Never too small to use a professional accountancy service

When it comes to accountancy, most in our industry do a poor job of it. Many independents too often rely on off-the-self software that they do not configure correctly or rely on a friend or family acquaintance to do the accounting, someone whose experience may be nothing more than doing personal income taxes.
Some independent shop owners will answer that their business is so small it makes no economic sense to have a professional accountant or accountancy service maintain the books and keep up-to-date on the latest tax changes. A simple ledger or program and a few hours at the end of the year to fill out the right forms is enough, and the rest of their time and revenues can be better spent operating the business and dealing with customers.
“If you are at the low-end of the (business size) scale, it may well be that you can get away with having a bookkeeper or just preparing things on a simple accounting package,” said Marshall Edelnick, partner with KRP LLP (Kestenberg Rabinowicz Partners) in Markham, Ontario (www.krp.ca). “However, even at that (small) scale, there are deductions, proper treatments of things and legal issues that come up in your business where it helps to have someone who has sophisticated knowledge of those things.”
One area independent service shops have to keep abreast is the changes that have been happening at Canada Revenue Agency (CRA) in regard to the application of new business tax rules and provisions. Over the last few years, the CRA has begun enforcing a range of tax rules and compliance issues that were once ‘soft’ areas for many years. This meant that while there were rules governing what a business had to report or what and when to file, for example, the CRA was not always enforcing those rules. This was largely due to old computer systems which did not permit efficient integration of tax and revenue information from various government departments and systems. With the introduction of new systems and better communications between departments, CRA is now starting to be much stricter about those once ‘soft’ areas under its purview.
“If you bent the rule or were not 100 per cent in compliance with something, they might not have bothered you,” added Edelnick. “There is a lot less of that now. It is important to have someone who can tell you what you should be doing and how to stay out of those ‘soft’ areas. If the CRA has not got to them now, there is a good chance they will get to them in a few years. What you want to avoid is the CRA coming to you saying ‘We have noticed that you have not done this in the last few years, and we are now going to reassess you.’ And you owe them $12,000 in taxes, including interest.”
Gary Olynik, a CMA with Accounts Plus (www.accountsplus.ca) in Oak­ville, Ontario said one area where businesses need help on is with the introduction of the HST. While a business such as an automotive repair shop may correctly be billing and invoicing its customers for the HST, many are unaware of the timetables for filing the HST and the costs of not knowing those timetables. This is crucial when setting up accountancy software for the business, something Olynik does as part of his consultancy services. This can prevent any problems from arising, such as missed filings or not remitting the correct amount of HST to the government.
“The downside of not making sure you have set up your software correctly for the HST is huge penalties,” Olynik added. “The government is not going to accept ‘I did not know,’ or ‘My software was not set-up correctly.’ You have to understand the rules, the reports that must be produced and the filing frequencies.”
Along with making sure the accountancy software is set-up to properly report and file the HST, accountancy software needs to be reviewed and updated regularly. Olynik reminds business owners that changes happens to the tax code all the time, new deductions are added or there are changes to reporting procedures and what information needs to be submitted for tax compliance. A key requisite of any good accountancy firm or accountant is how well they keep up with those changes and how well those changes are integrated in the software the business uses and its operating procedures so there are no unpleasant and unwanted surprises in a few years time.
Working with an accountancy firm or professional business accountant has other advantages. A good firm or person will also make sure the accountancy software is also set-up so an owner or manager can quickly see what is happening with the business and to improve or change procedures, especially in the area of cash flow.
“There are some businesses that are flush in cash and making no money,” said Danny Baratz, founding partner of Baratz Judelman, Preisz Pajak LLP (www.baratzjudelman.com) in Toronto. “There are other businesses that are making money and have no cash. Many businesses don’t realize if they are making money or are not. The owner goes to work, opens the doors and the place looks busy and thinks things are OK. But at the end of the day, they are not making money. Take the HST, for example. The HST will affect the cash flow of the business
. . . especially in the timing of the paying of the HST. This is crucial. If you are an annual filer and the amount was five per cent, it was easy to do. But now, at 13 per cent, paying once a year incurs a huge liability.”
“A good accountancy firm or consultant can also help you with issues around employees and freelance or independent workers who work for your shop,” added Egelnick. “An independent worker may do a similar job as an employee
. . . but that worker does not have all the same benefits as an employee. The CRA is now looking to identify such workers and are now asking companies to list how many independent workers they have and how the business is paying them. If you don’t know if you have such workers and you
don’t know that you are required to fill out a specific form for them, you will be penalized. A good accountancy firm will help you avoid such problems and identify possible issues that could cause problems for you and to help you address them.”