Canada Revenue Agency (CRA) has a page called Benefits and Allowances, http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/bnfts/menu-eng.html, that explains which benefits are taxable.

One of the most common benefits, that can also be somewhat confusing, are medical benefits.  If your employer pays provincial health care insurance premiums on your behalf (i.e. MSP), those premiums are considered to be a taxable benefit.  Therefore, many Canadian employers do not pay those premiums on behalf of employees.  However to make things convenient, employers may deduct premiums for an employee’s pay cheque and remit it on the employee’s behalf.  Since the employee is paying for the premiums, it is not considered a taxable benefit.

Most group health care plans include both taxable and non-taxable benefits. Life insurance paid by the employer is a taxable benefit. Disability insurance paid by the employer is also a taxable benefit unless the employer pays the benefit out of their own funds.  Accidental death and dismemberment and extended medical and dental coverage is not taxable to the recipient. Extended medical and dental that is paid by an employee can be claimed as an eligible medical expense on their personal income tax return. As a result of this, many employers apply the employee paid portion of the premium first to the extended medical and dental to maximize the medical expense claim they can make at tax time.

Employer paid premiums to a group wage-loss or income maintenance plan is taxable if the benefit is paid by a third party and not out of the employers own funds. Premiums paid to a non-group plan of this type are taxable. However, if you make a claim, those benefits are taxable.  On the other hand, if your employer pays for disability premium on the employee’s behalf (premium is deducted from the employees pay cheque), any claims made are not taxable.

Another common employee benefit is a company car.  Whether you are an owner or an employee, a company vehicle may result in two taxable benefits. The first benefit is a standby charge for your personal use, which will vary depending on whether the vehicle is employer-owned or leased.  The second benefit is an operating cost benefit which relates to the operating expenses (i.e. gas, repairs, etc) paid for your personal use of the vehicle.

CRA has an online calculator that allows you to calculate the estimated automobile benefit, here is the link

http://www.cra-arc.gc.ca/esrvc-srvce/tx/bsnss/bc-eng.html

But Revenue Canada does allow one exemption: whether an employer provides an employee with a company car or the employee uses their own vehicle, a reasonable car allowance for operating costs based on the number of kilometers driven is a tax-free benefit.

Looking at the calculations involved in determining the automobile benefits, it often is simpler for an employee to use their own vehicle and have the employer provide a tax-free reimbursement (currently up to $0.52 per km) on the business use of the vehicle.

Another common employee benefit is an employer-owned cell phone.  CRA’s view on this is if the employee is provided with a cell phone for business purposes, there is no taxable benefit to the employee. But if the cell phone is used for personal calls, a taxable benefit may arise.  CRA’s position is if the cell phone plan is a reasonable cost, the plan is a basic one with a fixed cost, and the employee’s personal use of the cell phone does not result in additional charges over and above the basic fixed cost, no taxable benefit would occur.

It would be worthwhile for an employer to look into cell phone plans for their employees that provide generous airtime that can be justified by the employee’s business-related use of the phone and for the employee to not incur additional charges (i.e. long distance or roaming charges) on their monthly fixed plan amount.  Otherwise, the additional charges that pertain to personal use will be considered a taxable benefit and added to the employee’s income.

There are a number of factors to consider when determining whether a benefit is taxable or not.  It is important to take these considerations into account when structuring benefit plans, rather than after the benefits have been provided.  This helps to ensure that benefit plans are structured in the most tax efficient manner.

First, the shareholder loan rule does not apply if the loan is repaid within one year after the end of the taxation year of the corporation in which the loan was made. For example, if the corporation’s taxation year is May 31 and it provided the shareholder with a loan on June 2, 2012, the shareholder would have until May 31, 2014 to repay the loan under this exception. This provides you almost two years to repay the loan without its being included in your income. But note that in order for this exception to apply, the repayment cannot be part of a series of loans and repayments.

Another exception to the shareholder loan rules generally applies to loans made by employers who are in the business of lending money. This exception applies to a debt that is from normal business activities, provided standard arrangements for repayment are made and maintained.

