Fiscal Year End

December 31 in most countries (I would say all, but I know that if I do so, someone will point out that some country no one has heard of before doesn’t fall into this group) is the fiscal year end for individuals. That means, as an individual or as any non-incorporated entity, you close your book for each year on December 31. This means that you are trying to get as much processed in December as possible, in order to have your year-end statements look as good as possible, and give you another year to worry about next year.

You may also be ramping up your charitable donations, to help reduce your taxes for the past year. You might be sending out invoices for work done so that you can declare the income as part of the past year. Alternatively, you may be deferring sending some invoices so that you’ll have another year to pay taxes on that income.

Paying Taxes

Paying Taxes

If you’re incorporated, then you have some other options. A corporation, at least here in Canada and in the United States, can declare a year end any time it wants, although generally corporations will stick to the last day of a month. For an individual, what this means is that your dividends are declared against the year in which the corporation announced it would pay those dividends. If the corporation had a year-end on November 30, you would have to pay those taxes immediately in April. If the year-end was on January 31, however, you would have 15 months to pay those taxes.

You can take this a step further. You can own a holding company, which is jointly held with someone else (for example, your spouse). This company owns shares in another company, which pays dividends. Your holding company could then have a year-end in January, letting you defer taxes for 15 months. If the company paying the dividend has a year-end at the end of February, then you would have 26 months before taxes were due on that income.

Naturally, you could have a dozen such companies, each letting you defer paying taxes for another year.

There’s a catch, however, called GAAP – Generally Accepted Accounting Principles, and the Anti-Avoidance Provision. What these two rules state, in essence, is that you can’t do certain things which might follow the letter of the law, but serve no purpose other than to avoid paying taxes – that is, there is no other reason for you to be doing whatever it is you’re doing.

If you’re a relatively small operator, you may want to set up a holding company to allow you to share your income with your spouse to some degree. Setting up additional tiers, though, could spell trouble in the event of an audit. As you get larger, and set up relationships with other people and companies, however, you may be able to create additional levels as a way of organizing your income.

Warning, however – don’t even think about trying any of this without consulting your accountant. The tax laws are constantly changing, and what holds true today might not be true next year, or next month. At the end of the day, if your accountant is not comfortable with your strategy, it’s their advice that should hold, not mine. After all, they know more about your situation, and the laws that apply where you live.

Holiday Season Activities

Working holiday

Working holiday

Christmas and New Year’s fall on Fridays this year, which means for many people, they are not working from Thursday afternoon on December 24 until Monday morning, January 4. That’s 10+ days of not working. Even for those who do go into the office in the week between Christmas and New Year’s, there is little work getting done, as people are in the holiday spirit.

As a small business owner, though, you may not have the luxury of being able to take off 11 consecutive days. My own plans include a significant amount of work to get done while everyone around me is in party mode. No, I’m not being a party-pooper, but when I have some time to spare, I’m getting projects advanced, meeting with what clients are available, and setting myself up to have an easier January by being prepared.

If you are able, then you might want to consider joining me in this. Sure, you can’t work with your suppliers (they’re on vacation somewhere warm), nor with your clients (they’re busy closing out the books for 2009). But you can work to figure out where your business is going, and how you can adapt to changes. The good thing about getting a break like this is that it lets you catch up, while the world around you slows down to party.

It’s a once-a-year opportunity to get ahead. What are you doing to help yourself for next year?

Readers Respond: Questions to Ask About Your Business

Recently, I wrote about various questions to keep asking your business, and asked my readers for their take on the questions, and suggestions for additional questions. Here is an extract of what they had to say. The list was actually a fair bit longer, with over 30 additional questions. What I provide here is a sampling of those answers, grouped by focus point.

Customers and Clients

  • How do I win more customers? (James Wilson) This is one of the biggest questions to be asking yourself, because your existing customers can only bring you so far, and if you want your business to grow, you will need to find new customers.
  • What is the profile of my best customers? (Mike McRitchie) In order to attract new customers, you need to know what kind of customer is ideal for your business.
  • Am I looking after my existing customers? (Michael Greenwood) We are often sidetracked by growth, and forget to take care of those who made the growth possible. Don’t forget about your current clients when searching for new clients.

