Starting your own business can be tricky. There are lots of moving parts and it can quickly spiral out of control. If you don’t pay attention to your expenses and ultimately your potential tax liability, running a business will become a nightmare. Before you get too far ahead of yourself, here are some of the pieces you should have in place:
- Hire a good accountant – this is by far the most important thing you should do before you’ve started your business. Unless you’re an accountant, stick with what you’re good at and let a professional handle your taxes. By now you know the saying “you get what you pay for.” That piece of paper taped to a pole you saw while you were stopped at a red that said “Tax Returns – $50” is going to seem like a curse when CRA is working on your second reassessment. Plan on taking some of that hard-earned income, pay a professional $1000 to do your taxes properly and use that expense as a write-off for your business.
- Understand your taxes – the income your business generates will be taxed at your personal rate depending on how much income you bring in. Also, if you’re going to be charging your customers the appropriate sales tax (since you are paying taxes on your expenses) you need to start accounting for it. Depending on the amount of revenue generated you’ll need to apply for a GST or HST number. This means with every cheque you receive you should start putting aside anywhere from 30-45% for the CRA at the end of the year.
- Invoicing and billing software – do not think for one second that you’re going to run your business on an excel spreadsheet. Whether it be a program you load on your computer or a cloud-based one, find something that works for you. You will be able to track expenses, generate professional looking invoices for your clients and export reports for your accountant making their life, as well as yours, easier. Trust me.
- Keep every receipt – want to reduce your tax liability…expense every dollar you spend on running your business to reduce your taxable income. If you’ve tracked your expenses in the above-mentioned software, your accountant will know what to do with it. Start doing this consistently as it may mean making a decent income or going bankrupt after a few years.
This list is not exhaustive, but it’s a good place to start. If you hire a good accountant and put a system in place to record all your expenses, you will set yourself up for less headaches and more time to focus on what’s important—growing your business. Good luck!
This article was written by Wayne Leacock from Sun Life Financial. Wayne is a financial advisor with experience working for companies such as Investor Group, Fidelity Investments and Sun Life Financial. During his career of over 10 years he has helped many Canadians realize their dream of financial freedom.
In his spare time, Wayne enjoys reading, travelling and maintaining a regular meditation practice.
Photo Copyright: / 123RF Stock Photo