It’s a sunny day and you are ready to get the yard work done. You stop for breakfast to enjoy the fresh eggs from the farm down the road. Going out the door, you notice the broken handle on the rake. A trip to Tom’s hardware store down the road is needed. Then the water pump breaks and a plumber is needed. We depend on others to help us through the day, the plumber, Tom and the farmer. They are small business owners, three of an estimated 3,000,000 small businesses in Canada.
A business owner may chose to operate as a sole proprietorship or a partnership if two or more owners are involved. Alternatively, you may incorporate. No legal structure is inherently better than the other. The best choice depends on various factors.
Proprietors have more issues to consider in preparing their tax returns than employees, investors or pensioners. The focus should be on family planning since business income is an easier type of income to split than income from other sources. In order to be able to claim expenses and not have it viewed as a “hobby”, the business must have the potential to generate profit. Keep a journal of your thoughts on advertising, opportunities in the market, pricing, financing, etc. Be able to show that you honestly feel that the business will generate a profit for you in case this is challenged down the road.
Set up a separate bank account for the business. If it is audited by CRA, you will be showing them your business transactions only and not a mix of personal affairs as well. Auditors are happier when the audit trail is clean and clear. It is important from day one to have a proper accounting system. Your business may be small enough that a manual ledger will suffice. However, as your business grows, you may find that a lot of your time is consumed with running the business and your time to record the transactions lessens. Many sole proprietors use computer based software such as Simply Accounting or QuickBooks to maintain a proper ledger. These programs are relatively inexpensive and will generate useful information for you to help monitor and plan your business, just as long as the input is done correctly. It is important to speak to a qualified accounting professional when planning your accounting system. In most cases hiring a professional bookkeeper is inexpensive and hassel free.
Sole proprietors report income on their personal returns each year. While taxpayers are scrambling to file by midnight on April 30, sole proprietors and their spouses have a June 15th deadline, although they are still subject to interest on what they owe after April 30. Penalties are charged after that date.
Maybe you can turn your yard work expertise into a thriving business for yourself! Remember to support the businesses in your neighbourhood and they’ll be there when you need them.