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Tag Archives: accounting

All Talent Development Centre posts for Canadian IT Contractors relating to accounting.

The Dreaded Project Gap

How Your Contracting Business Can Plan for Continued Financial Health

This post first appeared on the CA4IT Blog on February 16, 2016

The Dreaded Project Gap—How Your Contracting Business Can Plan for Continued Financial HealthAs an independent contractor, you know that your business relies on a consistent project load to maintain profitability. However, at some point, you may face a gap between projects. This situation creates many concerns, but with careful financial planning, these rare occurrences should have little, if any impact on your bottom line. By utilizing some commonsense tips, you can safeguard against any effects from project gaps or other unforeseen disruptions.

Tips for Minimizing the Impact of a Gap Between Projects

  • First and foremost, you should always have a plan in place for project gaps. If you are just starting your small business, you need professional accounting advice as to how to plan for downtime not just between contracts, but for all unexpected events that could disrupt your business, such as illness. Remember, your business relies on your ability to perform, so if you suddenly cannot work for any reason, you need a financial back-up plan. This can include a focused savings plan or an emergency plan to liquidate assets or scale down expenses.
  • Stay on top of every expense and think ahead for tax deductions. Tools like cloud-based accounting for small businesses let you keep track of every income and expense in real time so that you always know how you’re doing. The most powerful tool you have is information, and when you can see your business’s financial picture on demand, you gain the power to manage it proactively.
  • Use downtime wisely. Whether your gap lasts a few days or a couple of weeks, never look at this as vacation time. Brush up on your continuing education, or go after than certification you need. View every day as an opportunity to grow and refine your business.

As a business accounting service specializing in independent contractors, CA4IT believes that you need careful, conscious preparation for changes in your workload. We can help you plan for any scenario and fro continued financial stability. Turn to us for all of your accounting needs so that you always feel confident about your financial outlook. To learn more, contact a CA4IT representative for the best accounting help in your community.

Keep Cash Flowing – Avoid Invoicing Mistakes That Keep You From Getting Paid

This post by Janet Berry-Johnson first appeared on the FreshBooks Blog on August 30th, 2016

Keep Cash Flowing: Avoid Invoicing Mistakes That Keep You from Getting PaidRunning a business is a balancing act. You’re focused on providing top-notch services, keeping clients happy, paying the bills, preparing for tax time and juggling a million other demands to keep your business moving. As if that wasn’t enough, you also need to keep up with invoicing to make sure you get paid. We agree—billing is a time-consuming chore but it’s one of the most crucial functions of any business. If you neglect to do it right, it will affect your cash flow.

Invoicing isn’t just a matter of catching typos and ensuring it’s sent to the right client. A mere error on your invoice can result in delayed payments, miscommunication and loss of client satisfaction. Communicating the terms and promptly sending invoices are some obvious ways to ensure your billing is accurate and complete. Here are a few other invoicing mistakes you perhaps haven’t considered.

You Didn’t Upload a Logo (Or Don’t Have One)

If you don’t include your logo on each and every invoice you send, you’re missing out on a simple branding opportunity. We live in a visual world. Even down to the minute details—like invoicing—there’s no exception. Many people spend hours of their days on website design and business cards, but spend very little time thinking about how their invoices represent their brand.

Consider this: your invoice is potentially your last contact with your client, so it should reflect the same branding and attention-to-detail as your website and printed materials. Take the time to create a beautiful, clear invoice—your clients will appreciate it!

You Forgot to Add a Due Date

Many invoicing templates include the generic wording “Payment due in 30 days” or “net 30.” Those phrases seem simple enough: if the invoice is issued on July 30th, payment is due on August 30th—right? Actually, to ensure you’re actually getting paid on time, consider communicating the due date a little clearer.

Consider the situation from an accounts-payable perspective. First, your client has to locate a date on the invoice. They probably receive many invoices each month. After they’ve located the due date, they need to establish the payment terms, which may or may not be located near the invoice date. Maybe the payment terms aren’t included on the invoice at all. Then, the client has to calculate the due date based on these two pieces of information.

When you consider how many invoices an accounts payable department processes every day, it’s easy to see how a wrong due date may be entered. To make matters worse, many accounts payable systems default to the current date as the invoice date. The current date will always be later than the actual invoice date, so unless your client takes the time to enter the information correctly, your invoice will be paid late.

The solution? Make it as easy as possible for your client by providing a clear due date on each invoice. Consider writing the due date clearly at the top, and including additional payment terms below.

Adding this information in a prominent location will make it less likely that your client will enter inaccurate information in their accounts payable software.

