Simple set of standards is working to hrlp bovernment respond to business

Wendy McLellan
Province

Michael Kane
Sun

Small business is the engine of British Columbia‘s economy, responsible for about 60 per cent of all jobs and more than three out of four new jobs created since 2001.

Risk-taking entrepreneurs with firms employing fewer than 50 people continue to build the province’s prosperity despite the administrative burden of taxation and regulation, shortages of skilled labour, challenges around productivity, emerging competition from low-cost markets, dramatic increases in energy and insurance costs, and cost pressures wrought by the leaping loonie.

Coming soon will be a succession crisis, with as many as 60 per cent of the owners of B.C.’s small and medium-sized enterprises hoping to retire within the next decade. There is no guarantee they will find someone willing or able to buy them out.

Yet small business start-ups continue at a healthy pace. According to Statistics Canada, there were 160,197 businesses remitting payroll deductions in B.C. in the second quarter of 2005. This marks a 3.6-per-cent increase over the same period in 2004, and the biggest jump in the number of businesses with employees in a decade. It puts B.C. well ahead of the Canada-wide increase of 1.9 per cent.

B.C.’s small-business owners are also among the most optimistic in the country, with 60 per cent expecting a stronger year ahead versus only six per cent expecting a weaker year, according to the latest survey by the Canadian Federation of Independent Business.

In terms of those all-important jobs, 39 per cent of B.C. businesses surveyed by the CFIB in September said they plan to hire more full-time workers over the coming 12 months, compared to 26 per cent nationally.

B.C. business is bullish thanks largely to strong consumer confidence, relatively low interest rates, soaring non-residential construction, and robust global commodity prices that have restored the fortunes of a business-friendly provincial government.

The recent announcement of a reduction in B.C.’s corporate tax rate from 13.5 per cent to 12 per cent is helping to fuel further optimism because tax relief is the No. 1 priority of small-business owners, says Laura Jones, the Vancouver-based vice-president of the CFIB.

Jones also congratulates Gordon Campbell’s Liberal government for cutting red tape by about 40 per cent during the past five years, but contends that complying with rules and regulations continues to hit pocketbooks almost as hard as taxation because costs are passed on to the consumer.

Despite the headaches triggered by sales taxes, the demands of WorkSafeBC, employment standards, municipal requirements, environmental rules, and privacy laws, research suggests that the self-employed and employees of small companies are more satisfied with their jobs than those working in large firms, although they generally work longer and earn less.

Jones says being your own boss is the main attraction, followed by flexibility. Business owners work longer hours, but they choose them.

While it is difficult to quantify the failure rate of small business — some research suggests that as many as 50 per cent fall by the wayside within their first five years — there is no question that business owners take huge risks for their piece of the economic pie.

“They take risks that most of us aren’t prepared to take, and then they face challenges that would make most of us rip our hair out,” Jones said in an interview. “But there are also huge rewards.”

Helmut Pastrick, chief economist at the Credit Union Central of B.C., notes that business incorporations continue to rise and business bankruptcies remain on a downward trend.

“The business sector is expanding, businesses are profitable in aggregate, and business is growing,” Pastrick said. “It is certainly reflective of the improved state of the economy.”

Improving the productivity of small business remains a major challenge, says Wellington Holbrook, Vancouver-based senior vice-president of the federally owned Business Development Bank of Canada.

“Small business has been performing very well across the country, but is facing bigger risks in the economy because of the emerging economies in China and India,” Holbrook said in an interview.

“One number I saw recently suggests that Canadian small business is investing about 35-per-cent less in improving productivity than their American counterparts.”

The Business Development Bank offers financing “for the 10 per cent of businesses that can’t get served 10 per cent of the time” by the banking and credit union sector.

It is a sign of the sector’s virility that BDC lending rose 23 per cent last year to $183 million from $148 million. Increasingly, that money is being invested in training and in more efficient machinery and equipment to boost productivity, Holbrook said.

