You’ve decided to start your own business. Congratulations! Having your own business can be exciting, lucrative, and at the same time challenging. There are many steps to get up and running with your business, and you should think about these long before you start buying or selling.
- Sole Proprietorship
- Sales taxes
- Other programs
- The world is changing fast
- The modern business needs a state-of-the-art accounting system
- Let’s get the bad news out of the way…
- Your hassle-free setup solution
Once you’ve decided what your business is going to be and a name, you must think about the structure. You must decide if you’re going to be a sole proprietorship, partnership (if more than one owner and that includes a spouse), or a corporation (there is federal and provincial versions).
We work with you to come up with the best structure solution for you and the future. It may be that you stay as a sole proprietorship and then grow into being a corporation. It could be you’re buying a franchise, so a corporation is your only option. We’ll look at your situation and help you come up with the right business structure to get you started.
You may also have to get a ‘Doing Business As’ registration if you’re incorporated in one Province but operate in another. Or, if you incorporate federally.
Here we’ll help you setup the programs you’ll need to register for, such as, GST/HST, PST, payroll, workers’ compensation and more. GST/HST is a federal program administered by Canada Revenue Agency (CRA). You’ll need a business number (if you incorporate, you’ll have gotten one already), and when you get a GST/HST number it’ll be your business number with RT0001 on the end.
If you’re sales are greater than $30,000 then you must register for GST/HST. If you believe you’ll have lots of purchases at the start, I recommend registering for the GST/HST as you’ll get it back. If you wait, you’re out of luck as CRA won’t go back more than 30 days to register unless you’ve been charging GST/HST to customers.
My thoughts are to register for the GST/HST as soon as you start your business, so you get used to charging and collecting it. Especially if you’re business to business sales as they’ll realize you’re very small if you’re not charging it.
We’ll discuss what your sales are now, and what you expect them to be over the next 12 months. We’ll also go over where you plan to sell your goods and/or services. In Canada, you charge taxes based on place of supply rules.
For example, you’re a British Columbia based graphic designer selling a brochure design to a company with a billing address of Ontario. You would charge Ontario’s GST/HST of 13% on this sale.
That same sale to an Ontario company but you’re billing their Alberta office, then you’d charge GST/HST of 5% as that’s Alberta’s GST/HST rate. Here are the rates you charge by Province.
British Columbia, Saskatchewan, Manitoba, and Quebec have their own Provincial Sales Tax (PST) system. The rates vary, with Quebec being the highest at 9.975%. All these Provinces have a mandatory registration if you sell into them; however, British Columbia has a sales level of $10,000 before you must charge their PST.
Here is a good link from the Retail Council of Canada on the sales tax rates by Province.
The first licence would be your business licence for the city you’re operating in, and this varies depending on the city as well as the province. Some Provinces do require you to have a provincial licence for some industries. Some areas are having a multi-jurisdiction business licence that covers several cities at once, it’s usually cheaper than getting a licence in each city you may be operating.
Are you putting signage on your vehicle(s)? If so, you may get a call from a city bylaw officer if he sees your vehicle parked in your city. Even if you’re just shopping, they may assume that you are operating in your city and demand a licence fee.
Some other licences or permits you may need are environmental, signage, zoning, and more. Check with your local government to find out what you need to operate in their jurisdiction.
If you plan on having employees, you’ll need to register with Canada Revenue Agency (CRA) for a payroll number. This is your business number followed by RP0001; If you’re incorporated, then you have a business number already. You want to do this before you hire your first employee and start taking deductions. Those deductions are:
- Canada Pension Plan
- Employment Insurance
- Income Tax
Every employee you bring on must fill out a TD1 Personal Tax Credits Return, one Federal and one Provincial. If the employee has another job where they’re already claiming the TD1 exemptions, then they can’t claim them again with you.
Can you be an employee of your company?
- If you’re incorporated and an active shareholder, you can also go on payroll. You can also take dividends over salary, or a combination of both. It will all depend on your situation, which we can go over.
- If you’re a sole proprietorship or partnership, you can’t be an employee of your business as the net income (revenue minus expenses) is your income.
Along with payroll comes, workers’ compensation, which is paid on all wages in your business (as well as dividends on active shareholders in some provinces). You may also have to pay workers’ compensation on subcontractors you use, if they are not registered with their own workers’ compensation account.
Speaking of subcontractors, this is a whole other issue. CRA and many government agencies have very specific rules about when someone is a subcontractor or employee; rest assured that their goal is to have everyone as an employee as they get for taxes that way.
Here are some of the things they may ask you and the subcontractor:
- the level of control the payer has over the worker's activities
- whether the worker or payer provides the tools and equipment
- whether the worker can subcontract the work or hire assistants
- the degree of financial risk the worker takes
- the degree of responsibility for investment and management the worker holds
- the worker's opportunity for profit
- any other relevant factors, such as written contracts
You can go to this CRA link to find out more.
Federally, there are import/export registrations you need to do, such as an importer number which will be your business number with RM0001 at the end.
The world is changing fast
Technology is moving at an incredible rate, and this is even the case with accounting systems. All the major software companies are committed to cloud accounting systems, and very soon support will cease for existing desktop systems.
This means that unless you want to struggle with a manual or spreadsheet-based accounting system, you will have to move to the cloud sometime soon. And that’s not such a bad thing… A cloud-based accounting system will make your life so much easier. Let’s look at the 4 common types of accounting systems:
A manual system is cheap; you only must buy a book. But that’s a false economy. Manual systems simply take too long. And your time is too valuable. It also takes the accountant more time to produce financial reports, so you end up with bigger accounting fees. Manual systems also do not provide that all-important management information for making great business decisions.
Excel and other spreadsheet-based systems are also cheap. And while you can automate some processes (e.g., adding up columns), they take time to set up. You need advanced Excel skills to produce management reports. And you can waste hours changing the spreadsheet as your business grows and evolves.
The modern business needs a state-of-the-art accounting system
In contrast, a modern cloud accounting system gives you the following benefits:
- It saves you a very significant amount of time.
- It gives you 24/7 access to up-to-date financial information and reports. (You can use cloud-based software from any device with an internet connection).
- You will sleep well at night knowing your sensitive financial data is always secure and backed up automatically.
- There is no system downtime because all software upgrades are automatically installed. This worry-free maintenance saves you time and hassle.
- It reduces your accounting fees because it is easier for your accountant to produce end of year financials, and
- Since they can access your data 24/7, you get more value from your accountant – they will help you run and grow your business, rather than just adding up the numbers.
Let’s get the bad news out of the way…
Cloud accounting systems are so much better than manual systems, spreadsheet-based systems, and desktop software. But just like those other 3 forms of accounting system, they are such a hassle to set up.
When setting up any accounting system, you need to set up the details of your business, set up the chart of accounts (that’s the specific types of sales, income, expenses, assets, and liabilities unique to your business), and transfer any opening balances. Even for a small business this typically takes at least 10 hours. And probably much longer.
Your time is precious. For a business owner who values his or her time at $150 per hour, this is $1,500 of opportunity cost (i.e., the amount you can earn if you don’t have to do this) just to get set up. Do you really want to spend $1,500 setting this up yourself?
Your hassle-free setup solution
We specialise in cloud accounting solutions and setting businesses up on the cloud. We will do this for you, removing all the hassle, and you will know your books are set up the right way, saving you hours of time and frustration.
Get your accounting done right the first time with our Cloud Accounting system setup.