The end of the year is a good time to review long-term investments and mortgages.
New Year’s resolutions. So easy to make, so hard to keep. According to a Nielsen survey, the most common resolution for 2015 was to keep fit. A resolution to spend less money and save more was only the fourth most popular after lose weight, and enjoy life to the fullest. As we are about to enter 2016, perhaps we should all resolve to pay more attention to spending and saving and the effect on our investment portfolios and mortgages in the coming year.
Review Your Investment Portfolio
Review Your RRSP
For self-employed persons and those not in pension plans, the RRSP probably represents the principal source of retirement funds. As such, the capital gains and income generation should be monitored closely. Perform the exercise mentioned above on your RRSP portfolio to determine whether the future value of your RRSP investments will be sufficient when you can no longer contribute and have to roll the RRSP into a RRIF in the year you turn 71.
If you discover the calculated rate of return on the RRSP and your current level of contributions will not meet your investment goals, discuss the various options available to you with your investment advisor. Perhaps you will need to restructure the balance between equities and interest-bearing securities, increase the risk or increase your contributions. Keep in mind, however, that higher rates of return usually bring a higher risk of a loss.
Now is also the time to review your RRSP contribution limit to determine any unused amount. Do not forget that unused annual contribution amounts are carried forward. If you find a fairly large balance of accumulated contribution room, you and your advisor may be able to develop a strategy to meet your investment/retirement goals.
Funds can be withdrawn from a RRIF into a trading account or a TFSA.
Review Your RRIF
If you have already rolled your RRSP into your RRIF, review the RRIF portfolio using the procedure outlined above. There is a mandatory withdrawal rate based on a predetermined percentage. (This information is available from CRA or from your investment advisor.) Review the current value and rate of return. Remember that the withdrawal rate simply determines the portion of the RRIF that must be deregistered each year and brought into taxable income. It does not mean you have to sell that portion of your portfolio every year. In a self-directed plan, for instance, the taxable amount can be transferred in kind into a trading account and thus remain part of your total investment portfolio for future use.
Instead of having a trading account to receive the securities withdrawn from your RRIF, you could move them into a Tax-Free Savings Account (TFSA) if you have the room. Future capital gains and income within the TFSA are not taxable.
Review Your Mortgage
Reviewing your mortgage should be part of any New Year’s resolution. Look at the current balance and determine when the mortgage will be completely paid off at the current payment rate. Ideally, your mortgage should be fully paid before retirement so you do not retire still having to withdraw funds from your RRSP or RRIF to meet mortgage payments. Review the mortgage agreement and identify any lump sums that can be paid to reduce the remaining balance owing. Use an amortization table to calculate the number of years by which the life of the mortgage can be shortened by doing any or all of the following:
a) finding a better interest rate
b) changing the payment frequency from monthly to weekly, or
c) making a lump sum payment.
Work with Your CPA
Whether projecting income within your investment or retirement portfolios or calculating a strategy to reduce your mortgage, amortization tables will help you with those calculations. Work with your CPA to provide unbiased feedback on the choices available to you in your particular circumstances. The decisions you make now will impact not only your lifestyle but personal income taxes in the future.
Because lighting, heating and cooling represent 19%-25% of the cost of operating a commercial business, control of energy costs is essential to improving profit margins. A reduction of even 10% in these costs can produce a significant improvement. But, because Canada is located in a part of the world where temperatures can range from 40C below zero to 35C above, it is inevitably expensive to keep internal temperatures at levels needed to maintain comfortable working conditions through the changing seasons.
Setting the price point for your product or service is not simply the process of determining the cost of production then adding a mark-up. It is more a matter of understanding the price the consumer will accept as the value of your product or service and keeping the costs of production to a level that will give you a profit at that price.
The significant rise in the cost of equipment, vehicles, real estate, and inventory has prompted many businesses to increase business debt. Low interest rates, combined with the ability to obtain larger loans with extended payment terms, have allowed businesses to operate in a “business as usual” mode with less consideration for the actual cost of borrowing.
To give some idea of the effect of even low interest rates on an owner-managed business, the following key elements of most businesses have been put forward as an example of the effect of interest costs on a business. The effect of domestic borrowing has been added to show the full impact of current interest rates on the owner-manager. Since lending rates vary widely depending on a variety of factors such as risk, item to be funded and the term, and are usually negotiated, the interest rates used below have been chosen at random from Internet sources; calculations are approximate and for illustrative purposes only . All loans have been made effective June 1, 2017.
For those already thinking about their 2017 income taxes, the following summarizes some of the changes from 2016.
The use of cut-out and email coupons to create consumer awareness of your business and your products has been around for a long time, but their effect on your revenue and profit is notoriously hard to measure. Some marketers are now hoping to get around this problem by offering WiFi services to their in-store customers to get them to stay within the store environment. This idea is based on the well-tested principle that the longer a person stays in the store, the more likely they are to buy something. In fact, a recent survey has shown that 62% of customers will linger longer in shopping environments that provide free WiFi. The same study showed that half of those customers actually spend more money while they remain in the store.