The third exception applies when you receive the loan as the employee of the corporation. More specifically, it must be reasonable to conclude that you received the loan because of your employment and not because of any persons’ shareholdings. In the meantime, the loan must have a bona fide arrangement for repayment and must be repaid within a reasonable time. If you are not a “specified employee”, you can use the loan for any purpose and still fall within this exception. A “specified employee” is generally one who does not deal at arm’s length with the corporation or who owns at least 10% of the shares of any class of the corporation or a related corporation. If you are a specified employee, the non-taxable loan must be used to either (1) purchase a dwelling in which you will live, (2) purchase new shares from the employer corporation (or a related corporation), or (3) purchase an automobile to be used for employment duties. In this case, the one year rule can be extended for a longer period, but no longer than normal commercial terms, therefore, a housing loan could be a 25 or 30 year term but an automobile loan would normally only extend to five years.

If the shareholder loan rule applies and the shareholder loan was previously included in your income, you can get a deduction from income in the year that you repay the loan. However, no deduction is allowed if the repayment was part of a series of loans and repayments.

If the shareholder loan is not included in your income because you fall within one of the exceptions, you may still be taxed on a deemed interest benefit if the loan does not bear adequate interest. The benefit will equal the prescribed rate applied to the outstanding portion of the loan, minus any interest that you paid in the year or by January 30 of the following year. The prescribed rate is set quarterly by Canada Revenue Agency and has been 1% since January 2011. In other words, there will be no deemed benefit if the loan is at the prescribed rate. For example, if you received a loan of $10,000 from the company on January 1, 2012 and are required to pay it back one year later without interest, you are considered to have an employment benefit of $100 for the year 2012, and have to include $100 in your income for 2012. However, if you make an interest payment of $100 to the company before January 30, 2013, you will avoid any employment benefit.

Make sure you consult with your accountant before you take a large sum of money out of your company over and above your regular wages or dividends. The costs could be far more than you anticipated if the loan is not structured properly.

Families

•    New Family Caregiver Tax Credit (effective 2012): This tax credit, based on $2,000, is an enhancement to the existing dependency-related tax credit and also results in an increase in the dependant’s income threshold.  While the credit is meant to assist caregivers of all types of infirm dependent relatives, the actual benefit has been the source of much debate. Some believe that while it may be an advantage for the average-(middle class)  looking after a dependent, a non-refundable tax credit does little to assist those caregivers that really require it, the low income earners.

•    New Children’s Arts Tax Credit: This tax credit mimics the Children’s Fitness Tax Credit imposed in 2007. The credit is based on $500 of eligible expenses paid for the enrolment of a child in programs of artistic, cultural, recreational or development activities.

•    New Child Tax Claimant Rule: The rule that limited the Child Tax Credit to one parent per household is now removed.

•    New Medical Expense Tax Credit Rule: The $10,000 limit on eligible expenses that can be claimed under the Medical Expense Tax Credit in respect of a dependent relative has now been removed.

•    Extension in Tax on Split Income (“Kiddie-Tax”): Any capital gains realized by a minor as a result of the sale of shares of a corporation to a person not dealing at arm’s length (e.g. the child sells his or her shares to a parent) will be subject to tax on the full amount of the gain rather than the general half rate treatment usually given to capital gains.

Communities & Job/Economic Growth

•    Temporary Hiring Refund for Small Businesses: Small businesses, whose EI premiums were less than $10,000 are eligible for a refund of up to $1,000 against the increase in 2011 EI premiums over those paid in 2010.

•    Extension of the Mineral Exploration Tax Credit: Eligibility for the Mineral Exploration Tax Credit, equal to 15% of specified mineral exploration expenses incurred in Canada, is extended by one year for flow-through share agreements entered into before March 31. 2012.

•    Expanding Tax Support for Clean Energy: The eligibility for the 50-per-cent accelerated capital cost allowance for clean energy generation and conservation equipment has been expanded to include equipment acquired on or after March 22, 2011.

•    New Volunteer Firefighters Tax Credit: This tax credit, based on $3,000, allows volunteer firefighters who performed at least 200 hours of volunteer firefighting services during the year to claim a 15% non-refundable tax credit.
Education & Training

•    Occupational, Trade and Professional Examination Tuition Tax Credit: Apprentices in the skilled trades and workers in regulated professions are now eligible to claim the Tuition Tax Credit on examination fees.