You Sent Your Client a “Surprise” Invoice

Some people love a surprise, while others not-so-much. But no one enjoys a surprise invoice—rather, a charge they didn’t expect.

If your client is asking for additional work or it’s taking longer than originally planned, notify them immediately. Never send a surprise invoice without informing your client ahead of time. Perhaps your client expected to pay for your time, but didn’t know you’d be billing for expenses. Or, maybe you initially thought the project would take five hours, but it took 10 instead. Whatever the issue may be, don’t keep your client in the dark. Contact your client, outline the changes and have a conversation. Chances are they’ll appreciate you were forthcoming and explained the billing charges to your invoice. Remember: transparency is key.

You Failed to Follow Up

Ask most entrepreneurs what their least favorite task of their business is and most will say “collections.” Following up on accounts receivable is an odious chore, yet one that is absolutely crucial to the health of your business.

No matter how accurate and detailed your invoices are, you will occasionally encounter a client who doesn’t pay on time. Once a payment is past due, you have to choose between getting paid or potentially irritating the client and damaging your relationship.

That’s why it’s important to have a procedure in place for following up on late payments and to adhere to that procedure consistently.

Some business owners prefer to call the client  with a friendly reminder, others wait a week or two past the deadline. Either way, your initial contact should be a friendly reminder. In most cases, this reminder is all it takes to have your invoice paid promptly. Perhaps your invoice was lost in the mail or was redirected to your client’s spam filter. The customer reads your email or takes your phone call, is apologetic and sends the payment that day.

If you have customers who are chronic late payers, perhaps they need a little financial motivation to pay on time. In that case, you can set up Late Payment Fees to charge after it is past due. You can even enable or disable late fees for specific clients if you’d rather not apply the policy to everyone.

If you do choose to initiate late fees, clearly communicate it immediately. Remember, as we explained above, surprises are never a good thing when it comes to invoicing! Ultimately, billing is about getting paid and nothing is more important to optimizing your company’s cash flow than your invoicing process. Good invoicing practices keep revenue flowing into your business. No matter how many you issue, if those invoices are not getting paid, you won’t have the cash you need to pay your employees or purchase the products and services your business needs to keep going.

About the Author

Janet Berry-Johnson is a CPA and a freelance writer with a background in accounting and insurance. Her writing has appeared in Forbes, Parachute by Mapquest, Capitalist Review, Guyvorce, BonBon Break and Kard Talk. Janet lives in Arizona with her husband and son and their rescue dog, Dexter. Outside of work and family time, she enjoys cooking, reading historical fiction, and binge-watching Real Housewives.

Is Now the Time for Incorporation?

This article was originally published on the CA4IT Blog on July 15, 2016

If you’re like many independent IT contractors, you’ve probably been operating your small business as a sole proprietor. While starting a business, you’ve been more focused on building your client base than your tax strategy. However, depending on your situation, it may be time to consider incorporating your business so that you can take advantage of potential tax benefits.

Incorporating a business in Canada has both advantages and disadvantages specifically for independent contractors. Here’s a snapshot of how incorporation could benefit you:

  • Potential for lower tax rate. This is one of the biggest benefits of incorporation, but you need to talk to your accountant to see if it would work for you at this point. You need to be making enough to support your living expenses and more in order to really get these benefits. The general rule of thumb is that, if you are spending all of your profits to live on, incorporation isn’t right for you yet.
  • Limited liability. When you incorporate your business, you protect your personal assets. Your home or vehicle cannot be seized for your business’s debt.
  • You could be eligible for the small business tax deduction, which would reduce your tax burden.
  • Reputation boost.New clients may perceive an incorporated business as more established and therefore professionally trustworthy. It will help provide more legitimacy, and give new clients confidence in your abilities.
  • Some provinces allow you to split income with your spouse or children, also lowering your tax burden.

While your accountant can better discern if you would benefit from incorporation, you should know that it does have some drawbacks. First, it has substantial start-up costs that you may not be ready to incur. Also, incorporation will significantly increase the amount of tax preparation and paperwork you will need to perform.

About CA4IT

Our CA4IT member firms have all of the knowledge, skills, and experience to help you decide if and when incorporating a small business is right you.  Contact us for a consultation and we will help you learn more about the best tax planning strategies for your future goals.

5 Tips for IT Contractors Who Hate Accounting (Video)

Accounting is a thorn in many independent contractors’ sides. After all, if you enjoyed bookkeeping, then you would have become an accountant, not a technology professional. Alas, keeping your books in order and accounting organized is an essential responsibility for an IT contractor. Not only does it keep the government happy, but being on top of it will help your business thrive and simplify planning for things like vacation, retirement, and salary.

