Starting Your Own Business?
Posted On: 29/11/22 - 0

11 Best Practices For New Entrepreneurs

Are you thinking of starting your own business? Millions of Canadian employees were forced to work remotely due to the pandemic. As a result, many were and continue to re-evaluate their lives and careers. Are you considering self-employment? Is it time to turn your side hustle into a full-fledged business?

We have created this guide for new entrepreneurs, 11 best practices for the new business owner.

Best Practice #1 – Caution When Pulling Money Out of the Corporation

Were you aware there are tax implications to pulling money out of your business? In a corporation, there are three ways of getting money out of your business. Salary, Dividend and borrowing. Many entrepreneurs feel that they can simply borrow money from their business without realizing that money needs to be paid back within a year. What happens when you cannot pay the money back within those twelve months?

Owners often pay themselves before thy have mapped out what the tax liabilities are with the compensation method. In other words, many have not planned ahead. What do you do if you are unable to pay back that income?

Best Practice #2 – Correct Classification Of An Employee

What do you need to know to ensure you are compliant with the CRA? Were you aware that all of the risk of correct classification lies squarely on the shoulders of the business owner? When would you avoid adding a worker to the payroll? How do you classify a temporary worker? Are there certain industries that the CRA focuses on to enrure correct classifications of employees?

Best Practice #3 – Proper Use Of An Automobile Within Your Business

Know the proper use and set up of an automobile within a business and all the rules associated with vehicle compliance. This is one of the most important things to remember when starting your own business. Many entrepreneurs run company vehicles and it’s imperative that you are in line with the CRA. Otherwise, your expenses will be disallowed.

Best Practice #4 – Monitoring Your Gross Margins

One of the most important things that a business owner can do is understand and monitor your gross margins. Know why it is important. Why do businesses lose profit margin without realizing it immediately? Why is it important to meet with an accountant regularly?

Best Practice #5 – Running Your Business With A Financial Plan

Small business owners should be forward thinkers. This is really a good way for entrepreneurs to plan what the break-even points are. There is a lot to be said about the saying “cash is king”.Cash flow is almot more important than profitability. Paying your suppliers in a timely manner needs to be factored in as well.

Best Practice # 6 – Estimate Your Tax Liability And Plan Accordingly

Small business owners say “I have no cash in the bank which means I shouldn’t have to pay taxes at my year end”. This is a completely false assumption. There is a lot to consider when determining your tax liability at the beginning of your year and it shouldn’t be looked at, after the fact. This is something you should plan for all year in your business.

Best Practice #7 – Setting Up A Correct Business Entity

It is important to structure your business correctly to ensure you are getting the biggest benefit, both personally and corporately speaking. If an individual has set up their company as a sole proprietor, they are not able to use a tax deferral based on the company structure.

Best Practice #8 – Shareholder Loans and Payments To Family Members

Pulling money out of the business can possibly cause a tax issue. The principal shareholder can’t do an agreement to lend himself personally from his company money that’s payable back over a certain period of time.

Best Practice #9 – Using Corporate Funds To Fund Personal Expenses

Often, shareholder’s mix both personal and corporate funds. Mistakes are easier to happen when classifying expenses. Best to keep corporate transactions separate from personal.

Best Practice #10 – Use an Experienced Accountant That Understands Business Ownership

According to a recent small business survey, 70% of businesses who had an advisor or mentor survived in business more than five years. When you work with our firm you get to draw on our extensive entrepreneurial experience to help you succeed in business.

Business Practice #11 – Meet Your Tax Deadlines

It is important that you keep good records that actually reflect your taxable income and really be diligent with compliance to avoid any costly penalties.

If you are serious about starting your own business, give us a call. We have extensive experience helping other business owners just like you who are passionate about business success.

12203-107 Avenue.
Edmonton, Alberta.
T5M 1Y9

Call us:
780.482.7297