•    Tax Assistance for Study Abroad Students: The minimum course duration requirement for access to the Tuition, Education and Textbook Tax Credit has been reduced from 13 consecutive weeks to 3 consecutive weeks for Canadian students studying abroad. Course duration requirements for students studying abroad who wish to access educational assistance payments from an RESP have also been reduced to 3 consecutive weeks.

•    Reallocation of assets in an RESP: Assets in a registered education savings plan can now be reallocated among siblings without incurring any tax penalties or forfeiting Canada
Education Savings Grants.

These are just some of the changes that the 2011 Federal Budget has brought upon us. Each year the implementation of Canada’s Federal Budget results in a long list of new and changing tax measures that have a direct impact on tax payers. For many, keeping up with these changes can seem like an impossible task, however; not being informed can result in missed opportunities and over-payment of taxes. That being said, if reading and interpreting Federal Budgets isn’t your idea of an enjoyable past time, make sure you speak to an accountant to ensure that you receive the maximum tax savings possible each year.

So, who is eligible to claim their moving expenses?

• Employees or self-employed individuals moving to start a new job within Canada.
  • The catch: It is required that you earn income or self-employment income at the new job, and that your new home is at least 40km closer to your new work location than your previous home.

• Employees or self-employed individuals moving to start a new job from outside Canada to a location in Canada, from Canada to outside Canada, or from two locations outside Canada.
  • The catch: You must be a deemed or factual resident of Canada, and have moved from one place where you ordinarily reside to another place where you will ordinarily reside (not keeping a residence in both locations). It is also required that you earn income or self-employment income at the new job, and that your new home is at least 40km closer to your new work location than your previous home.

• Students moving to attend a post-secondary institution (in Canada or outside Canada).
  • The catch: You must be a full-time student that has received an amount from a scholarship, bursary, fellowship or research grant during the year which was required to be included in your income. It is also required that your new home be at least 40km closer to your new educational institution than your previous home was.

Which expenses are deductible?

• Transportation and storage costs (packing, hauling, in-transit storage, insurance) for household effects, including items such as boats and trailers,
• Travel expenses (vehicle, meals, accommodation) incurred while moving you and your family to the new location,
• Costs for up to 15 days of temporary accommodation (including meals),
• Costs of cancelling a lease for your old residence,
• Legal or notarial fees for the purchase of the new residence, as well as any taxes paid (other than GST/HST or property taxes) for the transfer or registration of title to the new residence (only if old residence is sold),
• The cost of selling your old residence, including advertising, notarial or legal fees, real estate commission, and any mortgage penalty when the mortgage is paid off before maturity,
• Costs incurred to change your address on legal documents,
• Costs incurred to replace driving licenses and non-commercial vehicle permits (not including insurance),
• Utility hook-ups and disconnections costs,
• Up to $5,000 in expenses incurred in an effort to maintain your old residence when it was vacant during a period when reasonable efforts were made to sell (interest, property tax, insurance, heat & utilities).

Although the moving expenses that are deductible are reasonably straight forward, there are some complicated rules that go along with them. For example; if you paid for your moving expenses in the year after you moved, you cannot carry back those expenses to the year of the return in which you moved, even if you earned employment income or self-employment income at your new job during that year. However; you may carry forward any unused amounts and deduct them against eligible income in the following years. In addition, there is more than one way to calculate the moving expenses you incurred. Rather than adding up all your receipts to calculate your expenses, which is called the detailed method, there is a simplified method that you can use that often results in a greater deduction.

If you’ve relocated or are planning to relocate in order to embark on new opportunities, talk to your accountant about how to deduct your moving expenses, and get an idea of just how much money you may be able to save.

The ITA does not define the term charitable, so Canada Revenue Agency (CRA) uses common law to determine if an organization qualifies for registration as a charity. When reviewing applications, CRA examines both the purposes and activities of an organization. Specifically, your organization will be eligible to apply for registration as a charity if you satisfy the following requirements:
Canadian resident – Only organizations established and resident in Canada can apply.
Purposes that are charitable by law - The organization must be established for purposes that fall into one of four categories: relief of poverty, advancement of education, advancement of religion or certain other purposes that benefit the community in a way the courts have said is charitable. All of the activities of the organization must support only its purpose.
Gifting to organizations that are qualified donees- A charity can only use its funds to carry on its own charitable activities, or to make gifts to other organizations that are qualified donees (usually other registered charities).
No personal benefits provided – No part of the organization’s income can be directly or indirectly payable or available to its members, shareholders, directors or trustees (unless they are legitimate recipients of a charitable program). For example, an organization that only awards scholarships to its members is providing a direct personal benefit. An art organization that promotes only the artwork of its members is providing an indirect personal benefit. Both of these organizations would not be eligible to apply for registration as a charity.