If you’re still struggling to keep your money organized, have a look at this video from Ward Williams. They provide 5 quick and simple tips that can make an independent contractor’s life much easier.

Benchmarking and Independent Contractors

Are You Setting Your Business Up for Failure?

This post first appeared on the CA4IT Blog on June 3, 2016

Benchmarking and Independent Contractors -- Are You Setting Your Business Up for FailureFor those considering starting a business as an independent contractor, they face many decisions in the initial launch of their endeavors. However, some also jump in feet first with no real long-term plan for the growth and success of their business. They assume that they can utilize their professional skills and experience to build a brand one client at a time. While a successful independent contracting business truly begins with personal talent and motivation, you should also create a comprehensive business plan that has clear benchmarking built into it.

What is Benchmarking and Why is It Important for Independent Contractors?

While benchmarking sounds like a term business majors learn in college, it’s truly a principle that applies to any successful business model. Benchmarking is a measurement of the quality of a business’s policies, products, programs, and strategies, as well as a comparison of those to peers or competitors. When you incorporate the principles of benchmarking into your business, your goal is to determine what improvements you need. You also want to analyze how similar contractors achieve their high performance levels, and then use this information to adopt your own plan for success.

Benchmarking seems like commonsense, but new independent contractors often get so caught up in the everyday workload that they fail to take that objective step back. For example, have you reached the point that incorporating a small business makes sense for you, or are you too focused on building your brand or client acquisition? Unlike larger corporations, independent contractors wear all the hats. Therefore you not only must perform all of the day-to-day tasks for your clients, but you are also responsible for marketing, bookkeeping, and future planning. You have to look at the bigger, more long-term picture even if that’s the last thing on your mind right now.

Our CA4IT member firms believe that benchmarking, especially in terms of financial practices and tax planning, helps promote successful small businesses. Whether you need a partner in virtual bookkeeping, or want to know more about incorporating a business in Canada, we have the assistance you need to construct the most effective business model. Contact a representative today, and treat your business like the well-planned organization it needs to be.

Contracting and the Underground Economy

Morley Surcon By Morley Surcon,
Vice-President, Western Canada at Eagle

The Underground Economy Doesn’t Apply to Independent IT Contractors… Or does it??

The Underground Economy Doesn't Apply to Independent IT Contractors... Or does it??The topic of Canada’s underground economy seems to be raised again and again over the course of years and tends to come in waves — we’re seeing one now.  In the last week alone, I’ve read several newspaper articles and even heard it on my drive in on the News Talk radio station that I listen to.

What is the “underground economy”?  Sounds pretty sinister and, I suppose, parts of it might be, but it’s a lot more common than most people realize.  The CRA defines the underground economy as:

The underground economy is any activity that is unreported or under-reported for tax and GST/HST purposes. Often called “moonlighting” or “working under the table,” it can include bartering, failing to file tax returns, omitting an entire business activity from your tax return, “skimming” a portion of business income from what you report on your taxes, and not reporting a portion of employment income like tips and gratuities.

Generally, any income you earn is taxable and you have to report it on your tax return. If you don’t file your tax return or register your business for GST/HST when you’re supposed to, or you don’t report all of your income, you are participating in the underground economy.

So, by this definition, it is the guy down the street that does landscaping on the side; it’s the waiter who pockets your tip without claiming it as income; it’s the small business that accepts cash without putting it through the till.  Various newspaper articles estimate Canada’s underground economy to be worth between $42 Billion and $46 Billion — in aggregate, not a small amount.  That’s a lot of tax that is not being collected and everyone from the CRA to Chartered Accountants are looking at ways to curb these practices.  I’ve seen ideas ranging from legislating restaurants to track and report tip money on T-4’s to instituting a reward program for leads that result in $10,000 or more in taxes collected. (This latter already exists. CRA’s program is called the “Informant Leads Program” and, apparently, some of the most common “sources” of leads come from ex-business partners and divorced spouses).

As the economy is suffering and government spending is being spread very thin, this missing tax revenue is being highly coveted by government. But this doesn’t impact professional and/or technology contractors, does it?  After all, most are hired via a well-defined contract and have clear paper trails including time sheets, invoices and remittances.  The answer to that question is yes.  Well, maybe.  Certainly the paper trail will help in the case of an audit but by the time there’s an audit, the pain is already being felt.

