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E-Myth – “Why most small businesses don’t work & what to do about it”

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Edmonton Accounting Firm | Benefitting From Incorporation

Most times when small businesses think about incorporating, they assume it is too expensive according to Edmonton accounting firm. However, they should think about the benefits that they will get. As well as the benefits there company will get from incorporation.

One of the first things that is owners may not realize, is that incorporating will protect them in case they get sued. Even companies that have an extremely low risk. Such as web designers, or graphic designers. Never have a zero risk to running their business.

If business owners also have assets, such as home or investments. These assets are at risk if they get sued personally. While operating their business.

This is why many small businesses choose to incorporate. Because they then allow the corporation to hold liability. So that if they get sued, it is the company that is at risk and not the business owner personally.

This does not mean that there is a zero risk to the entrepreneur. Edmonton accounting firm says that it simply makes it significantly more difficult for the directors of the Corporation to have their own assets at risk.

Another reason why small business owners should consider incorporation. Is because it will legally protect their tradename. While most small business owners initially think that simply registering their tradename at the corporate registries office. Will be enough to legally protect their name.

This is not true. Registering the name simply said a placeholder. But does not protect another person or business to incorporate that name. And then have the legal rights to use it. Therefore, if business owners want to protect the name that they have been building for years. They might want to consider incorporation.

Another reason why small business owners can benefit from incorporating their business. Is because if they ever need their own WCB number. For example, if business owners are hired on as a subcontractor. They might not be covered under the prime contractors WCB number.

However, WCB often will not give a number two businesses that are not incorporated. Therefore, incorporating can help ensure that business owners are able to get that WCB number. And not have to worry about being unable to take jobs. Because they do not have a number to work under.

Unincorporated businesses also might not be able to be hired on with certain companies as a contractor. Due to those companies policies of not hiring sole proprietors.

The reason why companies would refuse to work with sole proprietors. Is because they run the risk of having Canada revenue agency considering them employees instead of contractors.

And when CRA deems contractors as employees. The company must pay all payroll remittances back to the government that they should have paid from the beginning.

In order to mitigate this risk, many companies simply refuse to hire unincorporated contractors. So by incorporating, it allows business owners to take a wider variety of jobs. So that they can grow faster.

If business owners have any questions about if it is the right time to incorporate. Or what the benefits are, they should talk to their Edmonton accounting firm at their next appointment. And make the decision based on what is best for their business.

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The reason why many small business owners decide not to incorporate, according to Edmonton accounting firm. Is because they know that there are additional costs to incorporating. As well as their monthly and year-end reporting.

However, they do not know the payoff, or the benefits of incorporation. And so they decide not to incorporate, in order to save money.

Unfortunately, while there are some additional costs of incorporating. There are many benefits that business owners should be aware of. In order to make an educated decision. About what is the best business structure for their business.

Ultimately, one of the most significant benefits of incorporation is the tax savings they will get as a corporation.

When discussing incorporation with their accountant. Business owners will discover that sole proprietors will have their business income taxed at the personal tax rate.

And depending on what tax bracket the business owner is in. The highest personal tax rate in Alberta tops out at 48%. Which means their business income could also be taxed at that highest personal tax rate.

While this is a lot of money going towards taxes in. Once a small business owner incorporates. They will have a tax rate of just 11%. Therefore, Inc. businesses can immediately save up to 37% in paying taxes.

And while there is additional costs not just to incorporate their business. But with fees with their Edmonton accounting firm. Such as having to pay for honestly reporting. As well as a more complex corporate year end.

The profit level that a business owner must be at. In order to be saving money in taxes with incorporation. Is only fifty thousand dollars net income per year.

Therefore, if business owners are close to making fifty thousand dollars in net income per year. Or already at or over that threshold. They are paying more in taxes. Then they would pay in incorporation fees. And additional costs associated with their accounting.

In addition to saving a significant amount of money. The business owners could put back into their business. If entrepreneurs are ever going to require a business loan. They should incorporate sooner rather than later.

While it is not impossible to qualify for a business loan as a sole proprietor. Edmonton accounting firm says they have never actually seen this happen. So incorporating their business. Can help them apply for that business loan never it is needed.

Without installing the process by having to stop, and incorporate their business first. So that they can be more likely to qualify. If they need this loan in order to buy assets that will help them grow their business.

Or a building that is going to allow them to grow larger. It is very important that they qualify for the loans. And increasing their odds of getting approved is very important.

With all of the benefits of incorporation. Small business owners should discuss early with their Edmonton accounting firm. About when they should incorporate. So that they can grow their business as quickly as possible.