A major lament of staff and management is that the work environment is constantly changing. Although change is necessary in every facet of a business from the repair shop to the accounting department, it is often felt to be destabilizing, is stressful for the vast majority of employees and may lead to worker fatigue and increased turnover.

Change in a business environment must be orderly and based on policies, procedures and practices.

Consistency Implies Control

Practices must be consistent for the entire workplace. For example, the way expense reports are completed or parts ordered must be standardized throughout the company. This removes the impression that some departments are privileged and simplifies the accounting process. The accounting department becomes more efficient because of the standardized forms and can be confident it is invoicing an approved list of suppliers. Consistency provides employees with a set of known management expectations.

Happier Employees

Consistency within a workplace creates a comfort level for staff, management and clients that is just not there in an environment that is constantly changing its methods or organization. Consider the frustration of dealing with constantly changing hours of operation or shift schedules. The absence of stability means the loss of predictability that enables employees to feel more in control of their surroundings and creates the anxiety that accompanies uncertainty.

Increase Productivity

Productivity increases when processes are consistent. If employees are allowed to purchase or download any software application they want or order machinery of their choice, the ability for other employees to interpret information or operate specific machinery might be severely compromised and the company put at risk. The company will not know that employees may need training or licences to work with the new programs or operate the new tools or equipment. Warranties might be violated, training may be missed, essential contracts might be lacking with the result of potential worker injury or lawsuits. Inconsistency in areas such as these creates additional training costs, overlooks the need for backup to take over jobs and could potentially shut down an entire operation if one person quits and no one knows how to complete the task. Consistency, on the other hand, provides staff with the knowledge of the processes, tools and equipment needed to complete the job. Employees can use known tools and methods rather than forcing the company to spend its resources on retraining.

Regardless of an employee’s position within a company, there is always a need to update. Management needs to keep current on external factors such as industry trends, changes in legislation, the activities of competitors, economic conditions in the company’s markets, as well as internal factors such as sales numbers, cash flow, staffing and a hundred other issues. Employees at lower levels need to be aware of technology changes, new HR policies, training opportunities to learn higher-level skills, and many other factors that affect their ability to do their jobs and advance their careers. The stress of learning new software procedures, new regulations and new technologies can be both mentally and physically demanding.

Thus, if a company minimizes the number of changes in company policies and procedures or introduces them gradually, employees are more likely to stay focused on their jobs at normal and acceptable stress levels and not become diverted and anxious about their ability to do the re-engineered job and stay employed. Slow and consistent introduction of new policies and procedures allows employees to acclimatize to the new demands and understand management’s expectations. Rather than wrestling with constant in-house changes they fear may affect their performance evaluations, employees can concentrate on productivity, which leads to an enhanced bottom line for the business.

Management’s Role

It may surprise management to know that employees expect and want consistency. Employees need to know their bosses are in the office, stay up to date and show up for work to fulfill their responsibilities. Employees want to feel empowered and not micromanaged through meddling by executives. Management certainly does not want to be seen as constantly interfering in the process but staff does expect management to lead by example, especially when asking workers to be reliable and accountable. Much like an army, a business must be led from “in front”.

Workers expect management to be on top of what is going on, and prepared and available if needed. Management should be there not only in tough situations but also for the good times to celebrate the completion of contracts or congratulate deserving employees for jobs well done. If management shows contempt for the workplace by not showing up, employees will lose energy and be diverted.

Consistency in the standards of a workplace leader is essential. Knowing what the work ethics and value system of the business’s leaders are means that employees know the expectations they have to meet. If for example, management consistently uses only grade A material, the sudden substitution of inferior material may cause employees to worry about the company’s financial stability, and therefore whether their jobs are in jeopardy. Such changes are the kind of thing everybody notices but does not necessarily discuss. Fears become internalized and result in undue stress and loss of efficiency through a deterioration in morale. Management’s consistent concern for quality, on the other hand, could save a company from the erosion of competitive advantage as customers also begin to notice the change.

Consistency is Best

Management should not initiate change for the sake of change but bring on change in a consistent manner for the company’s advantage. Ensuring consistency will provide a more productive workplace, which in turn will reduce employee turnover, increase productivity, establish a happier workplace environment, cut costs and improve the bottom line.

To facilitate the growth and expansion of business in Canada, the federal government permits the sale of a business without the purchaser having to pay the GST/HST. This exemption is of enormous importance to small or medium-sized businesses since a requirement to pay GST/HST at the time of purchase or shortly thereafter could have such an enormous impact on operating cash flows that it might impair current activity or put undue pressure on the company’s line of credit.

What is a Business?

This exemption is permitted under Subsection 167 (1) of the Excise Tax Act, which allows the sale of a business or part of it without the sale being subject to GST/HST. Business is broadly defined in Subsection 123 (1) of the Act to include “a profession, calling, trade, manufacture or undertaking of any kind whatever, whether the activity or undertaking is engaged in for profit, and any activity engaged in on a regular or continuous basis that involves the supply of property by way of lease, licence or similar arrangement, but does not include an office or employment”. The business must have been either established or acquired by the seller.

To be eligible for the exemption, the purchaser must acquire “ownership, possession or use of all or substantially all the property that can reasonably be regarded as being necessary for the recipient to be capable of carrying on the business or part of a business”. The Canada Revenue Agency (CRA) interprets “all or substantially all” as 90% or more.^[1] The effect of this interpretation is to prevent assets being sold off piecemeal without the payment of GST/HST.

What is Property?