Independent contractors (IT, Finance/Accounting, Engineering, etc.) should have concerns that the government may take a broad-brush approach to contractors/temporary labour in general; lumping them all together without full consideration for their differences.  This is one reason that Eagle belongs to (and has taken leadership in) such industry organizations as ACSESS and the NACCB, which are staffing industry associations who are actively lobbying the Canadian and Provincial governments on behalf of the industry and the contractors that are a part of it.

If you wish to learn more about the underground economy in Canada, I’ve attached links to some recent new articles below.  Let me know your thoughts on this issue by leaving a comment below!

Don’t Forget to Check for Updates in Payroll Tables

Don't Forget to Check for Updates in Payroll TablesThere are two ways independent contractors typically compensate themselves – dividends from the corporation or receiving a salary. The method you use is ultimately between you and your accountant, but if your business requires payroll, then don’t forget that you may need to update your payroll deductions on July 1st.

The 2016 Federal Budget announced earlier this year will have many implications to business, including some changes to payroll deductions. Here are a few resources to help you out:

Your accountant will also be your primary source of information on this topic. If you do have any specific questions, feel free to leave them in the comments below and we can help you find the answer.

Cloud-Based Accounting and Bookkeeping

This post first appeared on the CA4IT Blog on February 24, 2016

Streamlining Operations While Promoting Security

Cloud AccountingBookkeeping and accounting for independent contractors present many challenges. However, perhaps the biggest challenge is keeping up with so much important information and processes for these busy, on-the-go providers. Every lost receipt or invoice hurts your bottom line because your taxes require truly meticulous records. In the past, independent contractors lost a lot of time through traditional bookkeeping and accounting practices. Luckily for modern small business operators, the creation of virtual accounting services has removed the need for such time time-consuming processes. With cloud-based accounting solutions, independent contractors just like you have found flexibility, reliability, and convenience for their financial management.

In the past, small business owners trekked to their accountants’ offices, boxes of paper in hand, or spent days hoping important documents got where they needed to go. However, with the advent of cloud-based accounting and virtual accountants, you can remain connected with real-time data updates. Imagine snapping pictures of invoices or receipts, and uploading them to your cloud bookkeeping tools. Come tax-time, you have a safe, sure, and more importantly, accurate recording on your income and expenses. Likewise, your virtual accountant gains instant and up-to-date access to your information, so you both remain current and aware of your financial standing. This shared access promotes both effectiveness and efficiency.

Why Should I Use Cloud-Based Accounting?

What makes cloud-based accounting so useful for independent contractors is its ability to streamline both bookkeeping and tax preparation. Those hours you don’t spend searching for paperwork or making appointments translates into more time you can give to your clients, or yourself. Additionally, you will discover how much less stressed you feel when you know your information is safe, secure, and in the hands of your accounting professional.

At CA4IT our member firms remain on the forefront of cloud-based accounting technologies, and we want to help you take advantage of these amazing tools. Call us today and take the first step to taking control of your financial future.

Contact

Should You Use a Business Credit Card?

This post, written by Heaven Stubblefield of CompareCards.com, first appeared on the Freshbooks Blog on March 3rd, 2016.

Credit CardsWhen I first started working as a freelancer, I was thrilled to call myself a business owner. All I could think of were all the cool loans, opportunities, and credit cards I could get with my own company. So I went in search of the biggest business credit card I could find. I wanted to rack up tons of rewards and get money back at the end of the year. But what did I get instead? A $120 annual fee that wiped my minimal rewards out completely.

Now, that didn’t mean I couldn’t benefit from my business credit card. Along with the “cons”, there are some clear “pros”. In today’s article, I’ll take you through some key points to help you evaluate if a business credit card is right for you.

Why business rewards don’t work for small businesses

Did you know the average business owner can get $1,750 back a year using the Chase Ink Classic card? This sounds great, but the study that gathered this data assumes you’ll spend $55,000 per year on your credit card.

And so we see a major issue with business credit cards: They’re not designed for most freelancers, who typically spend only a couple hundred bucks a month on business expenses. When you aren’t spending 5-figures on expenses, the rewards won’t add up to huge financial gains.

The real reasons to use business credit cards

You can’t rely on cash back bonuses or rewards points as a freelancer, but you can still benefit from having a credit card for work. Here are some reasons why:

  • Building business credit:Your business credit is different than your personal credit, and you’ll need it to get a business loan. The bank can look at your personal income and credit, but it’s harder to land large capital that way.
  • Managing expenses:It’s easy to keep track of your overhead when you put all of the transactions on one card. Rather than buying office supplies with the same money you use for Cheerios and toe socks, you can separate your money to budget better in the future.
  • Preparing taxes:If you keep all of your costs on one credit card, all you need is a copy of your card statements to total your loss for the year. Then you’ll easily be able to figure out your profit level, taxable income, and all that other fun stuff that can be a nightmare if your personal expenses are mixed up with your business expenses.
  • Sharing funds:If you are in a partnership or you have a couple contractors working for you, you can give them access to your company’s money by way of a business credit card. You can get the card in the other person’s name so you know who’s spending what. Then you can spot any problems that may arise.