© The Vancouver Sun 2005

It should outline your goals, pricing policy and sources of financing

Ray Turchansky
Sun

CREDIT: Ed Kaiser, Edmonton Journal Gordon Meeberg, director of Quickbooks Pay Roll Services, poses with the 2006 product lineup at Intuit Canada in Edmonton.

Starting a small business means having to make a number of decisions never faced before, but people can turn to numerous sources for help.

The preliminary steps include choosing a business structure and registering a trade name, which can be done at your friendly neighbourhood registration office for as little as $30 or $40.

Another key step is developing a business plan, which outlines your goals while detailing your marketplace, pricing policy to be competitive, marketing plan, sources of financing, facility and employee needs, and projects revenue and expense streams over a long period of time.

Such a plan forces you to focus your ideas and put them on paper, while providing a valuable tool to help obtain start-up financing.

Then you have to start implementing the plan. There are business licences to obtain, and perhaps zoning requirements to hurdle. You should consider what business insurance might be needed, to protect property and liability if you’re in a business open to lawsuits.

In fact there’s a battery of professionals you may need to select for advice — lawyer, accountant, banker, business consultant and insurance representative.

Most provinces and cities have departments set up to help entrepreneurs deal with bylaws and licences, including home-based operations.

One of the major causes for failure of a small business is a lack of capital during any of the three phases — start-up, ongoing day-to-day operations, and expansion.

Common sources of financing are bank loans, government loans and grants, venture capital and private investors (some known as “angel investors”) and others such as family.

Start-up costs may include renting or buying a building and equipment, legal and advertising expenses, plus obtaining opening inventory. Banks will make loans for such costs depending on your business plan, and are influenced by how much of your own money you are investing.

Reduced-rate loans may be obtained from the Federal government’s Business Development Bank of Canada (BDC). The federal government also partners with private-sector lenders under the Small Business Loans Act to provide up to $250,000 in loans to companies with less than $5 million gross revenue in a year.

You can find out about federal government business financing through the BDC, Foreign Affairs and International Trade Canada, Industry Canada, and Human Resources Development Canada, in the blue pages of your phone book.

Or your public library may have any of the following directories: Canadian Government Programs and Services, Canadian Small Business Financing and Tax Planning Guide, Industrial Assistance Program in Canada, Guide to Federal Programs and Services, and Canadian Reference Directory on Business Planning and Funding.

You can also check the blue pages of your phone book for information on provincial government loans, grants and subsidies.

Once a business is started, a significant part of the day-to-day and especially fiscal year-end operations is accounting and bookkeeping. This involves billings, plus recording income and expenses.

An Ipsos Reid survey of 1,700 small Canadian businesses showed 36 per cent still manually put pen to paper using ledgers or use computer spreadsheets such as Excel, 20 per cent use government software, and another 14 per cent turn to accountants. The balance of respondents reported “other” or “outsourced.”

Douglas and Diana Gray, in their book The Complete Canadian Small Business Guide, cite accounting fees from $40 to $250 an hour, with cheaper rates for bookkeeping and higher rates for complex tax advice.

Thus, a growing number of small businesses are using computer software programs, such as Quicken or QuickBooks by Intuit Canada, Simply Accounting and MYOB (Mind Your Own Business).

“At the outset when a business is small, there’s a much greater propensity to use an accountant,” said Gordon Meeberg, director of QuickBooks payroll services. “They’re so busy focused on trying to get their business running, they don’t feel confident about their own ability to handle it. They have this notion that bookkeeping is very complex and scary. Virtually all of them outsource their year-end stuff.”

Small Business Report 2005

© The Vancouver Sun 2005

It comes with a lot of costs, while sole proprietorship offers many tax writeoffs, expert says

Ray Turchansky
Sun

CREDIT: Greg Southam, Edmonton Journal Jim Yih, of Core Financial in Edmonton, says with a partnership owners can spread the risk and have greater access to capital. But he advises protecting yourself.

