It’s time to spread the cheer! The holidays are an exciting time for most businesses as they usually mean a steep uptick in sales, holiday get-togethers or both. But before you get caught up in the holiday spirit, plan ahead to ensure you optimize sales, deduct holiday expenses correctly and avoid a financial hangover on January 1st.
If you’re a “one-person-show” that takes care of both operations and finances, you might want to take on a little help now and then. A professional business accountant in Toronto can give you specific advice on deductions you didn’t know you could claim, keep your business in good standing with the CRA and give you data-driven insights to optimize your business and plan for the future.
In the meantime, here are a few tips to help you start your holiday season off on the right foot.
Look at Past Years to Budget This Year’s Expenses
Analyze your income statements from previous years, and you’ll uncover your revenue, expenses, cost of goods sold and profits over the year, quarter or month, depending on when you completed them.
They will help you plan for this holiday’s volume and expenses and give you insights that you can use to strategize your inventory needs, marketing spend and labour costs.
If you’re not regularly preparing financial statements, take a moment to consider using an accounting firm that specializes in small business accounting services in Toronto. As you’re about to see, having a professional prepare tour financial statements is crucial to running an efficient and successful business.
Looking at your Q4 sales in previous years will show exactly when in the holiday season your sales spike, and which of your products (or services) drove most of those sales. The precise amount of inventory you’ll need in stock is challenging to predict, and every year, one toy or product becomes a craze that sends shoppers, and now re-sellers, into a feeding frenzy. But knowing your sales numbers and the percent increase year over year can help you make an educated guess.
Holiday Marketing Campaigns
How successful was last year’s holiday marketing plan? Are you planning to scale up? Which channels? Do you use print ads and, if so, where do they appear? Do you hire a marketing agency, or do your marketing in-house?
The CRA currently allows digital advertising costs to be fully deductible. So the total costs of your Google, Facebook, Instagram etc., ads can be claimed as part of your advertising expenses – and so can your website registration and hosting fees.
However, the same restrictions for print and broadcast advertising are still in effect. So if you run TV or magazine ads through an American or international broadcaster/publisher, you can’t claim those costs, even if you’re marketing to a Canadian audience. And if you’re running print ads in a Canadian periodical for a Canadian audience, you can only claim 50% of your cost if the periodical contains less than 80% non-promotional content.
One thing to keep in mind over the holidays, if you organize a public event or a branded charitable donation drive, the costs can also be claimed as part of your advertising expenses. The events must be overtly tied to your logo and brand in a promotional way.
Keep receipts and detailed records of all of your advertising expenses in a safe place. You may also want to consult an accountant on how to organize your business finances to ensure you’re making sound deductions and not missing out on expenses you can claim.
Temp / Increased Labour Cost
Labour costs are generally the largest expense businesses incur, and the holidays are no exception. If your labour costs increase over the holidays, look at previous years to calculate by how much and if the percent increase has also been rising over the years. This can help you anticipate your holiday labour cost for this season.
If you use casual workers, you have to decide if they are employees or self-employed to know your obligations for paying CPP, EI and income tax.
If you hire seasonal workers through an agency, your arrangement with the agency around who pays the employees’ wages will dictate who pays CPP, EI contributions and prepares the T4.
Allowable Deductions for Holiday Cheer
Gifts and holiday parties generate goodwill and bring you and your team closer, both of which can improve productivity and customer service (and therefore sales). Here’s a quick look at how the CRA treats them.
Cash Gifts (Bonuses)
Cash gifts must be added to employees’ employment income on their T4s and as part of their Taxable Benefits in Box 40 of the T4. Income tax, CPP and EI contributions will also have to be deducted from their paycheques.
Gift cards are generally treated as cash for income tax purposes.
If you give your team gifts this holiday season instead of cash, you can save them from higher taxable income, as long as the fair market value of the gift is $500 or less. You can also use the total cost of the gift as a tax deduction.
If the value of the gift is over $500, any amount above the $500 cap would have to be added to employees’ Taxable Benefits with the appropriate income tax, CPP and EI amounts deducted.
Whether you decide to hold a holiday party at the office or an entertainment venue, you may be able to deduct the total cost as part of your meals and entertainment expenses. To be eligible, the party has to be open to all employees company-wide, and the cost can’t exceed $100/person, not including extra costs like transportation to and from the event.
If the party doesn’t meet these requirements, the usual 50% deduction is allowed.
Manage Your Cash Flow
The holidays are an expensive time of year for most businesses, so staying on top of your cash flow can help support your holiday spending. Managing your receivables and payables early can get you in front of your holiday cash needs, so you’re not scrambling at the last minute.
The earlier you start reminding any overdue, or soon to be due, accounts that it’s time to get current, the more likely you’ll receive payments when you need them. You can try a polite but firm email thanking them for their business over the year, thank them in advance for their prompt payment over the holiday season, and share your holiday business hours should they need to get in touch.
You may also want to take this time to review how you’re billing if a lot of your accounts are in arrears. Providing early payment discounts, late-fee penalties, or upfront deposits are options if you need to try something new.
By the same token, don’t make creditors chase you. If you’re behind on your payments, reach out and work out a new payment plan that realistically works for you.
Optimize Your Business
Ready to maximize your business efficiency and elevate it to the next growth stage? It’s time to optimize your accounts and get the insights you need for a strategy based on hard data and tailored to your specific business needs.