Going green is not a passing fad.

Greening of the environment should, by now, be the norm as everyone recognizes the need to control our use of the earth’s limited resources and thereby reduce our impact on the ecosystem.

Owner/managers of small businesses may ask how much they contribute to greening of the environment when their individual operations are so small. When one considers, however, that small businesses number in the hundreds of thousands across Canada and are collectively major users of resources, it becomes clear that the combined efforts of all businesses, including the small enterprises, will have a significant impact on making and keeping the world greener. The stumbling block seems to be in how to get started.

Look to the Leaders

Most major corporations have already designed, refined and adopted methods to green their organizations. The task is not easy but perseverance has created an unexpected side benefit – an improved bottom line. Small business can benefit from the experience of larger corporations by adopting initiatives that have already proven effective. 

The objective of going green is to use energy in smarter, less wasteful ways. Greening starts by determining where the environment is impacted and if change makes economic sense. On the job site, one will have to look at the cycle of production: products, processes, raw materials, staffing, how waste is handled, etc.; at the front office one will have to look at office procedures: invoicing, printing, advertising, meetings and the like.

Efficiency and Effectiveness

An efficiency-and-effectiveness review of each stage of any process should be able to determine where major costs in time and energy are incurred. For example, if the suppliers provided the required supplies to a building site on time, would the number of times staff needs to return to the job site be reduced, thereby cutting gas consumption and staff time, thus increasing the profit on the project? 

Each small business must understand the symbiotic relationship between itself and other businesses. A small-business green program involves staff, clients, regulatory authorities and suppliers as stakeholders in each other’s prosperity. Indeed, large businesses that have embraced green have discovered many benefits from working with their stakeholders. The following are some of the benefits:

• a branded product or service that allowed expectation pricing from buyers who respect green;
• reduced costs through analysis of wasteful procedures;
• reduced resource use; 
• just-in-time inventory management reduced the need for excess inventory, cut down on the need to move inventory in the warehouse, lowered costs for repairs and maintenance and simplified paperwork. Employees were now freed up for service and production. By understanding inventory needs, suppliers improved shipping schedules and reduced their own costs. Reduced costs meant less corporate tax, less payroll tax, less HST and reduced cash-flow requirements;
• public relations benefits similar  to those attributed to businesses that sponsored cancer drives or supported  local amateur athletics;  
• as green operating efficiencies embedded within the company, the income statement started to look better, return on investment increased, retained earnings improved and cash flow strengthened. Existing and prospective clients became more confident in the business’s long-term viability.  The better financial position also reduced dependency on financial institutions and conversely, when funds were needed, a better balance sheet from which to negotiate lines of credit.



Mission Statement

Essential to this process is a realistic mission statement that outlines your company’s green objective. A mission statement that indicates you plan to reduce your dependency on fossil fuels to zero sounds noble, but, a more realistic vision might be: “We will reduce our dependency on fossil fuels by 50% within five years.”  Perhaps your business might work only with suppliers who use recycled products, or reduce on-site waste to zero. Whatever the goal, it must be achievable within the economic limits of your business.

Involve Staff

Staff must understand their role in meeting company objectives. Interdepartmental lines of communication must be open at all times since green issues cross functional boundaries. It makes little sense, for instance, for the warehouse to purchase electric forklifts to replace propane forklifts if the electrical service must be changed and finance says the budget can’t handle the cost.

Train Staff

Your consultant will want to establish a training program to explain the green process and how everyone must be involved and committed to the long-term transformation of the business.

Review, Analyze and Change

As the process goes forward, progress must be reported to a central coordinator for review and analysis to ensure all areas are moving forward according to a timetable. When areas are “out of sync” with the end goal, the process needs to be reassessed and any necessary changes reviewed, discussed with all team members, and documented for future reference.

Kermit Knows Best

Whether going green is for your children, your grandchildren or the bottom line, the reason is not as important as the end result and the end result must be green.

As Kermit the Frog from Sesame Street famously sang: 

When green is all there is to be, it can make you wonder why, but why wonder. I am green and it’ll do fine. It’s beautiful, and I think it’s what I want to be.

Starting your own business while still gainfully employed may offer many tax benefits.

Assume for a moment one of the following scenarios:

1. You have a good job, make decent money but the rumblings in the workplace suggest there may be layoffs and you start to wonder if it is time to strike out on your own.
2. You have always had the desire to start your own business.
3. You are a few years from retirement and are looking for new challenges.



Become a Sole-Proprietor While Still Employed

To understand the advantages of becoming a sole proprietor while you are still employed, you must first understand the basic 2011 tax brackets and rates. (Only federal rates are provided for ease of explanation, but rest assured that the application of provincial rates simply enhances the potential income tax savings.)

2011 Tax Brackets and Federal Tax Rates

• 15% on the first $41,544 of taxable income, +
• 22% on the next $41,544 of taxable income (on the portion of taxable income between $41,544 and $83,088), +
• 26% on the next $45,712 of taxable income (on the portion of taxable income between $83,088 and $128,800), +
• 29% of taxable income over $128,800.