The definition of property is very comprehensive and includes both real and personal property, movable and immovable, tangible and intangible. It also includes rights and interests of any kind as well as shares. It does not, however, include money.

Eligibility Tests for Exemption

There are two tests to determine whether the subject of the transaction is a business within the meaning of the Act. The first test is to determine whether the business includes activities that fall within the definition of a business under Subsection 123 (1) referred to above. Assets of such businesses generally include real property, equipment, inventory and intangibles such as goodwill. The second test is to establish whether the purchaser is acquiring from the vendor at least 90% of the property required to carry on the business. For example, office furniture that is old and worn might not be wanted by the buyer and be excluded from the purchase since the purchaser may already own sufficient office furniture or can easily purchase new furniture from a supplier. Provided the purchaser is buying 90% of the assets reasonably required to carry on the business, the transaction has passed the second test.

Who Can Apply for Exemption?

Once eligibility has been established, it is necessary for the buyer and seller to jointly complete form GST44, “Election Concerning The Acquisition Of A Business Or Part Of A Business” (the “Election”). If this form is filed, the vendor does not need to pay and the purchaser does not need to collect any GST/HST on the transaction. The exemption may apply where the purchaser and vendor are both registrants for GST/HST or where both the purchaser and vendor are not registrants.  The election does not apply, for example, where the vendor is a registrant but the purchaser is not a registrant. A non-registrant is anyone not currently registered whose revenues from taxable sales or services did not exceed $30,000 in the four calendar quarters preceding the transaction quarter ($50,000 in the case of public service bodies).

The Form

Both purchaser and vendor complete the Election indicating the names and business numbers of the purchaser as well as the vendor along with address, telephone number and the names of the contact persons for both the buyer and the seller. A description of the purchased property is required. Since the transaction value is treated as nil for tax purposes, the Election form does not ask for the fair market value.

Submitting the Election

Form GST44 must be filed by the purchaser (if a registrant) on or before the date to file a return for the first reporting period in which GST/HST is normally payable following the purchase. Businesses that file GST/HST electronically should send form GST44 to their designated business tax centre. Before forwarding the form both buyer and seller should maintain copies of the form. It may be advisable for both purchaser and seller to sign four “originals” to allow both buyer and seller to maintain signed copies while sending “originals” to the CRA. Where both the purchaser and vendor are not registrants and are only engaged in exempt activities, the GST 44 Election form does not need to be filed with the CRA but should be completed and kept on file in case of an audit.

Exceptions

As noted above, the Election does not apply to the sale of individual assets from the vendor to a purchaser. These transactions would attract the normal payment/collection of GST/HST. The Election only applies in those situations where the part of a business’s assets that are sold could be considered functionally and physically separate from the whole business. For instance, a company is engaged in landscaping during the summer and snow removal during the winter. Management decides to get out of the snow-removal part of the business and sell the snow-removal equipment and all other assets required to carry on the snow-removal business. If the equipment were sold as a package, the sale should qualify for the Election since the equipment would be considered essential for carrying on the snow-removal business and not just machinery for sale piecemeal to anyone for any purpose.

Seek Professional Advice

Since these transactions are complex, anyone contemplating buying another business should get advice from their lawyer as well as their chartered accountant to ensure the documentation supports the intent of both parties and satisfies the requirements for GST/HST filing and business tax filing at the end of the fiscal year.

The Canada Deposit Insurance Corporation (CDIC) is a federal crown corporation established in 1967 for the purpose of protecting deposits held by member financial institutions in case the institution fails. The CDIC was set up two years after the Atlantic Acceptance Corporation Limited collapsed in a fraud that destroyed what the investigating Royal Commission estimated to be between $70 million and $75 million in depositors’ savings. The purpose of the CDIC is to prevent a repetition of such losses. Between 1970 and 1996, 43 financial institutions have failed but depositors’ funds were protected because all the institutions were members of CDIC.  There have been no failures since 1996.

How Does it Work?

The insurance coverage is provided to depositors automatically by the member institution.  There is no need to sign up or pay a premium.  The member institutions pay to insure their own depositors against losses.  Not all financial institutions are members of CDIC, however.  Credit unions and the caisses populaires of Québec and New Brunswick are not members but, because they are provincially chartered, they are covered under provincial insurance plans. For a complete list of CDIC members, visit the CDIC website (www.cdic.ca) and click “Where Are My Savings Insured by CDIC.”  Only deposits at member institutions are insured.

What is Not Covered?

The purpose of the insurance is to insure deposits and not to insure assets held in the hope of gain and to which market or other risks are attached.

The following are not insured:

• Stocks, stock options and mutual funds because their values move with market forces;
• Government bonds, treasury bills and corporate bonds because their values move with interest rates;
• Foreign currency deposits because their values move with exchange rates;
• GICs and other term deposits with an original date to maturity of more than five years.

What is Covered?

CDIC insures from $1 to $100,000 of eligible deposits payable in Canada, in Canadian dollars.

The following are insured by CDIC:

• savings and chequing accounts, including:
  • personal or business accounts held in one name,
  • joint accounts;
• GICs and other term deposits with original terms to maturity of five years or less;
• money orders, certified cheques, travellers’ cheques and bank drafts issued by CDIC member institutions;
• accounts that hold realty taxes on mortgaged properties;
• debentures issued by CDIC members.

