Real Tips

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Non-clients can ask simple questions for a fee of $25. If they are complex, we will follow-up with e-mail regarding expected costs before we proceed.

Your growth is limited to your ability to delegate. Michael Gerber put it this way "most businesses are started by technicians (mechanics, carpenters, etc) who go into business and realize that running a business is more that technical work. They need to wear various hats such as the salesperson, administrator, bookkeeper, production, human resources, etc.".

So how do you create a business that really works? Before you can delegate effectively, you need to follow six steps to work on your business and not in your business. The six steps are:

1. Get organized. Clean up your messes, as messes reflect unfinished business. Messes hold you back because you waste time looking for information, thinking about things that are not done and indecision. Once you get in the habit of finishing what you start - one task at a time - you will be decisive, get any information when you want it and people will look you up when the important tasks come. You will have time to do what is important and the number of fires you put out will go down.

2. Begin with an end in mind. Ask yourself, why did you go into the business? Did you go into business to make "X" per year or to sell it for $ X or to work 25 hours per week? Make sure this goal is met and create a crystal clear picture of what your business will look like. Define the geographic locations, the sales volumes, number of team members etc. It does not matter if you want 1 location or 10 locations as long as you know exactly what you are working for. Your decisions will now have to be made with this result in mind.

3. Create an Action plan to get to your goal. The first order of doing business is cleaning up house. Doing the same thing and expecting different results is insanity. Take a good look at how you do things. Write out as many actions as you want in each of the production, administration, marketing, human resources and research and development areas. Attach an approximate cost of each action and the potential benefit. Start with the action that has the highest increase in profit or reduction in stress. For example, you will find that 20% of your customers cost you money and headaches to service. Sending these customers to your competition will increase your profits and make your place a pleasant place to work. Identifying these customers may cost you $2,000 but would have a potential benefit of say $15,000 - your net benefit is $13,000. Creating a relationship with a "Pillar for reference" might cost you $1,500 but will generate $150,000 in sales at 20% margin will generate $30,000. Decide which one you want to do first and take action.

4. Determine your measuring posts. Whatever you can measure you can manage. A coach cannot manage a hockey game by looking at the scoreboard. That is the end result. A coach looks at numbers such as shots on net to determine if his line is effective against the opposing team and changes his lines based on information such as this. You cannot manage your business by looking at your net profits. You will need information such as how many sales calls were made? What was the closing ratio? What was the profitability of each job? Keeping your eye on the inputs will increase profitability.

5. Create a system so that each team member performs a task in the same way. Do you have a system in place to determine how the phone is answered? Do you have a system in place how a new customer is handled? Do you have a system to ensure your customer is happy once they are on board? Do you have a system to ensure your paperwork is handled only once? Are you able to replace staff and have instructions so that they become productive sooner or do they have to go by memory?

6. There are only 4 ways to grow your business. The four ways are:

1. Increase the number of customer of the type you like
2. Increase the number of times they come back
3. Increase the amount they spend with you each time
4. Increase the efficiency of each process!

These concepts are simple. But the thinking process will take you at least 1½ days to come up with an action plan that works. Sounds interesting....Lets do lunch.....

RRSP funds represent monies on which you have earned but not paid taxes on yet. The options you have are:

1. Use for a home buyers program where you can take up to $20,000 and repay it back into your RRSP over 15 years without interest.
2. Set up a self-administered RRSP. Then have the trustee of the RRSP set up a mortgage, which must be CMHC insured, and hence you pay the CMHC fees and the corresponding interest on the mortgage at the time. The only advantage to this program is that you get to earn interest in your RRSP program.
3. Withdraw the funds and pay taxes at your current tax rates
4. You may consider setting a self administered RRSP and provide mortgages to non-arms length parties. These parties must not be related to you. Relatives are defined as brothers, sisters, parents or children. For the purposes of the income tax act, a brother-in-law is considered a brother, mother-in-law is considered a mother and so on.
   

E-Pass is an electronic signature. Starting February 2006, CRA will not permit users to obtain information electronically without an E-Pass. As a part of our routine checks, such as checking your installments, RRSP limits, Losses Carried Forward, responding to audits and information to CRA, we need to be authorized to deal on your behalf.

Please apply for it now so that you do not get stuck this tax season.