“The government gave me money back” is a common phrase often heard after the April 30 or June 15 filing deadline. The truth is that the government is not being charitable; it is only refunding the tax that you or your employer had overpaid throughout the year.
Because the rate of tax withheld at source throughout the year may be different than the tax rate applicable to your actual taxable income (after taking into consideration all other income and deductions), you might have remitted more money to Ottawa than was necessary. Your "tax refund" is the difference between your remittances and your actual tax liability.
One of the biggest misconceptions is that, upon filing of their personal income tax returns, people with a lower income will likely receive a tax refund while people with a higher income will usually end up owing tax. This is not necessarily true because the tax refund/liability is not based on your income level but rather on the difference between the remittances paid compared to the actual tax liability.
Fred Tarasoff loves music. In fact, he used to own a record store, but had to go out of business in 1989 in large part because of inventory losses through shoplifting. Then he was assaulted by a shoplifter while he was running a health food store. Since that time, he has devoted himself to researching shoplifting and the retail industry in order to develop training programs to prevent and detect shoplifting. He currently works closely with law enforcement, industry associations and security firms to fight this crime. In the course of this work, Mr. Tarasoff has developed a simple way to calculate the losses suffered from shoplifting.
According to Mr. Tarasoff, even if your business has excellent controls, you can expect losses will approximate 1% of gross sales. Thus, if your retail store sells $600,000 a year, at least $6,000 will be missing from your sales figure. But, if your business does not have good controls, losses could be as high as 8% or $48,000 on $600,000 of gross sales. If your store works on a 20% gross margin your business is out $38,400 (i.e., 80% the sales loss of $48,000).
Liberalisation of Canada's marijuana laws appears to be imminent. The Cannabis Act is currently expected to become law in 2018 and will decriminalize certain activities and make marijuana more widely available under a controlled production, distribution and sales system. Whether or not you agree with the intent of the proposed Cannabis Act , the loosening of the laws governing the sale and use of marijuana raises important questions for businesses regarding health, safety and legal liability.
Most provincial and territorial occupational health and safety regulations require an employer to take all reasonable means to ensure the protection of their workers. The employer also has a reasonable expectation that employees should not be impaired on the job. The question then becomes when are employees impaired and whether, if they believe themselves to be impaired, they are required to inform their employer.
Our need for passwords to access everything in our life has become pervasive. Every agency, every computer, every credit card, every smartphone requires an exponential explosion of letters, numbers, and symbols to secure all information from hackers, whether it is personal data or corporate information.
To complicate matters, it is no longer permissible (or advisable) on many sites to use a simple password that is easy to remember, such as a word or name. Instead you must create a password with numbers, special characters, upper and lower case letters, and a minimum length.
One study suggests the average individual has at least 25 Internet-accessible accounts with passwords, while other sources suggest that number could be substantially higher. Is it any wonder that most individuals will, whenever possible, assign the same password to as many accounts as they can? Hackers know this and once they compromise one account, it often doesn’t take long to gain access to your other accounts.
Use Different Passwords
The best means of protecting your personal information is to use a different, unguessable password for every account. Most password management software includes the ability to generate passwords, and then store them for you. The beauty of using a password manager is that you only have to remember one password to access all of the passwords you need to remember.
High-end password managers support multiple languages and are able to tie in passwords with hundreds of websites. Two-factor authentication is usually required (and should be!) to protect data in the event someone finds your password and logs in on your device or tries to log in on a new device that is not registered.
Setting up a password management app generally requires you to download and install the software and add browser extensions for each browser you use. If you use multiple devices, you will need to load the app on each one. To set up an account, you will use your email address and will need to come up with a master password or passphrase (i.e., one long, hard-to-guess password to rule them all).
One primary password gives you access to all your passwords.
After creating the master password comes the arduous task of entering data about the various accounts or sites you need to access.
Some password managers will import your user names, auto fill standard information, and pull passwords from your existing browsers, although, if you haven’t saved the passwords in the browser, the data will have to be entered manually. The password manager will typically assess the strength of your current password, and prompt you to generate a new, stronger password (typically at least 16 characters) for that site. Experts also suggest that you revisit your security questions and determine whether you want to change them as an added security measure.
Don’t Forget Your Master Password
Unlike a typical website with a “forgot password?” feature, the master password is often not recoverable in that way. There are very few password manager systems that provide a “hint” to enable you to try to rebuild your password. For most, you will have to start all over and rebuild the passwords for every site and every account keystroke by keystroke. Commit your master password to memory; do not click “remember my password” for your master password; typing it often will help you to remember it.