• Established for the benefit of the public – All applicants must pass the public benefits test. This will prove that its purpose and activities provide a tangible benefit to the public as a whole or a significant section of it. Organizations that are established to help cover the costs of a child’s surgery or to help a specific family that has lost its house in a fire will not qualify for registration.

• Non-political processes – The courts rule out political purposes for charities because it does not generate a public benefit. Also, in order to assess the public benefit, a court would have to take sides on a political debate. A political purpose, such as seeking a ban on deer hunting, requires a charity to enter into a debate about whether such a ban is good, rather than providing or working towards an accepted public benefit.

• Non-profit activities – Organizations that operate primarily to earn a profit will not qualify for registration.  However, charitable organizations and public foundations may carry on related business activities that accomplish or promote their charitable purposes or is substantially run by volunteers. Private foundations cannot carry on any business activities.

• Activities must be legal and in accordance with Canadian public policy – Organizations that are involved in illegal activities such as fraud or money laundering, who make their resources available to further terrorism or whose activities are contrary to any Canadian regulation or act of parliament will not qualify for registration.

Eligibility for registration as a charity depends on many factors. Please speak to your accountant if you are considering applying for registration and are unsure if you meet the requirements.

Canada Revenue Agency (CRA)’s rules on Employee Gifts and Rewards are such that most cash and near-cash gifts or awards are always a taxable benefit to the employee.  Near-cash gifts and awards are those that can easily be converted into cash such as gift cards, gift certificates, and securities.  Performance related awards are basically considered compensation for the job the employee was hired for and therefore thought of as bonus income and are fully taxable.

The good news is there are some employee non-cash gifts and awards that are tax exempt.  An employee may receive up to $500 of non-cash gifts and awards in a year.  And there is no limit to the number of times an employee receives a gift or award, as long as the $500 total threshold is not exceeded.  Note: small gifts or awards such as chocolates, birthday cakes, mugs, and flowers are not included in the $500 total.  So celebrate those birthdays!

There are some things to be careful of when giving an employee a non-cash gift or award.

Canada Revenue Agency is very specific about the occasion when the gift is given.  They say:

“A gift has to be for a special occasion such as a religious holiday, a birthday, a wedding, or the birth of a child.  An award has to be for an employment-related accomplishment such as outstanding service, employees’ suggestions, or meeting or exceeding safety standards  If you give your employee a non-cash gift or award for any other reason, this policy does not apply and you have to include the fair market value of the gift or award in the employee’s income.”

In addition, an employee may receive up to an additional $500 for long service once every five years.

Employees value recognition, but another idea for rewarding employees would be to give additional time off.  It does not add any additional tax liability, but would make the employee feel valued and maybe more relaxed.  And it does not have to be a huge chunk of time.  One or two Friday afternoons off in the summer when the sun is out would be greatly received.

Another employee benefit which is popular is a company Christmas party.  Canada Revenue Agency’s determination is if the cost is reasonable, it is not a taxable benefit.  CRA defines reasonable cost for a company-paid party as $100 per person.  You may also bring a guest and provide taxi-fare and overnight accommodations as they are not included in the $100 limit.  CRA allows you to have six social events during the year.  Throwing a lavish party that costs over $100/person may be well-intentioned, but may leave a sour taste if the individual cost shows up on an employee’s T4.  Rather than spending excess amounts on one party, have up to six parties with $100 per person tax limit and there will be no tax implications to your staff.

If a benefit is taxable, it is added to the employee’s income.  It is also pensionable and you must deduct CPP contributions and income tax. If the benefit is paid in cash, it is insurable and you must deduct EI premiums. Near cash and non-cash taxable benefits are not insurable and you do not deduct EI premiums.