The first and often most important questions people ponder when starting up a small business are which structure to pick and how to pay themselves.

Basically there are three structures –sole proprietorship, partnership and incorporation — and each has its pros and cons.

“I think there’s a real perception that incorporation is so much better, and I think people have to be very careful about that perception,” said Jim Yih, of Core Financial in Edmonton.

“There are a lot of times when incorporation doesn’t make sense right off the start. A lot of times people should try the sole proprietor route just to see if it’s successful, because there are lots of costs with incorporation. People think you’re getting all these tax benefits, but you’re getting a lot of tax benefits with sole proprietorship in terms of write-offs.”

Sole proprietorship and partnerships are similar in that the owner or owners assume unlimited liability for company operations, and the structures have no legal status.

Advantages include low start-up, legal and accounting costs, plus little government regulation. Disadvantages include unlimited personal liability for the debts and obligations of the business, difficulty in raising capital, little flexibility in paying yourself, and few options for succession.

With a partnership, you can share skills, spread the risk of the business, and have greater access to capital. Conversely, there can be disagreements in the running of the business and disbursing profits, as well as difficulty in getting rid of a partner and dealing with succession.

“Make sure that you walk into it with your butt protected,” said Yih. “I see more problems with partnerships, because at the end of the day it’s very difficult to make things equal, and sometimes equal isn’t fair.”

A corporation is a separate legal entity with an unlimited life expectancy. The major attractions are that debts and liabilities are usually limited to corporate and not personal assets, and that tax can be deferred using lower corporate tax rates.

Yih notes that while incorporation may limit liability in the case of lawsuits, “if a corporation is borrowing money from an institution, they require a personal guarantee anyway.” Furthermore, members of a corporation’s board of directors may be open to legal charges.

Among disadvantages are the legal fees to set up a corporation and accounting costs to prepare annual corporate financial statements and tax returns. Costs usually start at around $1,500 and can quickly become tens of thousands. Also, non-capital losses can only be carried back three years or forward seven years to be claimed against business profits, thus they may become trapped within the corporation. On the other hand, proprietorship or partnership losses may be claimed against personal income.

Profits earned by proprietorships and partnerships are taxed as personal income of the owner or owners.

Profits earned by corporations can stay in the company or be distributed to the shareholders in the form or salary, dividends, repayment of shareholder loans, capital dividends or repayment of capital.

The system, called integration, is designed so that the corporate tax a firm pays plus the personal tax paid on salary or dividends should total about the same as if the money were earned by a proprietor without a corporation. The tax advantage comes if you take little money out in salary or dividends and leave profits in the corporation to grow it.

“As a business owner one of the dilemmas is how do we derive our income, what is the best split?” said Yih. “One advantage a corporation does have is control of how that money is drawn out of the company, whereas a sole proprietorship doesn’t have that much flexibility. I can choose to take dividends one year, I can choose to take a salary, I can choose to take shareholder loans.”

How you withdraw money is important.

If you take a salary, it is earned income that creates RRSP contribution room, and the salary is deductible to the corporation. If you take dividends, the dividend tax credit reduces your taxes, but the dividends are considered investment rather than earned income and don’t create RRSP room, and the dividends are not deductible to the corporation.

One strategy is to pay yourself enough in salary or “bonus down” by taking a bonus before your year-end to reduce your corporate income to $300,000, the level at which the small business tax rate expires.

Generally $200,000 in annual revenue is suggested before incorporation.

Ray Turchansky is a freelance writer and income tax preparer.