Amounts to be paid out in the event the financial institution fails are calculated based on the amount in the deposit.  For example, suppose you have $700 in a personal account in your own name and $130,000 in a business account held jointly with a business partner.  If the financial institution fails, you will receive $700 from the CDIC for your personal account but you and your business partner together will receive only $100,000. 

If you are a sole proprietor, however, you do not benefit from separate deposit protection since the business is not a separate entity from the sole proprietor.  As a result, the sole proprietor’s business and personal accounts will be added together to determine any recoverable amount.

The $100,000 limit applies to each member institution. Deposits held in the same person’s name at multiple branches of the same member institution would be combined. So, if you have two GICs of $100,000 and $50,000 held in two separate branches of the same bank and that bank failed, you would receive only $100,000 from the CDIC. 

RRSPs and RRIFs

The only parts of RRSPs and RRIFs insured by the CDIC are savings deposits, GICs and term deposits with maturities of five years or less, and debentures issued by CDIC members.  Stocks, mutual funds, corporate or government bonds are not insured.  For example, if you held $5,000 in a savings account and $65,000 in eligible GICs under the umbrella of the RRSP or RRIF, you would receive $70,000 from CDIC if the savings institution failed.  If, however, you had $12,000 in the savings account and $95,000 in eligible GICs, you would receive only $100,000 and not $107,000. If you also had $5,000 in a savings account and $30,000 in eligible GICs outside the RRSP or RRIF, that $35,000 would be insured separately.  In other words, you would recover both the $35,000 held outside and $100,000 of the $107,000 held inside the RRSP or RRIF.

Trust Accounts

Accounts held in trust are insured for up to $100,000 for each beneficiary named in the trust.  The financial institution must have  each beneficiary’s name and address.  Thus, if $350,000 is held in trust for three individuals, each person will be insured for $100,000. The balance of $50,000 will be lost.  The funds deposited into the trust are insured separately from the other funds of the person creating the trust (the settlor). Thus the settlor can hold deposits, eligible GICs and other insurable financial products in personal accounts, while each beneficiary’s  portions of the trust is also insured for up to $100,000.

Property Taxes

Money held in a mortgage tax account to pay the monthly municipal property tax bill is also insured up to $100,000.  Suppose you have two properties such as your home and your cottage,  on both of which you have to pay property taxes and you have a mortgage tax account for each.  If you had $600 in one and $500 in the other, you would recover the $1,100 total if the financial institution failed.

Tax Free Savings Accounts

The introduction of the TFSA in 2009 has created an attractive new savings vehicle that is also eligible for partial coverage by the CDIC.  As with the RRSPs and RRIFs, the TFSA can contain a wide range of assets, not all of which are eligible for CDIC protection.  Only the portion of the TFSA in savings accounts, GICs or other term deposits with original maturities of five years or less, and debentures issued by CDIC member institutions, is insured.  Savings accounts and other eligible investments held outside the TFSA are insured separately.

Be Careful

Give some thought to how you do your banking.  Are your savings and chequing accounts at insured financial institutions?  If your accounts are large, are they at different CDIC institutions?  How is your money allocated? Do you have insurable funds both inside and outside RRSPs, RRIFs and TFSAs? You should ask your investment advisor to provide specifics of what accounts are covered to the maximum $100,000 and the extent of your coverage within that financial institution. Armed with this information the well-informed investor should then speak to a CDIC representative and confirm that the information provided is correct. Then and only then, can you be satisfied that all the necessary steps have been taken to secure your savings and your future.

Owner-managed businesses rely on their employees to meet the demands of customers. Indeed a driving force for many owner-managers is ensuring that sufficient business is in place to provide employment for both themselves and all their employees. Any employer will tell you their most painful task is informing employees with whom they have worked with for years that they must be laid off.

Since there is no guarantee the clients or job of today will be available tomorrow, owner-managers and employees working together to maintain company profitability is the best way to ensure continuous work. The cost-saving models of large corporations are not available to smaller businesses where management and employees must work together to maintain profitability.

Here are a few areas in business where owner-managers and coworkers can save money and thereby benefit the bottom line.

Use Time Wisely

“Time is money,” Ben Franklin said. Use time efficiently and do not fritter it away:

• Be on time every day.

• Start working at a predetermined time rather than arriving at the work location on time and then spending 15 minutes getting ready to work.
• Put in a full day’s work. If possible arrange car repairs or dental appointments on your days off or at the end of the business day.
• Stick to the scheduled break and lunch times. Stay within the time limit.
• Determine whether overtime is really necessary. Overtime slowly eats at mental acuity and physical endurance and over the long term may actually reduce efficiency.
• Purchase a coffee maker and make coffee at the office.
• Educate family and friends to limit their calls, texts or emails to emergencies.

Information is Power

Keep your coworkers and the boss informed of what is happening on your project. Getting the job done on time is important, especially if the company you work for does not get paid until the job is done. If the company doesn’t receive payment, additional strain placed upon the cash flow may necessitate a bank loan to make payroll.

Train Backup

If only one person is trained to drive the front-end loader and that person is not there, productivity stops. Without productivity the job doesn’t get done and no one gets paid.

If the billings or payroll clerk is not available, an entire operation could shut down. Writing NSF cheques, or failing to pay bills, employee tax deductions, HST and other withholding taxes will cost interest and penalties.

Manage Office Utilities

We all are aware of the high cost of utilities in our home, but often do not give a second thought to the cost of utilities at the office or plant. Shut off lights in washrooms, kitchenettes, storage areas or shop areas when you leave. Turn down the heat or air conditioning before long weekends.