Employees value acknowledgement, but an employer should take into consideration the tax rules before rewarding staff.   You want to make sure the recognition is remembered in a positive way.

Registered Retirement Savings Plan – “RRSP”

An RRSP is intended to promote long term retirement savings. Income that is deposited into an RRSP is tax deductible, deferring taxes on that income until the funds are withdrawn from the plan. This can be extremely beneficial to those income earners who have just reached a higher tax bracket, and are looking to reduce their income in order to pay less tax. However, there is an annual limit on the amount that can be contributed to your RRSP (based on income), and going over that limit can result in penalties and interest.  Additional income earned within the plan is taxed only when withdrawn from the plan. If long term saving and/or reducing your taxable income are your priorities, RRSP’s may be the right choice for you.

RRSP Home Buyer’s Plan – “HBP”

Perhaps saving for retirement is less of a priority for you at this time, and saving to purchase a home is more within the scope of your current financial goals. The HBP allows you to borrow funds of up to $25,000 from your RRSP, tax free, in order to purchase your first home. The catch is whatever was borrowed from your RRSP must be paid back within 15 years (after a two year grace period). Any missed payments will be included in income and subject to taxes.

RRSP Lifelong Learning Plan – “LLP”

The LLP was created to cater to individuals looking to further their education through post-secondary school. Up to $10,000 per year, with a maximum of $20,000, can be borrowed from your RRSP to go towards your post-secondary education. The first repayment under the LLP will be due either 60 days after the fifth year following your first withdrawal, or the second year after the last year you were enrolled as a full-time student. At this time the individual will be expected to repay borrowed funds within a period of 10 years, each year repaying a minimum of 1/10 of the borrowed funds.

Registered Retirement Income Fund – “RRIF”

Before the end of the year in which an individual turns 71, it is required that they either withdraw all funds from their RRSP, or convert the RRSP to an RRIF or life annuity. The RRIF is a tax-deferred retirement plan used to generate income from the savings that have accumulated under the RRSP. Like the RRSP, income earned within the RRIF grows in a tax-deferred manner, meaning you don’t pay taxes until the funds are withdrawn. The difference is that you can no longer make contributions to an RRIF, and there is an obligatory annual minimum withdrawal amount on which you will be subject to income tax. The RRIF is used to keep the individual from paying a large amount of income tax upon the closure of their RRSP.

Registered Education Savings Plan – “RESP”

The RESP is designed for individuals who wish to save for their children’s post secondary education. Unlike the RRSP, funds contributed to the RESP are not deductible from taxable income. Capital contributions will not be taxed when the beneficiary makes withdrawals, however income earned within the plan will be subject to tax. With the assumption that most post-secondary students will pay little or no federal tax, the RESP gives the student a good source of income to fund their post-secondary education. Added benefits to this type of savings plan are the federal and provincial grants and bonds that are provided to complement the RESP contributions.

Registered Disability Savings Plan – “RDSP”

An RDSP is a savings plan designed to help parents and others save for the long-term financial security of a person who is eligible for the Disability Tax Credit. Contributions can be made to this plan up until the beneficiary reaches the age of 60, but are not tax deductible. For low income families (income of $23,855 or less) this plan is extremely beneficial. A bond of $1,000 per year for up to 20 years is paid into the RDSP by the Government of Canada regardless of the amount of contributions made. Further, families with a combined income of less than $81,941 may receive a grant of up to three times the first $500, plus two times the next $1,000 contributed, for a total possible grant of $3,500 each year. Families with a higher income (more than $81,941) will receive the grant on a $1 per $1 contribution basis, up to a maximum of $1,000. If you have a disabled person in your life that you wish to start a savings plan for, this is the plan for you.

Tax-Free Savings Account – “TFSA”

In some ways, a TFSA investment can be thought of as the opposite of an RRSP. While the contributions made to a TFSA are not tax deductible, any income earned in the account is tax-free. Under most circumstances, withdrawals can be made from the account at any time without tax consequence. As of 2009, TFSA’s have an annual contribution limit of $5,000. This savings plan benefits those who have left-over income to invest, but would like the freedom to use these funds at any time, without time constraints.  This option is ideal for taxpayers, such as seniors,  wishing to reduce taxable income, since income earned within the funds in not taxable.

