Edmonton Accountant | Starting A Business
Okay, so we’re here with another episode of ask [inaudible] CPA and today’s topic is how to start a business. I’m here with y’all way from our firms. So how long have you been with us now? I had been in the for two years now. Right on, right on. And you graduated. Um, I graduated, uh, from grant and viewing university in 2016. Right on the BEACOPP? Yes. Majoring in accounting. How now you’re finding it accounting. So far it’s pretty interesting working with small businesses always at this, right? Edmonton Accountant. So I mean the why it’s important to discuss, you know, how to start a business, you know, 50 percent of all businesses fail within five years. Um, you know, the story that we get is the client comes in to see us after they’ve received some correspondence from cra or you know, they come in after they’ve depleted some of the cash resources that they had available to start this business, not before.
And it limits some of the things that we can do to help these guys sometimes. So it’s important to think through how we’re going to start this business. So you always, uh, what do you think are the questions that these new business owners should be asking? The first one would be when starting a business, who is the first person you should talk to? So the first person you should generally talk to, it might sound a little self serving, but you really should talk to an accountant. You should talk to a CPA. You know, Edmonton Accountant there’s a lot of the old business as you need a good accountant and a good lawyer, you really should talk to a CPA first. Um, that should be your starting point in determining what your structure is. Does this make sense economically? Um, you know, is it feasible or am I missing anything in terms of how I’m going to price my product or service?
So really, I think the first discussion, uh, with the CPA. Awesome. So what happens if you try it and just incorporate on your own? So that’s one thing that we get. Sometimes they come in and they’re already incorporated and they’re usually pretty proud of it and they come in and they have your certificate of incorporation. They went to corporate registries. Um, and they bring it in and they are saying, I don’t know why I ever would have needed to hire anybody. I got this done myself and we look at this certificate and we look at the articles of incorporation and we look at those articles of incorporation. They don’t have what we need in order to handle their business in a tax efficient manner. Edmonton Accountant we have to go and get the articles of incorporation restated, uh, to avoid paying significant extra tax. So they think they’re saving money by accomplishing the incorporation themselves.
But it usually just has to get done. Again. It has to be redone before we can pay these people in a tax efficient manner in any savings or completely obliterated by, by, uh, how much extra tax if it costs two to, you know, pay the business owners with inefficient articles of incorporation. Absolutely. Edmonton Accountant, so even the lawyers generally incorporate people, uh, or incorporate people. Why do you want to talk to a CPA before talking to you about lawyer? So good, good lawyers will even point you back to your CPA before they do the incorporation because what the, the accountant can give the lawyer is the accountant can give the lawyer the, you know, the tax recipe, if you will, you know, the tax structure of the business. So the, the kind of the gold standard is you talk to a CPA and they get a sense of what’s going on in the business, who’s involved, what are your personal circumstances, how can we pay the people and then that accountant can give tax instructions to the lawyer and those tax instructions will be incorporated into the articles of incorporation so we can, you know, effectively pay the owners in a tax efficient manner.
Um, is there a type of business structure you can operate without incorporating? You can, you don’t have to incorporate to start a business. You can operate as a proprietorship. So let’s, uh, basically an unincorporated business in the activity gets reported on your personal tax return. Um, but that’s not always advisable. I’m usually the, the, one of the big problems is, well first of all you have unlimited personal liability. So if something goes wrong in this business and we start talking about your savings and your house is on the line, if you have an issue in that business and you get sued, um, you know, which a lot of people forget about sometimes and they’d be really easy and you think, Edmonton Accountant, I’ll never get sued. My business will. I mean, does your business involve driving anywhere ever? If it does, so you can get sued in your business.
So, um, you know, if you’re driving in the course of your business, that can be a potential liability if you get into an accident. So it was almost unavoidable to have any risks in a, to have no risk in any business. Um, so really you can operate as a mirage, but you’ve got to be careful if that’s appropriate. The second reason is you can end up paying a lot more tax as a proprietor. You know, we generally tell people if there’s going to be $50,000 of profits or more, usually a partnership no longer make sense. You can access the, the, uh, the small business rate, which in Alberta Right now is 12 percent, 12 percent, you only pay 12 percent on incorporated small business profits in Alberta, Edmonton Accountant whereas opposed to the highest personal marginal rate is 48 percent. So yes, if you can operate as a group ridership, but do so with caution.
Um, why should you still talk to a CPA even if you’re going to start to opera to operating as an incorporated proprietors? Yeah. Well, first of all, you don’t want to make sure you’re not getting into that trap where, you know, maybe you’re getting into a business with a lot of a liability or maybe you’re getting into a bad tax scenario by operating as a proprietorship, but even once you’ve worked through those and it really does make sense to operate as a, uh, the CPA can guide you on how to organize those proprietorship records so we can file that personal tax return and an efficient manner at the year end. And then there’s certain categories that we want to track. Um, you know, what income would expenses want attract and we need to register you for gst because you’re not a, you can’t just sidestep gst as a proprietor. If you have over 30,000 revenue, you’re still gonna have to register for Edmonton Accountant whether you’re incorporated or not. So there’s a number of things at the CPA can walk you through just to create some efficiency. You’re ready to complete all the filings in an organized
manner. Absolutely. Um, what happens to business owners who set up bank accounts and insurance accounts prior to talking to a CPA? Yeah, Edmonton Accountant these are the guys that are like, they’re really gung Ho. They want to get their business started and it’s an exciting time of course, but you know, usually kind of one step forward, two steps back type of thing. And they get up and they, they get their bank accounts set up in their insurance accounts set up and then they realize, oh, I have to incorporate. And then their bank accounts that are registered to the wrong name insurance accounts or the wrong name. And sometimes they have to cancel sometimes at the switch. The names was it, which is not as bad and sometimes they have to cancel the accounts and start new accounts, so it’s twice as much work sometimes, so that’s a good idea to have that structure. Edmonton Accountant It doesn’t take long to understand what’s the best structure and to incorporate more situations. So, um, you know, it’s a good idea to have that in hand before you set up the accounts. Just for time efficiency.