Products and Services

  • How do I create excitement for my product? (Dave Maskin) If your product is boring, you’ll have a hard time selling it. Make sure that you know how to spin your product or service so that it looks interesting and exciting.
  • Are we delivering value consistently? (John Cameron) Make sure that as your company grows, you continue to deliver the same or better quality that your customers have come to expect from you.
  • How should I price products? (James Wilson) Profits are a function of having the right price and keeping your expenses down. Make sure that you spend enough time figuring out the right price, and that you adjust for changes in your costs on a regular basis.


  • What are my benchmarks and how do I actually stack up against them? (Shelly Searcy) How do you measure your success, or advances? Where do you stand at any given point in time?
  • How do my numbers stack up to the past and others in my industry? (Mike McRitchie) It’s important to know where you stand in terms of your history and your competition. This information can help you plan for growth, and to determine how best to capture more of your market segment.

Growth and Goals

  • Am I really being realistic in each of my business assumptions? (Wallace Jackson) You can only grow if you are honest and truthful with yourself. Make sure that any assumptions made about your business are as accurate as possible.
  • Are the values and purpose and vision clear for my business? (Steve Rucinski) Your business will grow in the direction you desire only if all the people involved understand what it is your business stands for.
  • Where and to whom can we profitably deliver more value? (John Cameron) Growth is done by expanding either your services or products, or by expanding the size of your portion of the market. Do you know what your options are?
  • How much growth can my cash handle? (Mike McRitchie) The most limiting factor to growth is likely the money you have on hand. Make sure you know how much cash you have available, and what your options are for acquiring more cash, either via an investment or as a loan.
  • What is keeping us from achieving our most ambitious goals? (Adrienne Creger Jandler) You haven’t yet reached your goals, but if you understand what it will take to reach those goals, then you can and will succeed.

In summary, you can reduce all these questions to just four, as phrased by Karen Sherr:

  1. What am I doing that I should be doing?
  2. What am I doing that I shouldn’t be doing?
  3. What am I not doing that I should be doing?
  4. What am I not doing that I shouldn’t be doing?

All the questions about your business come down to those four, to ensure that you’re doing the right things, none of the wrong things, and you haven’t missed anything. The rest is just details.

Managing Accounts Receivable

Cash is king

Cash is king

Of major concern to a significant number of business owners is how to manage their accounts receivable, or, in other words, how to ensure that their clients pay promptly before the accounts payable are due. Before delving into some answers to this question, I’m going to start with a couple examples.

  1. Teresa is the owner of a consulting firm that provides custom advice to its clients. She has 9 consultants working for her on various specialty projects. Since Teresa is paying her employees for a standard work-week, she can handle about 400 hours of work per week, less any administrative overhead. If she pays each employee $1000 per week, then she needs $10,000 of revenue coming in each week after her other expenses.
  2. James is a sole-proprietor who manufactures clothing. He spends about $5,000 per week in supplies, which he converts into clothes to be sold to various distributors. James has determined that he makes a profit of about $5,000 per week, not including his labor.

In both cases, the issue is that there is a lien on the business owner to satisfy certain fiscal obligations, whether salary or suppliers invoices. Assuming that both Teresa and James planned wisely, they have a small surplus of funds which they use to help with cash flow. However, if either is not careful, they can end up without money in the bank and the debtors calling.

  1. Teresa might win a lucrative contract for an additional 40 hours of work per week for 6 months. While this sounds like it’s time to hire another employee, Teresa must remember that the new client is not going to pay until after the work is done (or at least not fully pay until then), meaning that the salary for the new employee is not actually covered by the work they’re doing.
  2. James might try to double his volume, but with his distributors paying their invoices 30 days after delivery, James must find a way to balance his suppliers against the delay in the cash flow.

What should be noted, of course, is that in both cases, the problem with cash flow is based on the fact that you owe money today, and are owed money tomorrow. While at the end of the week you’ll have enough money to pay all the bills, what are you going to do today?

Manage Cash Flow Constantly

Manage Cash Flow Constantly

There are, fortunately, a few options:

  • If you plan ahead, then you might be able to build a sufficiently large reserve of funds to allow you to expand at a certain rate. For example, either business owner could set aside 5% of their earnings each week toward expansion, once they’ve paid all their dues. To avoid the temptation to spend it on anything else, place it in a separate account, or, to make it somewhat profitable, put it in a short-term investment such as a 6-month GIC or a Money Market Fund.
  • You can get a short-term loan to get you over the initial delay. This will have a cost, but allows you to expand. This may be the best option for someone like James, who has a known debt (the $5,000 in additional supplies) and known accounts receivable ($10,000 from his distributors). Teresa could try this route, but she may have more difficulties with this since a new employee will require a salary for a longer period, and the time until the revenue comes in to pay for the salary is less certain.
  • The additional work can be contracted out to a temporary worker. This is specific to service-oriented businesses, in which a temporary employee can come do the work, and issue an invoice when the work is done. While Teresa may end up needing to front money she hasn’t yet received, the length of time she runs at negative cash flow is reduced. Additionally, if Teresa is careful, she can hire someone for a lower fee than her regular employees demand, thus increasing her profit margin in the process.