With so many options out there for saving, it can be hard to know which route will be most beneficial to you and your family. There is not one savings plan that is better than the other, the option you choose should be based on your needs and priorities at the time of investment. If you’re in a position where you believe you should begin a savings plan speak to your accountant about which option would be best for you.

Even once benefits are being received from the Canada Pension Plan, contributions made into the plan after that time will be considered in determining future CPP payments that you are eligible to receive, helping to increase future benefits (called the CPP Post-Retirement Benefit).

Previously, before an individual could apply for CPP benefits before the age of 65 there had to be an interruption in their earnings for at least two months.  Under the new provisions individuals can now apply for CPP payments without having to quit work or reduce their earnings.  This allows individuals to continue to work and collect CPP before age 65, if they so choose. 

When calculating the CPP benefit that an individual is entitled to receive, a period of low income earning years are omitted from the calculation.  The number of low income work years that are dropped from the calculation increases to 16% in 2012 from the current 15%.  This can allow for up to 7.5 low income earning years to be omitted from the benefit calculation.  In 2014 the drop out rate will increase to 17%.

When CPP benefits are applied for before the age of 65 the amount of the benefit is currently decreased by 0.5% for each month the individual took their CPP pension before the age of 65.   Pension benefit amounts were also increased 0.5% for each month the individual delayed taking CPP after the age of 65.  Under the new CPP rules, both the monthly increase and reduction in benefits are being adjusted progressively through to 2016.  In 2012 the monthly increase for delaying CPP after age 65 (up to the age of 70) will increase to 0.64% per month and in 2013 it will increase to 0.7%.  By 2013, an individual who delays CPP until age 70 will receive a pension benefit that would be 42% higher than the benefit they would have received at age 65.  For those individuals considering taking CPP payments earlier than age 65 the monthly reduction for each month CPP is taken early increases to 0.52% (2012), 0.54% (2013), 0.56% (2014), 0.58% (2015), and 0.60% (2016).  This will mean that by 2016 an individual who takes CPP at age 60 will receive a pension amount that will be up to 36% less than the benefit they would receive if they wait until age 65.

With the recent CPP changes the decision on whether to take CPP pension early or delay until later is not quite as simple as it used to be.  Health, income, tax and clawback implications will all have to be considered to determine if taking CPP early or delaying until later is the best option for you.  To help you decide the best time to apply for CPP and the tax implications talk to your accountant.

Fortunately, there are other options available for a “shot in the arm” without tremendous personal risk – small business grants.  There are a number available from the government and also some from non-profit organizations.  It can be very difficult to find, to apply for, and to receive these; but, for essentially free money, business owners ought to try in order to gain a leg up on the competition.

The available government grants and subsidies are generally not broadly available, but instead are provided based on the business meeting certain criteria.  For example, Aboriginal Business Canada offers grants and subsidies to aboriginals involved in certain business activities.  A number of agricultural grants and subsidies are available to farmers from various government agencies, including Agri-Food Canada and the Canadian Dairy Commission.  Businesses in book or music publication are offered various incentives.  Grants are also available for businesses involved in developing new energy technologies, and for those involved in development of sustainable products and processes.  For more information on the large number of government grants available, visit www.canadabusiness.ca.

If none of the government grants apply to your situation, there are also non-profit organizations whose mandate is to support small business growth with grants, subsidies, and low-interest loans.  Leadership Grants Organization of Canada (LGOC) is a non-profit organization whose goal is to distribute business grants of up to $100,000.  The nice thing about the Leadership Grants is that applicants don’t need to meet certain industry or affirmative action criteria to qualify.  Instead, the grants are awarded based on the merits of each applicant’s business plan and personal investment.  If LGOC thinks you are well organized and have a reasonable chance of success, you could be approved.  For more information on Leadership Grants, see www.leadershipgrants.ca. For those individuals wishing to purchase ownership of an existing business, these grants could be ideal.

Other non-profits also exist to support small businesses.  Here in BC, a non-profit organization widely recognized is Community Futures.  Almost every town in the province has a location.  Community Futures does not offer grants per se but does freely give business plan assistance, networking help, and other useful resources, including start-up loans, however the loans are often at higher rates than commercial banks.  These services can be invaluable to entrepreneurs and business owners wishing to make a move.  Community Futures can be found on the web at www.communityfutures.ca.