I see. Um, what does it cost? Anything to go talk to a CPA.
You’ll, some cpas do charge by the hour for every hour in what our offer. We always give that free consult. We want to understand if the, if the client’s a good fit for us and if we’re good fit for the client and our goals for longterm clients. So there, there’s, there’s a lot of cpas like ourself there that’ll do a free consult. So there’s really no reason why not to do a consult with a CPA before starting the business in which you’re just getting a little ahead of yourself. You might as well. It’s one, Edmonton Accountant it’s an important meeting and it’s usually a free meeting. So
you should have it. Yeah, absolutely. Um, if you’re a startup looking to hire a CPA, what type of experience should you be looking for? So Edmonton Accountant you want to look for a CPA that has, first of all public practice experience, so you have to remember that some CPAS, their most of their experience has been working for one particular business. They worked in what we call industry as opposed to public practice. So when they’re working in industry, they’re working for a single company and sometimes they might be doing something on the side or a or not or you know, they were an industry for a long period of time and now they’re in public practice. So it’s really when you’re a small business owner, it’s that public practice experience. How much experience does that CBA have working with other small companies because it’s quite different working for just one large companies. So you know, Edmonton Accountant you’re working with hundreds of small companies, different mindset and you get a different level of experience. I’m not that one’s better than the other, but generally someone who is experienced in, in giving advice to multiple small businesses or give better advice to your small business.
Uh, so would you recommend startups hire cpas, would just do urines and tax returns?
So, I mean, you know, that’s our, uh, uh, that’s our model. That’s what we stand for. You know, we do, you know, I’m planning, reporting and analysis. It’s my belief that year end reporting is, is, is, is not doing enough to, you know, to overcome that, that failure rate of small business, you know, it’s my belief that the plans are what’s very important in statistics support that, you know, the business are 50 percent more likely to grow their revenue if they do do a business plan. Um, taxation is something that the average Canadian pays a 43 percent of their income and tax. And uh, if you’re not doing a, a tax planner or a financial plan, usually you’re not gonna have those tax savings. Edmonton Accountant there’s a lot of avenues for small business owners to save on tax that really aren’t available to people who are running businesses. So, um, you know, I think you need to give yourself, give your business and every chance that needs to succeed and you want a CPA who’s actually going to help you with that planning process because just doing the year end reporting, I mean 15 percent of businesses fail in the first year. So if all they’re doing is year and reporting, there’s a greater than 15 percent chance that attend you get to the year and you’re actually not even around anymore. So, Edmonton Accountant, I don’t think that’s a, that’s a very good odds. So No.
Um, but is it difficult to find cpas who can do business plans for small businesses?
It can be, um, you know, believe it or not have to. It’s, it’s probably not one of the, what I call the conventional services doing business plans. Edmonton Accountant, although a lot of CPAS at probably do them and have the capacity to do that, they probably don’t do them with enough regularity to be good at them. It’s like anything else, as you know, there’s a lot of accounting functions that, uh, you know, um, international financial reporting sentence we don’t deal with here at our firm. Uh, so that’s not our specialty, but you know, we do business plans all the time. So, you know, it’s, it’s the difference between a CPA who does a couple of business plans a year and in a CPA, a CPA firm who does, you know, a hundred or 200 business plans a year or you develop more of a proficiency for it and you see what items need to be included in that plan for the business owner says to succeed
[inaudible], um, how can you establish if the CPA can efficiently complete the planning for your new business?
So there’s a pretty good asset tests out there. Ask them to see their template or their sample plans and you’ll start to get a sense, you know, if you ask a CPA to see there what is your tax plan or your financial plan look like? And they give you a little bit of a generic answer, will take this into consideration and take that into consideration. It probably means that they don’t do it enough to have a set process and it all comes down to that process, you know, Edmonton Accountant, you know, what is your template, your process to make sure you, you consider everything in the financial plan that you consider everything in the business plan and people who do it regularly, they’ll have a process and they’ll have a template and they’ll be very proud to show it to you because they’ve put a lot of time into it.
And that’s what helps them do the plans both completely and efficiently. So if they can’t produce a good document that gives you confidence, it means that although they might be capable, the probably not proficient in it and they might not be able to do it efficiently. Um, you know, I’m the first one to tell you that if I didn’t have our templates that we spent thousands of hours developing, I just wouldn’t be able to give as good of a product, uh, certainly in, in an efficient manner that’s critical to our components. So ask them to see it. What’s this gonna look like when you’re done? What’s the financial plan look like? What’s a tax bomb look like? What’s the business plan look like? Edmonton Accountant Ask them in the first meeting. We’ll show you right away if they have it. So I think that’s, uh, that’s all for this time. Just to remind everybody, if you’re interested in learning more, you can give us a call and book your free consult, or if you have any other questions, you don’t feel free to leave a comment and we’ll try to address it in a future video.