What both Teresa and James need to be constantly aware of is not only how much revenue is earned over time, but as of this moment, how much is owed, both coming into the business and going out. A well-run business will always try to increase the former while reducing the latter. This knowledge can assist in determining how and when you are able to expand your business to bring it to the next level.

Where Does Money Come From?

Among the most common questions asked by new business owners, or those contemplating joining the group are several amount money:

  • What’s the payoff?
  • How much money will I earn?
  • What’s the risk?
  • Where do I get investment capital from?

To address this, there are dozens of articles available that help you navigate these questions – from How to Fund a Startup, to The Money Map on Canadian Business. The answer to all the questions about where money comes from fall into one of the groups below:

  • Banks
  • Friends, Family
  • Government
  • Angel Investors
  • Venture Capitalists

However, the question that is not answered by these resources is Do you even need this kind of money?

There’s a saying It takes money to make money that is widely accepted to be true. Personally, I don’t believe it is true – there are ways to make money without pre-existing money. However, the trade off will be that you’ll work hard instead – but if you’re in business for yourself, you’re used to that.

Think of an imaginary person Paul. Paul wants to make money, and he does not yet have any. However, he has an idea for a program that he believes could be the next big thing. Because Paul’s skills are marketing, not development, he believes that he needs money to hire someone to build this program.

However, there are other ways to get someone to build the program. A student might build the program in her spare time as a side job, reducing the cost of development. Alternatively, she may agree to take equity in exchange for her efforts. Paul should seriously consider this option, because it reduces his risk. If he tries to borrow money, then he will have to personally underwrite the loan. This way, if the idea fails to materialize, he doesn’t owe anyone anything.

There is yet another way for Paul to launch his idea – he can start by working for specific clients, addressing their needs, and set aside some of the income from that work to pay for development. This will provide him with a small client-base once he does launch the product, and provide him with seed capital for any expenditures he might need to make. Additionally, working with real clients will provide him with feedback that he can then incorporate into his products.

What is being taught here is not that you don’t need money, but that the money may not be needed now. Sure, it would be nice to have a large office with a secretary, private kitchen, and seventeen employees building cool applications and selling them to eager fans. But you don’t need to start there – you can start with just yourself, and eventually, you may be the owner of a company with 17,000 employees in 20 cities around the world.

Think big. Start small.

Investing and Saving

For the average person with some money to invest, a recession can be a golden opportunity. As the economy slows, prices of stocks fall across the board, even for companies not directly affected by the cause of the economic collapse. As a result, for those who can afford to do so, investing at this time can translate to getting bargain deals on various stocks.

The catch, of course, is that such investments are still a gamble, and the wise investor does not put up money that they cannot afford to lose. Perhaps that is the explanation for the survey released by RBC which I was reading about on the 680 News website. In the last year, the survey found an 8% drop in the number of Canadians saving or investing for retirement.

The article, which first appeared in the Canadian Press, suggested that this might be on account of high unemployment, resulting in less disposable income. However, I don’t believe that this can fully explain the observations.

Canadian Unemployment Rates

Canadian Unemployment Rates

First, in recent months, the unemployment rate has slowed its rise, and may be falling, albeit slowly. Looking at the history of unemployment rates, you will notice that 8.5% unemployment is not up from 0% or 1% – it’s up from 6% or so, which is a difference of 2.5% and can therefore not explain the 8% difference in the number of people saving. While I don’t mean to belittle the numbers, and acknowledge that a 2% change in the unemployment rate is significant, it is not the determining factor here.

In fact, with rising unemployment, you might expect to see an increase in savings, as people try to create a larger buffer for themselves in case they too join the ranks of the unemployed. While those who are not employed are unable to save, it would be assumed that those with a job would try to be more frugal in order to protect themselves.