In order to get your e-pass, you need to have your Social Insurance Number, date of birth and Line 150 to apply - And no- we cannot do it for you. Visit this website:

http://www.cra-arc.gc.ca/eservices/tax/individuals/myaccount/register-e.html

(as opposed to meals and entertainment which are 50% deductible)

A realtor gave food vouchers and deducted them 100% in calculating his taxable income. CRA disallowed 50% of the claim on the basis that the amounts were paid for "the human consumption of food or beverages or the enjoyment of the entertainment". The Realtor appealed and won on the grounds that he did not purchase the vouchers "to consume food or beverages or the enjoyment of the entertainment". He purchased them to generate income for his business!!

1. Are you employed or self employed?
Employees have a more difficult time deducting expenses unless you are a commissioned employee or it is a requirement of your job with your employer signing Form 2200 that you must attend and pay for these seminars. Generally speaking, if you have a corporation conducting active business, you will be able to deduct the expenses a lot easier.

2. How does it relate to your business?
Generally speaking, marketing, tax and issues specific to your industry should be deductible. Also, seminars where you are networking and generate business for you should be tax deductible.

3. What is the geographic location that you conduct your business?
Any seminar relating to your business in your own geographic location should be deductible. The next issue is where is the corporation that is sponsoring the conference or seminar located? If you happen to be a medical specialist attending a seminar in Toronto and there are 25 specialists in Canada, there would be few issues. If you happen to be in the real estate business in BC and attend a seminar in LA, it would be doubtful if you could deduct the expenses of attending this conference or seminar.

4. Is the cost reasonable?
If you have one rental property with gross revenues of $10,000 per year, it would be unreasonable to spend $2,000 on one seminar. If you have gross rental revenues of $100,000, it would not be unreasonable to attend a seminar.

5. Is a seminar on a cruise tax deductible?
The main reason for the geographic location rule is that the cost incurred to attend a seminar away from your hometown is more costly. But if a seminar is held on a cruise boat and cost say $1,000 per person. If you and your spouse work together, it is reasonable that both of you attend the seminar. Say if a seminar is held in Hotel Vancouver for 7 nights and required your attention for the full duration and it costs $300 per day including all meals for two, the cost for two people would be $2,100. Now the cost is lower for the seminar on a cruise as opposed to one in your own geographic area and therefore it could be argued that the geographic rule is irrelevant in this case.

6. What about your personal portion?
Say if you went on a 7-day cruise. You were in seminars for 8-10 hours per day for 5 days. You must not deduct the personal portion, which would be 2/7 x your total cost.

7. What about meals and entertainment?
Only half of your meals and entertainment are tax deductible. Of the total cost of the cruise, you must reduce your deductible portion by the estimated meals component by ½.

So is your seminar on a cruise tax deductible? It is an area hotly contested by CCRA. Be prepared to have the documentation ready to defend your position.

How do you determine value? Firstly understand the two types of services you receive. First one is "compilation". Which simply means -providing regular preparation and filing services such as tax returns, corporate financials statements, GST, payroll etc. The second one is "value added". This is where you ask questions for planning purposes prior to closing a deal. Question such as -how shall I finance this property? Or I am planning to do it this way -is it okay? This is where you get an input on your set up that can save you a lot of money.

For your compilation work, which accountant do you think will be more efficient, one that is organized and does it the same way each time or one that does not have systems in place? Have you tried going shopping without a list? Have you forgotten to purchase some items? If you had an accountant that had systems in place and prepares the return with you on his mind, do you think he would do a better job than the opposite? The difficulty with clients preparing information is they have no systems in place to check what is forgotten. If the accountant is in the same boat, now tax preparation becomes a chance to a memory game to get the tax return done right.

Secondly, put yourself in the accountant shoes, remember their work is deadline oriented. Do you think they can train and maintain enough people just to handle peak period work? Not likely. Which client will get better service- a client that is organized, brings the records early or one that brings it in last minute, had to get numerous reminders and the information comes in dribs and drabs?

