Vancouver CPA | Incorporating Helps Businesses Succeed
Even though many people decide to become business owners each year, Vancouver CPA says the failure rate for entrepreneurs is extremely high in Canada. With 50% of all businesses failing within five years of opening the doors to their business.
In fact, according to an industry Canada survey, there are three main reasons why Canadian businesses fail. The first most common reason why businesses fail, is because they are unable to find enough customers to buy their products and services.
The reason why incorporating will help entrepreneurs with this common business obstacle. Is because it can help business owners land more jobs than they could as a sole proprietor.
How this works, is because when businesses are sole proprietors, they are not going to be able to get a WCB number from the Worker’s Compensation board. Which will cause them to have to refuse a lot of jobs that may come their way.
This is because most independent contractors are required to have their own WCB coverage. In order to set foot on the jobsite. However, WCB reasons that sole proprietors are most likely going to be a subcontractor. And as such, should be covered for their WCB under the prime contractor.
However, most prime contractors will not extend their WCB coverage to subcontractors. Specifically because if they have a claim, that claim will increase the prime contractors premiums. Which will cost them more money, so they often to not extend coverage.
Therefore, once a business owner incorporates, Vancouver CPA says they will have no problems getting a WCB number. Allowing them on more job sites than ever before. Helping them find more customers to help them grow their revenue.
However the benefits do not end here, they can also get onto more job sites. Simply by incorporating, because many companies simply use to hire sole proprietors. The reason why, is because sole proprietors may be deemed employees by Canada revenue agency.
The reason why, is because sole proprietors do not have their own reporting requirements the way corporations do. Therefore, to ensure that Canada revenue agency can get the appropriate taxes. They may assess sole proprietors as employees of the company.
And then the company themselves will be responsible for paying all payroll remittances including income tax, CPP and EI. This can cost the company thousands of dollars, especially depending on how long the business has been working for the company.
And because of this, companies often have a policy of only hiring contractors that are incorporated. Which means once a business owner incorporates their business, it will be able to take even more jobs, and have access to more job sites than they would as a sole proprietor.
Therefore, if business owners want to help overcome the number one obstacle that causes Canadian businesses to fail. Which is being unable to find customers. Incorporating is the way that business owners can ensure that they are helping them achieve this goal says Vancouver CPA.
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Many business owners may not consider in a corporation as a way of succeeding says Vancouver CPA. But it can significantly help business owners overcome many common reasons why small business owners in Canada fail.
According to industry Canada, the second most common reason why Canadian small businesses fail. And affects 29% of all failed entrepreneurs. Is that they simply run out of money. And are forced to close the doors to their business.
While this is a huge problem, how incorporation can help overcome that. Is helping business owners save money. It does that, by giving business owners a lower tax rate. The corporate tax rate in Canada is currently at 11%.
And any business owners who incorporate their business can enjoy this business tax rate. However, if they remain a sole proprietor. They will file their taxes alongside their personal taxes. And as a result, will get taxed the personal tax rate for their business income.
And while this does not seem like a big deal at first, Vancouver CPA says business owners need to know what that personal tax rate is. That they are getting assessed every year, in order to see why an 11% tax rate is so beneficial.
Certainly, individuals are getting taxed more than 11% each year. However, the highest personal tax rate in British Columbia currently is over 53%. Which is an increase of 42%, especially if they are getting taxed at that highest personal tax rate.
And even if a business owner is not currently at that highest personal tax rate. The business income that they claim at the end of the year, can push them into a higher tax brackets. So when this happens, business owners will pay even more taxes on the money that they make. Then if they incorporated their business.
And while many business owners are aware that they will have lower taxes that they incorporate. They think that they need to be making hundreds of thousands of dollars each year. In order to make that amount very significant to their business.
However, Vancouver CPA did the calculations. And discovered that even small business owners A making fifty thousand dollars a year. Will come out financially head if they incorporate. And the money that they save, can be reinvested back into their business.
Whether people use the money that they save in the taxes by incorporating. To use in their business to pay bills, hire new staff that can help them grow their business. Or even put that money that they save on taxes towards increasing their marketing budget.
This additional money that they are saving, can help them overcome the obstacle of running out of money in their business. And with how many business owners fail because they run out of money. Which is almost a third of every field business owner.
By saving as much money as possible, entrepreneurs can be far more likely to succeed. And there are even more ways that incorporation can benefit business owners. Which is why they should set up an appointment with their Vancouver CPA.