As is evident, the progressive tax scale requires the taxpayer to pay a higher percentage of tax on the portion of taxable income over a certain dollar amount. Thus, if a taxpayer earns $42,544, the additional $1,000 earnings will attract the base amount of federal tax of $6,232 (15% @ 41,544) less the savings due to tax credits, plus an additional 22% or $220 when the taxpayer moves into the higher tax bracket. This $220 liability is 7%, or $70, higher than it would have been had the income been taxed in the lowest bracket.

Losses

Most individuals start a business with a reasonable expectation of making a profit, but, as is the case in most start-up businesses many individuals experience losses for a period of time until they are fully established. Fortunately, the Income Tax Act permits losses from self-employed ventures to reduce the income earned from employment income, thereby potentially dropping the taxpayer into a lower tax bracket. Self-employed individuals are often entitled to many deductions not available to salaried employees.

How Losses Work

The type of business will determine the eligible deductions that can be offset against revenue earned within the business and therefore will have an impact on the amount of business loss available to offset against salaried income. The following are some of the allowable deductions. While similar deductions may be available to employees, these are generally more restricted.

a)        All purchases of material and supplies consumed in the making of a product.

b)       All purchases of machinery, equipment, furniture, electronic devices and all other capital items used in the business are deductible within guidelines established in the income tax regulations. Deductions are allowed against expenses over a period of time as set out under capital allowance rates.

c)        Place-of-residence deductions are claimable expenses if incurred to earn income. Property taxes, mortgage interest, utilities as well as repairs and maintenance are all legitimate deductions when based on usage attributed to the business. Taxpayers would do well to consult with their Chartered Accountant to ensure that the at-home expenses are allowable and reasonable given the business conducted and the portion of their home used to conduct business operations.

d)       Vehicle expenses: keep detailed records of the kilometres driven in pursuit of business income, especially if the vehicle is used to drive to your regular place of work.

e)        Interest and other charges on business loans and credit cards, and bank charges, if incurred in the pursuit of profit. It is normally advisable to have separate business bank accounts and credit cards to establish that expenses were not incurred for personal benefit.

f)        Working-age children and spouses can be paid a reasonable amount for work performed in earning income for the business.

The taxpayer’s objective is, of course, to find a tax bracket that is the lowest possible based upon the progressive scale shown. Starting your own business may allow you to reduce your taxable income by offsetting losses from self-employment against income earned from regular employment.

If annual revenue from sales and services amounted to $20,000 and expenses, such as the ones above, totalled $35,000, the taxpayer would sustain a business loss of $15,000.

If the individual’s taxable income from all sources before the application of the business loss was $50,000, the wage earner could expect to pay federal income taxes of 15% on the first $41,544 ($6,216.60) (before considering tax credits), plus 22% or $1,860 on the remaining $8,456 for a total federal tax payable of $8,076. In that the Income Tax Act permits the self-employed taxpayer to offset the business loss against earned income, the $15,000 loss would reduce the taxable income to $35,000 ($50,000 – $15,000). The taxpayer would then be taxed in the lower tax bracket of $35,000, where the tax rate is only 15%. The personal federal income tax would now be $5,250 ($35,000 @ 15%) (before considering credits) and a potential refund of $2,826 ($8,026 – $5,250).

Tax Loss Benefits

Self-employment losses, when offset against regular employment income, will provide tax benefits in that the income tax deducted by your employer will be refunded to you, in part, as your taxable income is reduced by the losses incurred in your business. Nevertheless, do not run your business simply to incur losses that may be offset against earned income since even at the highest tax rate you only receive a percentage of the overall loss as a tax refund.

Furthermore, if you never turn a profit, all your losses could conceivably, in some circumstances, be denied by the CRA, using hindsight, on the basis that the business is a hobby with no expectation of profit.

Ask Yourself These Questions

Significant questions to consider in the decision to start your own business while you are employed:

• Will my current employment allow the time and effort required?
• Is there a term in my employment contract that prohibits me from carrying on another business?
• Is there sufficient cash flow or lines of credit to get a good start?
• Is there sufficient space at home or will another location be required?
• Is it possible to hire members of my immediate family?
• Will the business support my lifestyle should T-4 income disappear?



A Word from the Wise

As in any new venture, an individual should seek the advice of those who have gone before. Talk with people who started a business while still employed. Their insight may be invaluable.

Naturally, your Chartered Accountant can help with advice concerning record keeping, government forms and regulations, deductions that will be allowable, and the impact of those deductions on your current taxable position. Further, your CA can apply various loss and profit figures against your earned income to show the combined impact of both federal and provincial income tax on various “what if” scenarios. This will allow tax planning strategies to be envisioned for your benefit.

Weigh the Benefits

In the final analysis, the foray into self-employment while still gainfully employed offers:

1. The ability to take a risk without the fear of losing everything.
2. The opportunity to prepare for the day when you may not have regular full-time employment.
3. The time required to learn about your new venture while enjoying a secure source of income.
4. The experience needed to determine whether the route taken is one to pursue after your regular employment ends.
5. A reduction of income taxes during the earning years instead of accumulating non-capital losses that may not provide personal income tax benefits should the business never make a profit.