Communications

Communication has become a high cost for most businesses. When out of the office consider whether it is necessary to answer every call or respond immediately. Before leaving your communication zone on business, consider whether the company should consider a “roaming” package to keep costs down. Take care of communication devices. Lost, stolen or damaged equipment cost the company money.

Consider using communication platforms such as SKYPE to reduce the cost of long distance charges or to replace face-to-face meetings with video conferencing.

Company Vehicles

There are a number of ways of reducing the cost of operating company vehicles.

1. Obey all traffic rules to avoid fines and an increase in vehicle insurance.
2. Reduce additional fuel cost by not idling, speeding or making jackrabbit starts.
3. Reduce excess wear and tear by staying within its performance criteria.
4. Maintain and log proper maintenance schedules to ensure warranties are not violated.
5. Transport more than one person to a jobsite.
6. Plan shopping or pickups to avoid duplication or backtracking from the worksite to the local supplier.

Protect Your Data

The downtime from lost data is always expensive. Follow existing backup procedures. Establish a system whereby Day One work is backed up on Disk One, Day Two work is backed up on Disk Two and Day Three work is backed up on Disk Three, etc. On Day Four backup on Disk One and follow the routine. This should ensure your data is never more than one day behind if the systems crash. At least once a week, backup all files and locate them offsite whether using a “Cloud” facility, an external hard drive or a local offsite server.

Ensure that a master password and specific authorization for all key sites is available to key personnel. This will allow access to data in the event an employee is absent or terminated.

Client and personnel confidentiality are essential to avoid possible legal action. Employees should be instructed to encrypt all data sent via Internet.

Travel Expenses

Travel expenses can mount up. The incentive-points earned for staying at specific hotels or eating at certain dining establishments may bias us to spend more than we would spend if we were paying for the trip for our own personal pleasure. Certainly it is important to portray an image to our clients, but, at what cost to the business?

Payables and Receivables

Maintain constant vigilance over receivables and payables. Do not overextend credit to clients; constantly follow up on receivables. Pay payables on time to ensure your suppliers will continue to grant credit and not force the business to increase an existing line of credit. Employees and owner-managers should always be vigilant for changes in delivery times or payment times that may be a sign of a troubled supplier or customer.

Promote the Business

We all need to promote the business. Participation in community events creates positive images for the company that may be more effective and less expensive than advertising.

Many employees feel it is not their job to get business. Nothing could be further from the truth. Promoting the business you work for provides work for the company. If you have a potential client, mention it to the owner-manager. Even a small job could lead to something bigger or a long-term contract.

Everyone from owner-managers to employees would like to say with certainty that 2012 will be a banner year. Although no one can predict what the future holds, working together to reduce unnecessary expenditures and promote the business is definitely a process that is a money saver.

There are times in any business when you’re out of the office and away from your scanner but you still need to make a digital copy of a paper document or business card. When you’re at the office, chances are you have either a standard desktop scanner or multi-function printer (which typically includes a scanner and copier function) to handle such tasks. However, when you’re away from your desk at a meeting or a tradeshow, you probably don’t have your desktop scanner or a bulky photocopier available. In a pinch, a camera might do, but that’s probably not your most elegant option.

There’s an App for That

For occasional mobile scanning needs, having the right applications available on your smartphone or tablet device is essential. A small investment in apps suitable to your business and work habits will help to make the large investment you have already made in mobile devices pay off. You may need a few different types of apps to handle each situation. Since there are multiple mobile platforms, each with its own unique selection of apps, the following list includes the types of applications you may find useful along with the typical price range. Many apps are available for free or a nominal cost.

A Simple Photo Editor: ($0 -$5) After you’ve taken a picture of something with the camera on your device, having an application that will let you crop, make minor changes and save as a new file is extremely useful.

Text Recognition: ($0 – $5) Equally as useful as a photo editor is an app that can do Optical Character Recognition (OCR), that is, convert an image into text. Such an app will allow you to start editing your document right on the spot without having to wait until you get back to the office.

QR Code Scanner: ($0+) This app allows you to capture those square digital “barcodes” that you’ve probably noticed popping up everywhere. QR codes can contain many kinds of data, but are commonly used to store and convey contact information and website addresses. Businesses are starting to print QR codes on business cards. A single snap of a QR code is enough for you to capture someone’s entire contact information and automatically add it to your smartphone’s contact book.

Productivity Suite: ($0 – $30) Although productivity apps are not directly used for “mobile scanning,” having a word processor, spreadsheet and presentation editor on your mobile device will allow you to immediately use the information you’ve scanned or images you’ve captured and start making changes on the spot.

Portable Document Scanner

If you find yourself scanning many documents while you’re out of the office, you have another option in addition to your trusty smartphone. There are now products on the market that will scan most documents on the spot without the necessity of connecting to a computer. These devices are so portable that the user can hold it in one hand and literally feed the document into the scanner with the other. Although not all products have the same features, they are all designed to convert paper-based documents into a digital format.

For about $200 you can purchase a discreet portable document scanner that can scan documents, photos and business cards on the spot, without the need for a computer attached. Most portable scanners allow you to connect to a Mac or Windows computer to download previously scanned documents, either via a USB cable or wirelessly via Bluetooth. The battery is usually sufficient to scan about 100 documents per charge. While lightweight and portable, these scanners have the disadvantage of being a separate device that must be carried around in addition to your laptop and briefcase, and still require a computer to make use of what has been scanned.

