highlight any areas for improvement and make your business even stronger.

5. Ensure your business is properly capitalized

I see this all the time. People get into business or financial trouble by taking too much from the business. This is when you see companies start doing debt refinancing, leasing things, factoring receivables…they don’t have enough capital left in the business to operate the business.

Not good.

All businesses need some level of capital and you need to grow that if you want your business to grow. Some people might start with good capital and let it dwindle or start with no capital with the intention of creating it over the next few years but never allow the business to create its own capital. You must not allow the capital your business operates on to dwindle or you might not have a business for very long.

6. Plan ahead

Part of ensuring your business plan is current is by planning ahead and making sure you’re looking at what you want the business to become. Look at ownership and think about whether or not it needs to be transferred to the next generation, to new employees or if you’re going to bring in other partners.

What are you going to do with this business? Think ahead and envision the future to find out what you want the business to become.

7. Plan for capital losses

In the ups and downs of economy it’s important to look at tax situations, tax planning, protecting your assets and keeping a really close eye on your financial situation.

Sometimes triggering capital losses where you can use them against future capital gains or carry them back against previous capital gains is something to look at. Make sure you don’t just carry a capital loss on your books.  Plan how you can use it and see how you can make it work.

8. Utilize corporate and group losses

I see this quite regularly with organizations growing in multiple places with multiple corporations, some with losses and some with gains. You need to take a step back and look at the whole organization and make sure those group losses and group gains are netted so that you don’t end up paying too much tax.

A few things to look at:

  • Merging of corporations
  • Amalgamations
  • Review inter-corporate charges (business or interest)
  • Selling properties between corporations
  • Loaning funds from corporations (with or without interest)

These are some of the things you’ll need to review to ensure your whole corporate group is handling the gains and losses in a way that reduces your taxes.

9. Consider paying dividends from your corporation

There are specific types of dividends that are tax-free; for instance, if your company had a capital gain in the past, you may have a balance in your Capital Dividend Account.  This account accumulates one half of the capital gains, usually net of one half of capital losses, and the balance in the Capital Dividend account can be paid out tax-free to shareholders.  Make sure that if you have a balance in your Capital Divided Account that it is paid out to the owners tax-free.

Also consider when you’re doing dividends if you’re paying eligible or ineligible dividends to the appropriate owners of the company. On a side note, you don’t have to give all owners eligible dividends. A lot of times eligible dividends can create some minimum tax situations that aren’t favorable so give non-eligible dividends.

10. Review your corporation’s installment requirements

If you owe a specific amount of taxes one year then the next year you are required to pay installments. If you don’t pay installments, Revenue Canada will charge you interest and, depending on the amount of interest owing, penalties as well for not doing so. When you pay you have to make sure that it is what you think your income is going to be for the next year.

There are multiple ways of paying installments but you need to calculate your installment amounts based on one of the methods that works best for you, not necessarily when Revenue Canada comes back and says your installments are due. Your business might benefit more from paying the interest and retaining the cash flow.

Stop & Re-Evaluate With Your Kelowna Accountant

In conclusion, take a look at your business, re-evaluate what you’re doing, go back to the basics, take care of that current business by making it as successful as possible while looking for those opportunities to move it to the next level.

 

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