Small Business Report 2005

© The Vancouver Sun 2005

Sun

An artist’s impression of the view from the North Shore looking into Whitecaps Waterfront Stadium, with downtown Vancouver in the background. WHITECAPS FC HANDOUT

I am very happy to see that Whitecaps owner Greg Kerfoot is spending money out of his own pocket to pay for this new soccer stadium.
   That’s in stark contrast to the stadium in Toronto that Maple Leaf Sports Entertainment will use, but that three levels of government will be paying for almost in full.
   I just hope that the city will fasttrack the stadium so it can be completed for the FIFA World Youth Championship, an event watched by millions of people around the globe.
   Canadians may not know it, but the World Youth Championships will be the biggest event to come to this town until the Winter Olympics.
   Brett Graham, Surrey
Stadium a winner
   I support the Whitecaps 100 per cent and want to congratulate owner, Greg Kerfoot, and Bob Lenarduzzi for their hard work in putting this together.
   I’m not sure what the protesters have to complain about.
   The stadium will be completely privately-financed and will be built on private land.
   Businesses in the area will certainly reap the benefits of having this stadium right on their doorstep. It can be used for some many great things, and will provide hundreds of job opportunities on the waterfront. This new stadium can only be a positive.
Javier Maltes, Port Coquitlam
Cat rescuer praised
Three weeks ago, I did a cat rescue with Bev Parent, who was fatally burned in a Surrey apartment fire last Wednesday. I found a starving stray cat and two kittens at a car lot on Kingsway. Bev came out and helped do the rescue with me. This woman was amazing. She took in unwanted and unadoptable cats. She gave them a chance when other agencies would just put them down. I can’t begin to imagine how such a caring, loving person could suffer such a horrific death and lose 70 of her friends in the process. I hope all cat-lovers who hear about this will donate to Aid to Animals or to other animal rescue agencies. She was a rare type of woman.
Alex Axsen, Vancouver
No breaks for Smart cars
   Never have I been so incensed by a proposal as I am with the suggestion that Smart cars be given a break with parking.
   I have been driving a fuel-efficient diesel Jetta for three years Do I get a break? No.
   I’ve driven motorcycles for 35 years, and not only do I not get a break on parkades, but I’ve been threatened with parking tickets if I park more than one motorcycle in a parking space, even though there is room for four or five motorbikes.
   I have been sworn at by car drivers who wanted me to pull up to the end of the parking spot so that they can squeeze in. Guess who would get the ticket?
   I insure four vehicles, am an excellent driver and have ICBC’s most favourable rate.
   Perhaps I should move to the West End and buy something from Mercedes Benz before I can get some consideration
   Garry Cook, Surrey
Judge got it right
   By freezing the assets of the BCTF, B.C. Supreme Court Justice Brenda Brown has virtually shut down the most politicized labour organization in B.C.
   By stopping the BCTF from using their financial resources, Justice Brown was shrewd and innovative.
   Given the BCTF’s multi-milliondollar war chest, what would seem like a huge fine, such as $1 million, would have done very little to settle this illegal action and bring the BCTF back into compliance with the law.
   Hats off to Justice Brown for doing what she can to resolve this dispute.
   Ron Johnston, Campbell River
Respect essential teachers
   Why is it that teachers continually get negative press?
   They are consistently shown in a poor light: They are the lawbreakers; they are the rebels; they are poor role models; they are unworthy of respect and they are unworthy of any real consideration.
   And yet they are “essential.”
   If indeed they are essential, shouldn’t they be treated as such instead of being trampled on, disregarded and disrespected?
   Hypocrisy? You be the judge.
   Rob Olstead, Port Coquitlam
Don’t hate lefties
   I’m intrigued by the animosity I read toward individuals such as Michael Moore and Che Guevara.
   Since when did it become intolerable to question whether corporations are trading their dignity for cheap labour (Roger and Me), if America’s pro-gun policy is truly making it safer (Bowling for Columbine) or if George Bush’s war in Iraq is really in our best interest (Fahrenheit 911)?
   We should not be too quick to criticize people trying to create equality, protect our environment, question authority and speak for the voiceless.
   

© The Vancouver Province 2005