Save Time, Save Money

Any business that wishes to work more efficiently, reduce or eliminate inaccuracies and move toward a paperless environment should consider portable scanning options, either through smartphone apps or a portable scanner to meet its mobile office needs.

Owner-managed businesses are under increasing pressure to ensure that their conduct as corporate citizens and the conduct of their employees as private citizens meet certain standards of ethical behaviour. It is all too easy for owner-managers to forget, however, that even though their business is run behind closed doors, the stakeholder community that buys its goods and services and on which it depends for employees, suppliers and financing have expectations about how it and its employees should behave.

Unfortunately it is only when an employee steps outside the unwritten but publicly assumed framework of expectations does the owner-manager or the employee understand that an ethical standard has been breached.

Business behaviour that may raise ethical eyebrows among stakeholders includes:

• Toleration of swearing, bullying, sexism or sexual harassment
• Bypassing environmental protocols, safety standards or employment standards
• Hiring practices based not upon qualification but gender, nationality or race
• Remuneration based on subjective evaluations rather than performance measurement
• Advancement based not upon evaluation but favouritism
• A reward system based strictly upon closing the deal rather than satisfying client needs
• An attitude that employees are there to be exploited rather than developed and rewarded
• An attitude of indifference to the law and employee safety and welfare

Business Ethics

Business ethics may be defined as codes of principles and values that govern decisions and actions within an organization.

Corporations large enough to have an HR department may have a written mission statement and code of ethics; smaller businesses may just assume a code of some sort to be an unwritten part of the corporate culture. As the age, gender, ethnic, educational and other factors in the employee mix change with the company’s growth, however, owner-managers may find it necessary to create a coded business ethic for all employees. A Google search of business ethics turns up about 20 million results, a measure of the extent of debate around this issue. Obviously, no magic formula exists to create a company ethic. There are, however, two approaches to corporate ethical behaviour that should be part of any in-house debate.

Approach 1

Owner-managed businesses answer the same question posed by their larger counterparts: “Is the purpose of our business solely to make profit for the shareholders or are we responsible as well to the greater good of our broader stakeholder community?” When shareholders (owners) instil in management a philosophy that their only purpose is to provide a return to the shareholders, concerns for employees, third-parties such as suppliers, customers or society in general, may go out the window. This bottom-line approach can lead to money-saving methods that reduce workplace safety, jeopardize product safety, or endanger the community.

 Approach 2

An organization shows the flip side of “profit at any cost” when shareholders instil in management the requirement to consider the needs of all stakeholders within the influence of the company. Stakeholders are not just the shareholders; they include everyone who derives value from the survival of the business: employees, suppliers, customers and all those other small businesses such as the local grocery, clothing or appliance store, or even the movie theatre that survive on the personal spending of employees.

The scope and breadth of influence, of course, depends upon the size of the community and the ownership of the business. A small retail store owned by generations of the same family may be willing to allow political posters in its window at election time because the owner wants to be part of the debate over local issues.

On the other hand, a national franchise with stores coast to coast may not want its name to appear associated with any issue and therefore prohibits local franchisees from displaying anything concerning the community. The national franchise’s inaction creates pockets of silence and excludes itself from the very community upon which it depends for its business. Is its behaviour ethical or merely self-serving?

In a world constantly influenced by social media, owner-managers must be aware that any action within their sphere of influence may have a butterfly effect upon local, regional and federal governments, the community and its residents. For this reason, owner-managers and their employees may wish to consider whether any action or inaction may be perceived as ethical or unethical.

Businesses and the stakeholder community in which they operate have a symbiotic relationship: the business needs the support of the community and the community needs the business for its prosperity. When a business is perceived as unethical all community members suffer. The challenge for owner-managers and employees is to consider the potential ethical consequences of their actions.

Four Questions

Perhaps if employees asked themselves these four questions before making decisions, incidences of unethical behaviour would be fewer:

1. Is my decision based upon my knowledge of the truth?
2. Will my decision be fair and respectful of all stakeholders?
3. Will my decision add to the goodwill my company enjoys in the community?
4. Would I be ashamed if my decision became public knowledge?

As much as we detest written procedures, a written code of ethics raises to consciousness what employees used to take for granted. It is the framework any business needs to show all employees what is expected of them by the company and by the law. Without formalized procedures a business could discover it has not performed the due diligence required to protect third parties from unethical acts committed by the business and its representatives.

A World without Madoff

If rules and regulations could control human conduct and prevent unethical behaviour, the Quebec-based Earl Jones and the USA-based “Bernie” Madoff ponzi schemes might never have happened. In the final analysis, corporate ethical behaviour must reflect the ethical values of stakeholders in order to be acceptable. It is the owner-manager’s job to ensure the ethical behaviour of all within the business meets or exceeds the expectation of this community.

Who doesn’t hate paying their income tax? However, most Canadian taxpayers, including owner-managers, understand that paying their fair share of income tax is simply the price of living in Canada with its many benefits. It is not surprising that those who do pay their share of income taxes are justifiably outraged by those who do not pay, especially if it appears they are able to get away with it.

Tax avoidance, or minimization, is the skillful use of the tax laws to minimize the amount of tax owed. Tax evasion, on the other hand, may be defined as failing to report taxes owed, reporting inaccurately or using some illegal means such as fraud to reduce the taxes owed under the tax laws.

The Cost to Taxpayers

The cost of delinquency to the people of Canada is enormous. Tax Justice Network, a London-based independent organization created in 2003 to monitor tax systems around the world for fairness and transparency, claims the people of Canada lose about $81 billion annually through tax evasion. That’s four times what we spend on defence and almost one third of what we spend on healthcare every year.

