Morley Accounting Services

Profits – the bottom line for the year is one of the key numbers that bankers and investors look at. If you watch Dragons Den, it is a question frequently asked of the candidates. Yet surprisingly few of the candidates can answer this question. Why is this?

In the book “The Art of Profitability” by Adrian Slywotzky he makes the point that “to succeed in business, the business owner needs to have a genuine interest in creating profits.”

As a business owner, what are you doing to make sure you are creating profits?

Every employee knows that taxable benefits must be included in income. But what exactly are taxable benefits?
These are payments that you receive as a result of your employment. But determining whether a payment to an employee is a taxable benefits or not requires a review of the circumstances and reasons for the payments.
Examples include:
Tips and gratuties – these must be reported even though they may not be included on a T4
Gift certificates received from an employer
Payments of flex credits from a flexible employee benefits program
An employer provided computer and internet service that is also used for personal reasons

Shareholders of corporations who are also the owner manager may find that many of the perks they receive from their corporation are in fact taxable benefits.
For example:
Use of a company owned vehicle – this is called a standby charge. The calcualtion of a standby charge is stipulated by CRA
Purchase of a company owned vehicle or asset at less than fair market value(FMV). The benefit is the difference between the FMV and the price paid.
The cost of a gym membership
Travel expenses for a spouse who accompanies them on a business trip
Purchase of cell phone services on a family plan

There has been a lot of talk about the new normal which has resulted in a new way of doing buisness for many small business owners.
What are you doing differently in your business today compared to 2009?

The short answer is “It’s impossible to know for sure!” because there is no definitive law or document that answers the question.
A slightly longer answer is “If you’re talking about the Canada Pension Plan and Employment Insurance, it’s easy!”
For all practical purposes, if you are incorporated, you’re treated as an independent contractor. If you are operating as an unincorporated sole proprietor, you’re an employee.
Don’t fight it, there’s no way around it, it’s been that way for many years. Don’t pay anyone to tell you different. About CPP and EI, that is.
Income tax is a whole other issue, and a whole other department within Revenue Canada. Different people, different rules, different implications.
The following list of 14 questions has been adapted from “Whose Business Is It? Employees Versus Independent Contractors” by Joanne Magee in the Canadian Tax Journal, 1997, Volume 45, Number 3.
In each case the right answer is “Yes”. The more times you say “Yes” the more likely it is that the courts and Revenue Canada will regard you as an independent contractor. And that’s a good thing, unless you like lower deductions and higher taxes.
1. Do you control the When, Where and How of your work, as opposed to being closely supervised by the payer?
2. Do you have other business activities that are integrated with the work you do for the payer?
3. Can you work for other companies without getting permission from the payer?
4. Can you hire and pay other people to do the work without getting permission from the payer?
5. Do you assume any risks or supply any funds as part of the work? Continue reading →

Guess when this was written?

• The 1st time a man looks at an advertisement, he does not see it.
• The 2nd time, he does not notice it.
• The 3rd time, he is conscious of its existence.
• The 4th time, he faintly remembers having seen it before.
• The 5th time, he reads it.
• The 6th time, he turns up his nose at it.
• The 7th time, he reads it through and says “Oh Brother!”
• The 8th time, he says “Here’s that confounded thing again!”
• The 9th time, he wonders if it amounts to anything.
• The 10th time, he asks his neighbour if he has tried it.
• The 11th time, he wonders how the advertisers makes it pay.
• The 12th time, he thinks it must be a good thing.
• The 13th time, he thinks perhaps it might be worth something.
• The 14th time, he remembers wanting such a thing a long time ago.
• The 15th time, he is tantalized because he cannot afford to buy it
• The 16th time, he thinks he will buy it some day.
• The 17th time, he makes a memorandum to buy it.
• The 18th time, he swears at his poverty.
• The 19th time, he counts his money carefully.
• The 20th time he sees the advertisement, he buys what it is offering.
Thomas Smith of London, England wrote this in 1885. I believe it is just as valid today as it was then.

With a significant client base of construction companies undertaking commercial and residential projects, we come across the following most common errors that hurt the profits of the business as well as the egos and reputations of these companies with their customers.

Missing an item of work.

We find that missing an item of work is most noticeable when clients are providing their customer with a lump sum bid, and the contractor, having put the bid in writing, is obligated to do the work even if part of it is omitted in calculating the bid.

Our best clients have three tricks to avoid this mistake. One is they have their bookkeeper develop checklists (bookkeepers love making lists) of things they bid on which they can use as a memory jogger, secondly they take lots of notes when talking to prospective clients as well as photos, draw sketches and even use tape recorders to make sure they have all the key points and thirdly they review the draft bid with clients to make sure nothing is missing before finalizing the price.

