Starting a Business

Should I Incorporate or Not?

The decision of whether or not to incorporate hinges on the answer to this question:

“Do the benefits of incorporating outweigh the extra annual costs of running a corporation?”

For example, a corporation enables you to better manage the timing of your income, allows for income splitting among family members, facilitates tax deferral, and reduces liability associated with running the business.

But these benefits must be weighed against the additional costs of running a corporation versus a proprietorship.

Starting as a (non-incorporated) proprietorship the simplest (and least expensive way) of starting a business. You can register a business name, obtain a business license and you are about ready to go. You report all the income and expenses on your personal return. One benefit of a proprietorship is that if there are start-up losses, then those losses can be used against other sources of income on your personal return.

The downside can be that if the business starts to make income, it can push you into a high tax bracket. Especially if your business is cyclical. If your business makes $150,000 one year, then $50,000, the next, all things being equal, you will pay more tax as a proprietorship than if you had run a corporation and had drawn a wage of $75,000 per year.

As a proprietor you would pay approximately $53,000 in the scenario above. If you had incorporated, then you would have paid approximately $31,000 of income tax over the tax years.

A discussion with KMA can help you identify the structure of your new business.

Do I Need to Register for GST and/or PST?

The rules that determine whether or not you have to register for GST are the same if you incorporate or not. Whether you register for GST is determined by this question:

“Will I exceed $30,000 of taxable sales in a 12-month period?”

There is also the timing question. If you are confident that you will exceed $30,000 of sales and you need to spend money on equipment at the start of the business, then registering before the purchases may make sense as you will be able to claim the amount of GST paid as an Input Tax Credit (ITC’s reduce the amount of GST you have to remit to CRA).

Whether or not you need to register for PST will depend upon you are selling products or services that require you to collect PST. These rules are more complicated than PST and can require some research.

What Tax Filings Do I Have – and When Are They Due?

If you are registered for GST, the timing of when you file is determined by the amount of sales and amount of taxes that you must remit each year. PST is typically due each month. If you are required to remit WCB (WorkSafeBC), then it may be quarterly or annually. This is determined by the annual amount to be remitted.

KMA can help you determine when each of these taxes must be paid.

Should I Consider Professional Bookkeeping?

Proper record keeping is absolutely essential to your business success.

Everyone who has started a business is aware that they need to keep a proper set of records. But very few people have set up their own bookkeeping systems.

Factors to consider in whether or not to have someone else do the bookkeeping:

Will Outsourcing Bookkeeping Save Time?

The amount of time that the bookkeeping will be driven by the complexity of the bookkeeping requirements and the volume of transactions (purchases and sales) per month.

If you run a simple service business, then the time requirements will be minimal each month. If you are a home builder, where you will need to track expenses by project, track all of your subcontractors for CRA reporting, and you will have a large number of invoices each month, your needs will be much higher.

Consider asking:

Can I Take Care of Bookkeeping Myself?

Do you or a family member have the knowledge, time, and desire to enter the data into an accounting system? We have seen some families where a family member steps forward and eagerly takes on this challenge – but we have also seen where no one is even remotely interested. We suggest that this is discussed among the family when the business begins and that no one makes any assumptions.

Why is good bookkeeping so essential?

A good set of records allows you, as the business owner, to identify what is making money and what is not. If can help you identify the areas that you need to improve upon in order to improve your profitability.

A proper set of books allows you to ensure that you are remitting the correct amount of GST, PST, and payroll taxes. We express this concern to clients because we have had to help businesses catch up on their tax filings, and it always seems to be a significant challenge for the business and the owners.

KMA can help you decide on your bookkeeping needs. We work with our clients to build solutions that work for our clients. As a full service firm, KMA offers bookkeeping services. We can set up your books and record keeping system, and work with you that works for you.

Assistance With Financing

Once you have decided you wish to buy the business – or you need money for your current business – our team of Chartered Professional Accountants can help you. For example, when you are buying a business one important question to ask is “will this business make me enough money to live on?” KMA can prepare the analysis that will help to answer this and other questions.

If you are looking for financing for your current business and need someone to discuss it with, contact one of our Chartered Professional Accountants. We can discuss what a bank will look for, help you assemble the necessary information, and answer many of the questions that you have. We will also work with you and the bank to gather any other information needed.