In fact, tax evasion is taken so seriously by the Canada Revenue Agency that it has a “Newsroom” www.cra-arc.gc.ca/nwsrm/cnvctns/menu-eng where it uses court records to publish press releases announcing convictions for tax evasion. The CRA does this “to maintain confidence in the integrity of the self-assessment system, and to increase compliance with the law through the deterrent effect of such publicity”.

The Cost to Delinquents

Punishment for tax evasion can be a fine, jail time or both. Convicted tax evaders must pay the full amount of taxes owing plus interest and any civil penalties assessed by the CRA. Failure to file a tax return can lead to a fine of between $1,000 and $25,000 and as much as 12 months in jail. Making a false or misleading statement on the tax return or wilfully evading paying taxes can bring a fine of between 50% and 200% of the amount of tax owed and a two-year prison term.

Rogues Gallery

The following examples from the 2011 “rogues gallery” is only a small sampling of the kind of violations prosecuted by the CRA.

1. Failure to Comply with a Court Order

In June 2011, the Ontario Court of Justice found a taxpayer guilty of eight counts of failing to comply with a court order to file outstanding personal income taxes for the years 2000 through 2007 inclusive. The taxpayer was fined $8,000 and ordered by the courts to file the outstanding returns.

The taxpayer could easily have avoided the fine and possible additional penalties by meeting CRA’s request to file. When returns are outstanding, the CRA’s policy is to ask the taxpayer to file the missing returns. If the taxpayer ignores the request and fails to file, the CRA then serves a notice demanding the returns be filed. In this case it is apparent that the taxpayer did not comply and therefore charges were laid.

2. Tax Preparers Sentenced

Tax preparers themselves are not immune to scrutiny by the CRA. In July 2011, the courts found a tax preparer guilty on 134 counts of tax evasion under the Income Tax Act and four counts under the Tax Rebate Discounting Act. According to court records the tax preparer claimed or obtained $393,504 in false income tax refunds by filing fraudulent returns for 134 clients. Not only did the tax preparer have to repay the total amount of tax evaded, he had to pay a fine of $393,504 (100% of the evaded amount) plus an additional $2,000 on the four counts under the Tax Rebate Discounting Act. He was also sentenced to house arrest for two years less a day. The preparer was allowed to pay the fine in installments over five years. Failure to comply will result in a jail term in excess of two years.

The courts also found three other persons party to the scheme. Their sentences were as follows:

1. Nine months in jail and a $286,000 fine
2. Three months in jail, six months’ probation and a $36,000 fine
3. Three months in jail and a $36,000 fine.

3. Electrical Contractor Fined

An electrical contracting company was convicted of one count of evading GST and one count of income tax evasion. The company had claimed $379,705 in non-business expenses between 2004 and 2006 as well as construction expenses associated with building two cottages for company directors. Input tax credits for GST of $24,007 related to the cottage expenses were also claimed as business expenses. The company was fined $165,822, an amount equal to 200% of the total amount evaded and given one year to pay.

4. Inflated Business Expenses

For the years 2005 through 2007, a taxpayer failed to offset credit notes against purchases, claimed invoices twice, indicated that personal expenses were business expenses and claimed expenses for which receipts or other documents were not available. The cost to this taxpayer was more than $49,000 after charges of tax evasion were upheld by the courts. The $49,000 fine represented 80% of the federal tax evaded. In addition, the taxpayer will have to pay the taxes owed plus any interest or penalties assessed.

5. False Invoicing Scheme Costly for All Involved

Three business associates cooked up a false invoicing scheme in which, over a two-year period, invoices from Company A billed Company B for costs associated with building a personal residence for Company B’s owner. Company B was then able to reduce the corporate income by $165,000. As well, the owner of Company B failed to report the benefit received from payment of the construction cost. This resulted in tax evasion approximating $45,000. The courts fined not only Company A and Company B but also the principals involved in the scheme. The total amount fined exceeded $105,000. As well, the companies and principals were ordered to repay the taxes owing along with interest and penalties.

If You Think You Might Not Be in Compliance

Chartered accountants deal with the CRA on a regular basis and find that in the normal course of business the CRA is fair when dealing with professionals and their client base. The CRA, like most businesses, would prefer that taxpayers meet their obligations voluntarily because investigations resulting in settlements tie up personnel, clog the courts and, of course, cost taxpayers money. This is why the CRA suggests that taxpayers who have inadvertently failed to report all of their income from prior years may be able to avoid such penalties and potential jail time if they comply before any action is taken by the CRA.

If you think you may not be in full compliance with current tax legislation, ask your chartered accountant about the Voluntary Disclosure Program or visit the CRA website ww.cra.gc.ca/voluntarydisclosures.

Lindalee Brougham, FCA

“WOW,” says Lindalee Brougham of her election to Fellowship. “I’m amazed that I was noticed by others. It is very humbling. I think it’s unusual for sole-practitioners to be recognized, and I hope this helps raise the awareness for others.”

Lindalee is the principal of LL Brougham Inc., Chartered Accountant in Victoria, which she launched in 2000. She also co-owns a prototyping machine shop with her husband, Ray Brougham, that builds medical, research, scientific, military, and other equipment and prototypes.

Helping and working with others are her biggest rewards, she says. “Between the accounting practice and the machine shop, we put food on a lot of tables. That is pretty exciting and humbling—we need to continually strive to look to the best interests of the businesses and the people in them, and of those we serve. I am also blessed that I get to develop future accountants within my team, and together we get to learn new things.”