1. To monitor and predict your cash flow needs
2. So that you can make small changes in business activities throughout the year that will have a big impact on your bottom line
3. To track your monthly revenue to make sure that your invoicing is being done every month and is accurate and complete
4. To monitor your pricing, quoting and estimating of jobs to make sure that you are making sufficient margin on your work to cover your overheads
5. To monitor your monthly expenses in detail to ensure that you recognise the expenses and they are reasonable and to give you the opportunity to rein in expenses that are too high
6. To monitor employees – are they fully chargeable, does their productivity match the hours worked, are they incurring too many expenses – supplies, stationary, tools e.t.c.
7. To understand the financial ratios that impact your business – overheads as a percentage of sales (usually 30% – 50%), receivable to payables, gross margin – and monitor them monthly

Over the past few months there have been several devastating fires in businesses in Muskoka. Sadly, some of the business owners were not properly insured and it has wrecked havoc with their ability to continue in business and has impacted the quality of their life. For example, after the fire on Muskoka Road South in Gravenhurst, the building that burnt down and the buildings on either side of it had to be demolished. One of the business owners has replacement insurance and can rebuild even though the cost to build is many times what was originally paid for the building, but another business owner is not adequately insured to replace the building.
Here are 4 questions to ask your insurance broker:
1. Do I have enough insurance to rebuild my business property and replace all my merchandise and property? A big mistake is not having replacement insurance for your building
2. Do I have enough insurance to cover the personal property of my employees? Note that personal effects coverage does not include theft.
3. Do I have enough insurance to keep my business open? Business interruption insurance needs to be sufficient to cover your business for more than a few days, particularly if your building is temporarily or permanently unusable.
4. Do I have enough insurance to protect my assets from a lawsuit? Adequate business liability insurance is essential.
Please contact a qualified insurance broker to make sure your business is properly insured.

Businesses in Barrie, Ontario and Muskoka, Ontario have seen their fair share of fraud over the years. If you are a small business owner and you not regularly paying attention to your finances and “leave all that” to your bookkeeper, here are some horror stories you should read:
“I have seen hundreds of fraud events over 40 years and every one of the owners were simply not paying attention to the details so the bookkeeper saw an easy pigeon to clip.”
“Some years ago, I found a company’s former bookkeeper had recorded the source deductions cheques in QuickBooks as payable to Receiver General, but then made the actual cheque payable to her own name and embezzled a significant amount of money over the course of 2 years. The CRA sent notices about unpaid payroll taxes and I was researching it and found the cancelled cheques. What a mess!”
“I had a client who had me investigate all his transactions. His bookkeeper had audit trail turned off, was entering bills, changing the name on some of the cheques to his name before printing, printing the cheque, and then changing the payee back to the vendor name. He then forged the client’s signature on the cheque. I discovered 50-60 transactions per month for over 2 years. Occasionally the vendor would threaten to cut-off the client and the client reluctantly paid the vendor to avoid this. The client was getting angry with the vendor. Eventually, the client decided to review the bank reconciliations and saw one of these cheques. The bookkeeper was prosecuted and had to make restitution, but the business owner could have avoided all of this be simply getting the bank statements himself and reviewing them before the bookkeeper could pull out the fraudulent cheques.”
“I had a client whose bookkeeper was writing cheques to herself and cashing them at a Money Mart. The way I found them was the signature was different than the owners – she had forged the owner’s signature.”
“I just took on a client that had been paying his former bookkeeper to file his payroll taxes. He would write her a cheque and then she would pay the CRA. I almost had heart failure when he told me. The sad ending is she didn’t pay payroll taxes for a whole year. He didn’t find out till after she had quit and the CRA started sending nasty letters.”
Many business owners do not want to think about fraud, but it is an extremely important topic. Putting simple controls in place will keep honest folks honest and can stop thousands of dollars from being stolen from your business.
Here are a few checks and balances that you can implement today:
1. Separate the following duties – receiving and entering bills, preparing the cheque for payment, signing the cheque, receiving the mail, reconciling the bank
2. Review all supplier/vendor invoices and cheques before signing the cheques
3. Do not sign blank cheques
4. Keep unsigned cheque stock locked away
5. Use Purchase Orders
6. Use invoice numbers in consecutive order and monitor invoice numbers
7. Use cheques in consecutive order and track missing cheque numbers
8. Review all reconciliation discrepancies
9. Use online banking controls
10. Review the bank statements received in the mail and scrutinize the returned cheques
11. Review your key controls regularly to ensure that they are still working
Learn how to protect your business from fraud before it happens to you. Call Morley Accounting Services in Bracebridge, Ontario and Barrie, Ontario at 705-645-5178

Looking for ways to boost your cash flow?
Here’s #6 on our Checklist: 10 Ways to Improve Your Cash Flow

The most powerful number in your business.
If you know only one number in your business it ought to be your Breakeven Point. Your breakeven point is the moment in time when your income equals your expenses. If your income is higher than your expenses, you have a profit. If your expenses are higher than your income you have a loss. Are your expenses lower than your income?
Call us for a free copy of our Cash Flow Improvement Checklist 705-645-5178