If you think you’d like to take advantage of one of these grants or services, visit the websites above or speak to your controller or accountant today.

1.  Build a strong management team.

2. Document your business processes and the key knowledge or business intelligence of the company.

3. Set up a solid accounting system that will give you meaningful feedback on the results of your business throughout the year. Build a strong balance sheet and income statement.

4. Implement your systems consistently—measure, manage results and measure again. Keep your financial yardstick handy.

5. Analyze your customers and focus on key revenue generators.  Build a solid marketing plan.

6. Update antiquated business processes and streamline existing processes.

7. EBITDA is everything—remember your bottom line and cash flow is king. Make sure you have adequate income and cash to attract buyers.

8. Consider hiring a business broker to sell your business.

1.    Build a strong management team

The buyer will likely be looking at the business as an investor so a strong management team and a strong customer base are key to obtaining the best price for your business.  Most businesses in Canada are small to medium sized businesses, often run by two spouses who are the core of the management of the company. When they retire the company must have a solid base of managers to make the transfer to the new owners less challenging.

2.    Document your business processes

For most small to medium businesses the business knowledge of the company is in the heads of the owners.  To carry on the key knowledge and intellectual property of the company, what makes this business different from others must be documented in some fashion so others can maintain the business processes.

3.    Set up a solid accounting system that will give you meaningful feedback on the results of your business

One of the keys to selling your business is having a healthy viable enterprise which can support the proposed selling price to outside investors.  The focus should move away from minimizing net income for tax purposes to maximizing net income for selling purposes.  Meaningful financial feedback throughout the year should be set up to monitor results so you can maximize your business results throughout the year. From an investor’s perspective, the balance sheet and income statement should show a healthy return on investment for at least the last two years to support future maintainable earnings.

4.    Implement your systems consistently—measure, manage results and measure again. Keep your financial yardstick handy

Selection and use of the right measurements is key to the success of your business. You should be using some measurements daily, such as daily revenue. Others, such as breakeven point, may be used daily, weekly or monthly depending upon your business cycle.  Keeping current with your accounting records allows you to use your results in REAL TIME so you can correct your direction if, for instance, one product line is not achieving the results you expected. Select a few key measurements that are important to your business and take the time to watch the results, manage the results and correct your directions.  Then measure again to make sure the changes you have made have achieved the desired results.  A business owner should be reviewing some financial results daily and overall results at least monthly.  Get used to having an income statement and balance sheet that is current no later than the 20^th of the following month (sooner would be better).

5.    Analyze your customers and focus on key revenue generators.  Build a solid marketing plan

Often business owners are focused on doing the business instead of running the business and where this is most often evident is when one group of customers is not as profitable as expected.  Weeding out the customers who are dragging down the profitability, because they require too much time to service and do not generate enough profit, is key to maximizing the profit of the company.  Build a solid marketing plan that makes sense not only to you as the business owner, but would stand the acid test of the outside investor.

6.    Update antiquated business processes and streamline existing processes

The single biggest expense for most businesses, besides material costs, is labour.  As a business owner are you using your manpower efficiently and effectively?  Consider redundant or duplicate business processes and use technology to help streamline and reduce effort.

7.    EBIDTA is everything—remember your bottom line and cash flow is king—make sure you have adequate income and cash to attract buyers.

Earnings Before Interest, Depreciation, Tax and Amortization is the key measurement in almost all business valuations.  Keep your earnings strong by eliminating discretionary spending where possible, building up a solid cash reserve and reducing your dependency on accounts receivable and high inventory levels.  Remember cash flow is king.

8.    Consider hiring a business broker to sell your business

Business brokers are specialists in the field of selling businesses and can give you an objective approach to selling your business. Brokers will know how to position your business in the best way for resale and often will achieve a much higher value than if you were to sell your business yourself.

Sound like a lot of work?  It can be, but there are professionals available that can help you.  Talk to your business broker, accountant and IT professional who can help you streamline your business and set up good financial controls to improve your bottom line.  You have worked hard at your business. When you retire, make sure you get the maximum price by taking the necessary steps to get your business ready for resale.