In addition to mentoring others, Lindalee has contributed to the accounting profession as a member of the ICABC’s Exposure Draft and Small Firms forums, and as an ongoing member of the Practitioner’s Emergency Assistance Committee. From 2007-2011, she also served on Council.

Her community activities have also been extensive. Current contributions include chairing the board of directors and the steering committee for the Victoria International Airport Authority, and serving on the board of the Victoria Police Department. In 2011, Lindalee also joined the board of the Union Club of Victoria, becoming one of only a few women to have served in this capacity.

Past contributions include six years of service on the board of the Canadian Homebuilders Association, during which she became the first female chair in the Association’s history. She also served for seven years on the board of the Greater Victoria Chamber of Commerce (which included a term as chair), and championed initiatives such as the formation and launch of a Regional Economic Development Agency, where she served as strategic leader. Thus far, the Agency has brought in over $15 million in new investment to Victoria.

“When I first started board work it was to help market the business,” Lindalee says. “Now I love learning about the different parts of our community and how they work. There is so much to learn, and I’m thankful for the opportunity.”

Her achievements have garnered her numerous awards, including the Maple Leaf Award for BC, the Executive Achievement Award for Victoria (both in 2006), and the President’s Award (2004) from the Canadian Home Builders Association. In 2006, Fast 25 named her firm one of the “Top 25 Fast-Growing Companies on Vancouver Island Under $1 million.”

She attributes much of her success to her family and her community.

“My husband and I have been married for over 26 years, and he is my best friend and biggest supporter; my parents are fabulous; and my team at work helps to pull it all together,” she says. “I cannot do the things I do without these people—life is a team sport, and I have the best team.”

Lindalee began her public accounting career as a CGA, and became a CA in 1999. She also holds a certified financial planner designation, an ICD.D designation from the Institute of Corporate Directors, and an MA in conflict analysis and management from Royal Roads University.

The last 30 years have seen some tough times: 20% interest rates in the early 80s, recession in the early 90s, and a near collapse of the financial system in 2008.   Those who survived financially will probably make it through the current economic struggle because they have learned how to keep going regardless of what the economy throws at them. Those dreaming about starting their own businesses should consider the following precautions.

Temper Your Expectations

Start-up businesses have high expectations that can sometimes outstrip reality.  Customers and clients need time to find you and get to know your business.  New businesses may have a “grand opening” to create public awareness. Sometimes, opening prices are below normalized mark-up prices and people flock to the location to take advantage of savings. Start-up entrepreneurs should not hinge their expectations  on crowds of “cherry pickers” who take the best you have to offer and then do not return when your prices go back to normal. 

Do Not Over-Extend Yourself

Start-ups often overestimate their ability to produce or deliver products. It is better to be up front with your clients that you cannot meet their deadline and negotiate a mutually satisfactory timeline, rather than disappoint when you fail to meet expectations. Keep in mind that when you set a deadline your clients will be making their plans according to your promise. 

Arrange Advance Financing

Many start-ups underestimate the working capital required to get the business off the ground. Creating sales can require unexpectedly high amounts of working capital. Unfortunately, it is all too easy to overestimate sales and the speed with which receivables will become cash. This miscalculation leads to underestimating the time required for a business to generate sufficient funds to be self-financing.  

In today’s economic environment it is hard to tell when a small business may become profitable.  Some small online-business bloggers boast of being profitable almost immediately because of the low cost of getting into an online business. More conventional businesses with bricks-and-mortar locations and the associated costs may take a year or even two just to break even. Thus the entrepreneur should project operating cash needs for HST remittance, loan repayment, rent, inventory, utilities, wages, and vehicles and, of course, personal income needs for at least a year. The entrepreneur must also recognize that in addition to everyday working capital needs there will be capital expenditures for computers, cash registers, equipment, leasehold improvements, and vehicles, of which will drain working capital.  Most financial institutions will assist you with capital loans, revolving lines of credit and credit cards.  

Collecting funds after the job is completed can be tough.  Clients may not want to pay or may delay payment for two or three months.  These delays may cause problems with HST remittance. HST is recorded when the sale is booked and must be remitted regardless of whether the funds have been collected. 

Requesting a deposit before a job begins has several advantages. First, a deposit indicates the client is committed. Second, a deposit is not considered to be a sale and therefore remittance of HST is not required. Finally, if the client delays payment after the sale the deposit should be sufficient to cover the HST and provide some working capital.

Control Expenditures

Good cash management requires that you should anticipate the best and worst circumstances that are likely to occur over the next fiscal year. As owner-manager you know you must pay rent, utilities, suppliers and employees each month. Rent and utilities are essential to staying in business. Staff, vehicle expenses and inventory are major costs over which you have some control and can be projected with some accuracy. It is important to isolate those areas where cash flow needs are variable. Your findings may indicate that you should lay off staff and do the work yourself, drive your own delivery vehicle rather than use a courier or arrange for on-time delivery of inventory rather than stock the shelves.

Project Your Needs

Optimism is what buoys entrepreneurs but reality can sink them. Start-ups often purchase goods or hire employees in excess of requirements. Consider inventory and staffing an essential part of your projections.  Better to have shelves that need replenishing and a skeleton staff that is always busy than shelves full of unsold products and excess staff that drain cash reserves.