I have gone back and reviewed timesheets on clients with similar needs and yet there is big discrepancy in the fees. There were two reasons for the discrepancy - one was the information was very difficult to gather, it came in slowly over time and clients keep answering the wrong question. At the back office, a staff picks up the job, familiarized with the trying to remember where they left off and repeat this process till the return is done. Unfortunately, you get charged for the time it takes to do the return. The accountant is not in a habit of paying staff and not charging you to the work. Remember when you get a letter from your lawyer or accountant, it is important -it is not a love letter! Secondly, rush jobs. The old saying haste makes waste is true. When staff rush through jobs at the end, we have to tighten our systems to check the work and we find more errors which again take time to fix. After all we are humans doing accounting work!

Any seminar relating to your business in your own geographic location should be deductible. The next issue is where is the corporation that is sponsoring the conference or seminar located? If you happen to be a medical specialist attending a seminar in Toronto and there are 25 specialists in Canada, there would be few issues. If you happen to be in the real estate business in BC and attend a seminar in LA, it would be doubtful if you could deduct the expenses of attending this conference or seminar.

At our office, our tax season starts in the summer prior.  We go back review the problems we had, fix our templates and start creating our templates for next year for each client.  This ensures that we have systems in place to get the job done quickly, catch errors easily and move forward.  Once tax season hits, we have small systems in place such as

1. Having one box per client so that we do not waste time looking for documents
2. Having only one file on each desk so that we do not mix different clients files
3. Having a system to prioritize a job so that the staff do know what is required of them as opposed to wondering what I shall do next
4. Start one file and work on it till you finish that file so that the staff do not have to comeback to it to familiarize themselves again.
5. Standard documentation procedures so that we know how the information was obtained.
6. Paperless files –so that we do not waste time filing and retrieving paper.
7. All our staff have dual screens on their computers to reduce errors

Now to get real value from your accountant, it comes from questions that you ask. As accountants, we have no idea what our clients do or think. Some clients think they get value from a face to face consultation with their accountant. Nothing can be further from the truth. Firstly, you may forget to ask all your question. Secondly, after your questions have been answered, new question pop up. Next, your timing may be wrong. If the accountant is trying to meet deadlines, his mindset will be with the deadlines, not your problems. Unfortunately, it is a human thing. We are focused on our most pressing problems. The accountant is a human being as well. So how do you get real value? Firstly, when you think of a question - send an e-mail. Generally e-mails are dealt with when the person has time and will be able to focus on your issue. This is generally not true with people who use crackberry's. Secondly, we get asked a lot of hypothetical questions. These are nice chitchats over a beer -but lets not waste anybody's time. The questions you ask generally should be to do with your immediate future direction that has a tax or investment component.

There are accountants that do not like answering these question because of fear from lawsuits. Some clients fail to understand that an accountant is not an expert at predicting the future. Accountants cannot bless a deal. They simply are a sounding board for you to make a better decision. I have clients that will make a statement like "you know the (name of town) is going up right?" Reality is I have no idea and that is why I attend real estate courses to get a better understanding of the market place. I will get clients that will ask -I have purchased a house on abc street in the city of ..- for $........ -what do you think? So when an accountant says -I do not know. That would be correct -but there is nothing wrong with a discussion from a tax perspective of how financing should be set up, if the timing of selling or buying may be correct, if there are other factors you should be considering or I may say -hey this is a legal issue -contact a lawyer.

Having said that you should e-mail questions, spam filters today are an issue. If you do not receive an answer in a couple of day, it is best to call and find out if the e-mail got through. Also when you are asking question, and if your closing is tomorrow, there is no point as you cannot change the set up. It also frustrates accountants as you are passing your urgency because you ignored it earlier on.

You must also understand your accountant's bias. For example, I am more real estate oriented. My focus is on long term cash flow properties. Hence, I will be more positive on these types of real estate. I will be more negative on flippers of real estate, mutual funds, foreign exchange traders and day traders. I look for more solid long term returns as opposed to a higher risk returns. I come across builders and land developers that do well. I have not done these kinds of transactions. So if I get a question that is not a tax question, I would try and put a client in touch with another client in a similar field so they can help each other. Other accountants may consider all real estate risk and mutual funds of less risk. Overall, most accountants have similar training in dealing with the compilation side of our practices, but our take and experience of life and investments are different. Our organizational skills are different. So you need to find someone that fits with your long term needs. There may be variations from what you think and the accountant thinks, but the final decision has to be yours as you should only use your accountant as a sounding board to help you reach your goals.