Most of the providers of password manager software provide free trial subscriptions; several offer a limited version of their software for free, with the ability to upgrade for additional features and support for an annual fee. Freebie options aside, password manager services typically range in price from $20 to $60 annually.
In Case of Emergency …
If a person is incapacitated or dead it will be impossible for someone else to access the accounts. It is important to ensure that the software used provides the ability to set up an emergency contact to inherit your passwords. Some providers allow you to set a waiting period before a trusted individual can access the codes so that the accounts cannot be accessed while you are alive. If someone tries to access your accounts, you will be notified by email. Other providers allow you to designate specific accounts, such as the business account, that can be accessed by specific people, such as your business partner, or to designate personal accounts to a trusted relative or friend.
Large Benefit for Small Cost
Strong passwords are a necessity for everyone, and we all tend to use passwords that are easy to crack; this makes us easy targets for nefarious people looking to steal our information, money or identities. Using a password manager is an inexpensive way of ensuring access to the ever-growing number of sites we must access in our interconnected world while making it difficult for anyone else to gain access to our personal and financial information.
No matter what the economic conditions, some business worries never go away. Here are a few tips on how to handle some of these eternal problems.
Customers will continue to extend payments over 90 days.
Understand your cash flow. At the end of each week, review accounts receivable, and accounts payable and make sure you know what you must pay in withholding taxes. Do not use your source deductions to pay suppliers unless those deductions are actually in the bank. Send requests for funds to suppliers before the end of the month.
Overworked and underpaid will continue to be the mantra.
Learn to pace yourself. Work to make money not save money. Work at what you do best and delegate the rest. Consider that if you work 2,000 hours per year and your business has sales of $400,000, you are effectively generating $200 of revenue per hour. Ask yourself why you are trying to learn how to do something a subcontractor can do in a day.
Maintaining Customer Base
Maintaining clients while working to get new ones is going to be a challenge.
In tough times, even long-time customers may ask you to cut your costs or they may cut back their orders. Review the profit on your best customers, not just their sales volume. Visit the customer and find out their expectations for the coming year. Consider limiting services to marginally profitable customers.
Finding and keeping good employees is never easy.
Older employees may retire and good employees may leave. New, inexperienced employees do not solve short-term problems.
Happy employees are loyal and productive. Be approachable. Let employees tell you what they need. Employees always appreciate a bigger pay cheque, but a good working environment and feeling valued will also go a long way to keeping employees.
The cost of everything will continue to rise.
Capital asset costs, fuel, property taxes, light, heat, power, insurance, and maintenance will continue to rise and put pressure on your cash flow. The same cost pressures will also affect the standard of living of your own family and the families of your employees.
Evaluate all aspects of business costs and perks. Look at discounts, value added and other incentives provided to clients. Review perks to employees and determine whether there are more economical solutions that will retain the good will of the employees but not put more pressure on your cash flow.
Technology and Changing Demands
Keeping up with new developments will be a challenge .
Changes in technology, process, or client needs require training and financing to transition from the tried and true. Budget for the inevitable or you risk being outflanked by the competition.
Social media is changing the entire marketing process.
Marketing and Advertising
Connecting with customers will continue to be a challenge.
Maximizing your brand is difficult at the best of times; unfortunately, social media is making the entire marketing process even more problematic. Analyze your market and decide whether the best way to reach potential customers is: one-to-one contact, social media, online advertising, television, radio, newspapers, or magazines. You may find that more and more dollars have to be spent to create a cross-media presence that provides the same information without any guarantee of a return on investment.
Consider a short-term contract with a marketing specialist to review your company and its client base to help determine the best combination of media to reach your target market. Then, develop a plan to deploy your advertising budget to the appropriate media.
Managing all sectors of the business will continue to be a challenge.
Managing sales, manufacturing, ordering, marketing, human resources and administration as well as dealing with the considerable number of regulatory agencies will continue to become more complex. Trying to do everything yourself will undoubtedly lead to failure in one or more areas.
Control your business by managing rather than doing. Find the best person to run each particular part of the business. Define their responsibilities with a detailed and accurate job description and schedule regular reports. This will enable you to understand what is happening within the organization, solve problems and improve operations. Have faith in your subordinates.
Red tape is and will continue to be the nemesis of small business.
Research suggests that these compliance issues consume eight weeks of employee time per year.
Because collecting and providing information to governments and regulators cannot be avoided, owner-managers should institute in-house procedures and write manuals. Reduce the use of employee time and associated costs by purchasing reporting software. If you do not have in-house expertise, arrange for a third party to prepare regular reports. Filing reports correctly and on time eliminates the cost and stress that follows from non-compliance.
The size and complexity of these and similar issues will move forward in lockstep with the business. Analyzing each potential conflict area and developing a process to stave off potential problems is an excellent offensive tactic that will lessen the cost and uncertainty of moving forward for the balance of 2017 and beyond.