What to Look for in a Business Credit Card

If the info above has convinced you to apply for a business credit card, here are some things to watch out for:

  • Intro rates vs. Actual rates:A lot of card companies will offer low APRs and annual fees at first, but then they increase those rates after a year or so. Don’t get stuck with a card that you can’t afford long-term.
  • Annual fee:This is money that you have to pay every year just for using the card. If you don’t earn enough rewards to cover the cost, you’re essentially losing money by keeping the card around.
  • APR:This is the annual percentage rate, or the interest you’ll have to pay if you don’t pay off your balance. If you do manage to pay this off every time you buy something, the APR won’t matter at all.
  • Balance transfer fees:These fees occur when you move a balance from one credit card to another. You should only have to worry about this if you’re trying to consolidate your debt.
  • Foreign transaction fees:These fees happen when you buy items from another country. If most of your business involves drop shipping or travelling overseas, look for the lowest foreign transaction costs possible.
  • Credit acceptance:If you know your credit is bad, don’t apply for a card that requires excellent credit. This will make someone pull your credit report for no reason, and excessive pulls can lower your score over time.
  • Rewards:Even though the rewards you get will probably be minimal, you should look for a card that complements your spending. For example, if you mostly drive for your job, find a card with great gas rewards.

Don’t get fixated on the way a card looks or the money it has to offer. Compare all the terms to find the best one for your situation.

There is a lot more to business credit cards than meets the eye. You may not be able to fully enjoy the rewards from them, but you can at least build your credit and save some headache meds when tax season hits.

I use my card to pay for every single thing I need for my business, which allows me to see how much I need to save for the next month. Simply put, I use my card as a wallet-sized accountant, keeping me in line from month to month.

Do you plan on getting a business credit card? And for those that already have one, share how you’re using it in the comments below. I’d love to hear everyone’s tips.

About the author: Heaven Stubblefield is the content director for CompareCards.com, one of the leading credit card comparison sites on the internet. You can see more helpful tips and tricks from her on the site’s blog,CompareWallet.

Tips for Better Cash Flow

This article first appeared on the CA4IT Blog on January 27, 2016

Tips for Better Cash FlowWe told you in November about some things we learned at QuickBooks Connect 2015, which took place in San Jose. The national event brought together small business owners, entrepreneurs, professional accountants, and developers for a weekend. We heard talks by famous people (Oprah, Jessica Alba and Brian Grazer, for starters) and by people like us – business owners sharing what they’ve learned with their peers.

The conference was great; in addition to providing accounting advice, speakers also offered life lessons and inspiration for building our businesses. One important lesson we learned at the event concerned cash flow, which is important for every business. Here, according to QuickBooks Connect speakers, are five tips to help your business maximize cash flow.

  1. Accurate record-keeping – you can’t keep the cash flowing unless you invoice in a timely manner and follow up when it’s appropriate. Make sure your accounting records are up to date and accurate. Hire a small business accountant if you don’t have the time or knowledge to maintain your own records. Invest in accounting software like QuickBooks, which lets you see your receivables at a glance. Two other websites that could also help you are QuickBooks and intuit.com
  2. Plan ahead– budget your income and expenses for the coming year. This will help you anticipate when you might have shortfalls so you can plan ahead for getting through the lean times. The QuickBooks budgeting feature can help you do this, as can the sites liveplancom and score.org.
  3. Jump-start your receivables– Invoice your clients quickly, reduce payment terms and be aggressive about collecting. QuickBooks e-invoicing feature can help, as can invoicesherpa  and com
  4. Manage your payables– Don’t tie up all your cash in inventory. Extend your payment terms with vendors and schedule payments in advance. Sites like com and online banking bill pay can help you manage your payables.
  5. Line up funding sources before you need them– Check out the Small Business Administration website for programs and offers that can help small businesses. Talk with professional accountants for advice about funding sources you can tap when cash flow isn’t where you hoped it would be.

Lessons like these energized established entrepreneurs and new business owners looking to grow their businesses. Hope you find them useful. If you’re interested in working with professional accountants with the expertise you need to take your business to the next level, give our experienced CPAs a call today at 800-465-7532 or http://ca4it.com/contact/.