Business Advisor: December 2010

Financial administration mistakes and oversights are expensive, both monetarily and operationally. We’ve seen many in our travels. Private business owners, please read the following Q-and-A insights gleaned from years of serving this market and noticing what others have got right and wrong in their financial administration.

Financial administration mistakes and oversights are expensive, both
monetarily and operationally. We’ve seen many in our travels. Private
business owners, please read the following Q-and-A insights gleaned
from years of serving this market and noticing what others have got
right and wrong in their financial administration.

As a private business owner, I’d like some help with making financial
decisions, but I can’t afford to pay for a full-time CFO nor do I think
I need someone full time. Are there any other options for me?

Help with financial decisions is always critical and should always be
considered at any stage in a company. Many small businesses do not need
a full-time CFO but would benefit from the support of an ‘external CFO’
without having to invest in one full time. The external CFO role would
consult on some of the following matters: responding to investor or
lender queries, preparing forecasts, reviewing costs and implementing
cost control methods

Can we save money by doing our own bookkeeping?
There’s no doubt that on paper you can save money by doing your own
bookkeeping, but a further look at the scenario may yield a different
answer. If you do not have a sound background in accounting or are not
familiar with all of the government regulatory filings, it could be
costly in the long run with missed deductions due to errors in
financial records, filing interest or penalties. Don’t forget to
factor in the opportunity cost related to time spent inputting records
versus working in the business and growing it.

Using a payroll service to process the payroll for my business only
makes sense if I have more than five employees. Is this correct?

Using a payroll service such as Payweb, Ceridian or ADP is probably the
lowest cost alternative to payroll preparation from a monetary and risk
standpoint for most businesses, regardless of size. Sample cost points
for different scenarios are as follows. A three-person pay run with
direct deposit into employee bank accounts is just $26.02 per pay. The
cost of a 15-person pay run with paper cheques delivered to the
client’s business is just $57.55 per pay.

The benefits of using a payroll service include the following:
Time and money is saved by not having to prepare payroll cheques and make government remittances.

Risk of late filing penalties for source deduction remittances, T4
filing, Employer Health Tax remittances and WSIB remittances is
mitigated, as the payroll service ensures your remittances and filings
are made on time.

A business owner will have additional time to build and promote the business and build employee and customer relationships.

What are the advantages of incorporating a business?
There are several. But you need to make sure they are advantages for
you and your specific business and financial circumstances. For example:

• Limited liability: As a shareholder, you do not assume all of the liabilities of the company. You are only limited to the amount of money that is invested in
• the company.
• Your personal assets (i.e., house and cars) will not be seized to pay off the debts of the company, unless there are personal guarantees.
• Unlimited life span: The corporation continues to exist even if the shareholder leaves the business or dies or if the ownership changes.
• Income splitting: You can pay dividends to shareholders who are not actively involved in the business (i.e., wife/husband and children) who may be in a lower tax bracket.
• Most importantly is the small business tax rate (see below).

I’ve read that the corporate tax rate for a small business is lower
than for a large corporation. What income threshold is required to be
taxed at the small business rate and what is the current rate?

The small business rate was reduced to 15.5 per cent on July 1, 2010.
This rate applies to the first $500,000 of active business income for
an associated group of companies.

Kathy Steffan is a senior manager and Sabrina
Poletti is a manager of the Business Enterprise Solutions Team at
Fuller Landau LLP in Toronto. www.fullerlandau.com.