The last couple of years have been an emotional and financial rollercoaster for many Canadians. Perhaps for none moreso than small business owners. But many businesses have found ways to navigate and even thrive in the COVID-19 era. New challenges call for creative solutions such as embracing technology, outside-of-the-box ways to service customers or offering new products and services that dovetail with your brand and industry.
Of all the steps businesses take to survive turbulent times, however, one of the most important is how it handles its finances. It’s never a bad time to improve your business’s financial health, but since we’ve recently started a new fiscal year, it’s only fitting to learn a few tips you can implement as part of your small business’s financial resolutions in the New Year.
Dig Into Your Financial Statements
Whether you do your own accounting or use an accredited business accountant, keep detailed financial records, if you don’t already, and use them to create:
- Balance sheets to give you a rundown of your assets and liabilities over specific periods.
- Cash flow statements that measure how well your business produces cash to pay debts, operating expenses and re-invest back in the business.
- Income statements that list revenues and expenses for insights into your profits or net income.
Seeing this data in black and white makes it easier to identify where you spend the most money to invest in your business efficiently. The most successful business owners are good at getting the most out of every dollar they spend. That doesn’t necessarily mean buying the cheapest quality materials, paying minimum wage and spending as little money as possible. It means knowing where to cut back, when belt-tightening is necessary and spending money in ways that optimize your sales and profits.
Financial efficiency also means knowing how long it takes to sell your products, collect on receivables and pay back creditors, among other metrics, and tailoring your operations accordingly. The first step is to calculate the efficiency ratios of your business from the data in your financial statements. These ratios include your:
- Inventory Turnover Ratio
- Accounts Receivable Turnover Ratio
- Accounts Payable Turnover Ratio
- Asset Turnover Ratio
COVID-19 or not, financial decisions for your small business should be based on accurate data, ideally interpreted by a professional that offers accounting and business services. There is no margin for error in harsh economic landscapes, so getting it right is crucial for your survival.
Update Your Business Plan
If you haven’t already written a business plan, this should be one of your first resolutions. A business plan is a full, detailed description of what your business does, your goals, and each step needed to achieve them. Some of the sections usually included in a business plan are:
- Business description – This should include what exactly your business offers and why.
- Market analysis – Whether you are starting an entirely new industry or joining an established field, describe the size of the market, identify your target market, how to reach them, etc.
- Competitive strategies – Find out and write out as much as you can about your competitors and how you differentiate yourself.
- Design and development plan – This will be your business structure at startup (or whenever you write your plan) and a plan to accommodate your growth.
- Operations and management plan – A crucial part of your business plan is describing your business’s daily operations in detail.
- Financial considerations – This will include a budget for all expenses, including an emergency fund and funding sources.
Once you have a business plan, keep revisiting and updating it to reflect the changes that have already taken place and ones you anticipate in the future. For example, you may need to adapt your offerings to your target market’s changing needs, invest more on digital marketing to keep up with the rise in online shopping or that you need a completely new supply chain because of pandemic-related shortages.
Reduce Your Payable Taxes and Consider COVID-19 Supports
As a small business owner, you know first-hand the impact of federal and provincial taxes on your finances, business decisions and your time. You are also aware of common business expenses that you can deduct on your return. But keep all paper records, receipts, etc., for every transaction related to the business and digitize them if possible. It makes it easier to calculate revenues and expenses at tax time and provides a backup of your hard copies. When you are ready to file, check the CRA Business Expenses page to confirm what you can deduct and at what percentage.
The federal and provincial governments offer financial support for businesses and self-employed individuals impacted by the COVID-19 pandemic, including benefits, subsidies, loans, financing programs and tax payment deferrals. However, figuring out if you qualify for a particular program and which ones are best for you can be challenging as each has specific criteria and exceptions. You also have to know which ones require you to pay back any funding you receive, how these benefits affect your tax liability and if it makes financial sense to defer your taxes or apply for a repayable benefit.
A small business tax accountant knows the best financial supports for small businesses, how they affect your finances now and in the future and can show you tax deductions you didn’t know were available to you. They also remove the workload and stress of filing your tax returns, giving you more time and energy to focus on your business and personal health.
Stay on Top of Your Finances
Perhaps one of the easiest and most rewarding financial resolutions you can make for your small business is a commitment to keep your books constantly up-to-date. It’s much easier to organize your finances and keep them organized than to wait until tax season or year’s end to update your books. Whether you do it yourself or hire a book-keeping service, having accurate data on your business is fundamental for your success.