I think the real issue in this case is not any concrete reason for lack of investment, but a general lack of knowledge, and fear of the unknown. Yes, the markets seem to be falling, and are therefore perceived as a high risk. However, if you’re saving for retirement, short term fluctuations in the market are almost irrelevant, as over the course of 10 or more years, the market has always gone up.

What seems to point this out to me, and to highlight this issue, is the fact that not only are fewer people investing, but they are also not saving. This indicates that there is consumer confidence, in that spending has not slowed, and in fact, may have gone up. However, with all this extra money that could be saved and isn’t, it indicates a lack of understanding of the long term effects of investments.

Are You Getting Ready To Succeed?

With all the buzz about entrepreneurship, and running your own business, many people are getting ready to succeed at starting a new business and working for themselves. However, all the effort they are placing in preparing for this may be for naught – as George Bernard Shaw said, Those who say it cannot be done should not interrupt those who are doing it. The effort put into getting ready to do anything is not nearly as useful as the effort put into doing it.

Chris Brogan of social media fame writes:

I think we’ll see more solo people tucking in with bigger organizations. I also think we’ll see smaller groups banding together to form stronger groups, not just in marketing, but in any of the newer businesses out there.

This is reality. There is safety in large companies, in that they are better equipped to handle fluctuations in the market, in the demand for their products. A small business which does $50,000 in sales per month is going to be much harder hit by a 20% reduction in sales one month – a large business can absorb that more easily (at least in the short term).

What does this have to do with preparing to succeed? The fact that many people (myself included) do not want to live under the fear of their business going under. We like the security, we like shifting the risk to someone else. Therefore, before we dive into a new venture, we will work as hard as possible to reduce the risk as much as possible. But as Robb Sutton says, ‘One Day’ is too late.

At some point, you need to jump, you need to take some risk. All the time spent preparing could be better utilized by doing. Take the following as an example:

On the CBC show Dragons’ Den, Claire Copp of Vancouver, BC came on the show looking for an investment in her software product, Trader II. One particular point that Claire made was that she had been working on this program for 20 years and had yet to sell a single copy. Now, there are a lot of lessons that can be learned from her presentation, but I’m just going to talk about one. Claire Copp had spent 20 years preparing to succeed, instead of going out there, finding out if there’s a real demand for her product, how much people would pay for it. (As a side note, if you search for “Trader II” Claire Copp, the first two results are Dragons’ Den, and my other blog where I posted a review of the episode.)

Of course, Claire is an extreme case, but the lesson remains. If you want to succeed, then you need to act now. If you keep waiting until all the risk has been removed, you may find that you’re left with nothing at all.

Goals for 2010

It’s that time of year again. With the holidays fast approaching, it’s time to think about where you’re going in life, whether that be personal, professional, or any other aspect of your life. Many people make New Year’s resolutions, but how many of you actually follow through on those resolutions?

Some people dream of success, while other people live to crush those dreams.

Some people dream of success, while other people live to crush those dreams.

What I did last year was to post some of my professional resolutions for all to see. Whether or not that was a good idea is debatable. There is a study that shows that the more you share, the less likely you are to do. I don’t agree completely with that study, and so I’m going to do it again.

First, however, a follow-up to the goals for 2009:

  • Only one of my contracts from the start of 2009 is still in development, and it is scheduled for completion with two weeks.
  • I have not picked up one new contract per month, however, the past 3 months have been very good to me with 2 new clients and one returning client.
  • I haven’t taken any courses this year, but am in the process of learning PHP and the Zend Framework.
  • I have continued to use C# for some development, and am increasing my level of proficiency.

All in all, I feel good about what I’ve accomplished in 2009. While I haven’t met all my goals, I did strive to do so, and had I met all my goals, it would be an indication that I had not set my sights high enough. So, without further ado, here are my goals for 2010:

  1. Learn PHP and Zend to a degree of proficiency whereby I can construct an entire website based on those technologies in a reasonable amount of time (i.e. in under 250 hours for a fully-functional site, and not including the design of the interface).
  2. Launch the product I’m currently working on, Client Data Tracker, to beta in January 2010 and live to the public before the end of March 2010.
  3. Continue developing my consulting to the point that I am putting in 30+ hours per week in billable time on various projects.
  4. Complete the work required for KNIRL.COM and get the site up and running.

These are my goals that I’ll be using to measure my success against in 2010. What are your goals? How do you intend to measure success?