Stay the Course

When business is slow self-doubt will creep into any owner-manager. The temptation will then arise to branch out into areas only marginally related to the core business or areas of expertise identified in your original business plan. Such acts of desperation confuse clients and damage your brand. Energy squandered on these distractions is energy taken away from maintaining the quality of your product or service which now risks becoming substandard. If your business plan was sound in the first place and you have rational belief in your ability to succeed, maintain focus on your strengths. This does not mean you should not look into branching out into other areas but always ensure that the new area does not take away from your strengths.

Adopt a Mentor

We all need someone to guide us in making business choices. Start-up entrepreneurs should not be hesitant to approach experienced owner-managers in their community. Not only do these individuals possess knowledge and experience that takes years to acquire but they may also connect to networks of people who may be able to offer guidance. Joining a local business association may also be helpful.

Statistics Tell the Story

Ninety-eight per cent of businesses in Canada have fewer than 100 employees but employ 48% of the private-sector labour force and create just over 30% of Canada’s GDP. About 21 per cent of small businesses produce goods and 79 per cent produce services. Chances are self-employment will be in the future for many. Cautious optimism is the essential ingredient of survival.

Cloud computing is not quite here yet but its simplicity from the user’s point of view makes it very attractive.  Nevertheless, there are significant legal and technical problems primarily of security and privacy that need to be resolved before cloud computing can come into universal use. 

What Exactly is Cloud Computing?

The central idea behind cloud computing is that data will no longer be stored on the hard drives of the office servers, desktop computers or laptops but offsite on a network of servers accessed through the Internet for a fee.  (The word “cloud” comes from the use in the IT industry of the simple image of a cloud to represent complex telephone networks or the Internet itself.) 

Types of Service

The cloud model could offer several types of service. For example, Software as a Service (SaaS) would let you load a single application onto your home or office computer that would allow you to log into a web-based server hosting the programs you need such as word processing, accounting, data base, storage, games, etc.  Platform as a Service (PaaS) would let you design your own application which would run on the service provider’s infrastructure and be delivered to users via the Internet. There would be many other services available to manage security, spam, email, and so on.

Pay Per Use

As currently conceived, the comparable business model of cloud computing is that of the utility industry.  Instead of having a generator in your basement producing power for all the needs of your home or business, you access the energy grid and draw off the amount of energy you need on a pay-for-use basis. 

Middleware

Through a process called server virtualization, a special kind of software known as middleware would maximize server capacity utilization.  Middleware can divide the capacity of individual servers into virtual environments so that each physical server functions as multiple servers.  The result is greater server efficiency because less capacity is wasted, as happens now.   The dedicated servers making up the cloud computing system would have all the applications society would need for work or play.

The host system would be owned by a company that would charge you some type of fee for providing your customized service.  

Benefits

The primary benefit is that your infrastructure, training and licensing costs will be substantially reduced or even eliminated. Hardware costs would be reduced because there would be no need to buy and house increasingly powerful computers as your business grows.  The programs formerly run by your in-house IT system would now be on the cloud network servers.  The space currently occupied by servers and storage devices would now be freed up for more productive uses. If you are currently renting space to house your servers, that expense would be gone.  Increased capacity would also be available on the host’s servers as needed. Server virtualization on the cloud system would ensure you are not paying for overcapacity as you might be doing now with your in-house system.  All you need is a basic computer, cloud-enabled appliance (e.g., television), mobile phone or tablet device capable of running the external server’s interface software which might be as simple as a web browser. 

Server Security

Time-consuming decisions about buying and complying with expensive software licences will be a thing of the past.  You will no longer have to worry about who is and who is not covered by your existing software user licences.  With cloud computing, you will no longer require licences; the company will have access to the programs it needs on a fee-for-service model. 

Easy Access

The cloud servers would be accessible from anywhere on the planet through the Internet.  But you will not have to worry that sensitive company information might be compromised if a USB or laptop is lost by an employee on a business trip; all the information would be on the server and not on the hard drive of the laptop. 

Reduced IT Staff

With software managed by the offsite server company and only basic computers required onsite, the expense of in-house IT personnel will be substantially reduced.  Fewer IT personnel will be required by your business and those who will be needed will cost less because they will not need the training now required to run complex in-house systems.  The good IT jobs will be with the server companies.

Concerns

Cloud computing could, in effect, double your security risk: once in-house and once at the remote servers.   When servers are located in-house as they are now, you know where the data is stored and can access it and maintain it physically.  You can design an authentication system of user names and passwords to control access to your own servers.  This can be supplemented with an authorization system which allows users to access only the applications and data needed for their particular job.

In the cloud system, on the other hand, you as the client do not know where the vendor’s servers are physically located and who has access to them. They may even be located in a jurisdiction outside Canada where privacy and security laws are not as tight as they are here. You also do not know the effectiveness of the vendor’s security system.  In other words, you do not have complete control over the storage and use of your own data, yet current privacy legislation makes you responsible for the security of your clients’ personal information. 

The best that can be said at this time is that you will still need in-house security at your end but the server companies will need to develop a level of security that will give their clients confidence that they are not in violation of Canadian law.  It is obviously in the server companies’ best interests to do so since they depend on the trust of their clients to keep themselves in business.

Where Are We Going?

Computer systems are becoming so complex that new ways of organizing the relationship between system and user is inevitable.  The number of computing devices in use and the complexity of each new device are both increasing rapidly and putting pressure on the architecture of existing systems.  Cloud computing as a utility is not yet a sure thing but it is looming larger and larger as a potential solution.