Money, money, money
Business finance is kinda fun (ny)
I always thought there was something mysterious about business banking. Like, that maybe the money was transferred via pneumatic tubes or something. I dunno, I never really gave it that much thought, but to the extent that I did, it seemed like this fuzzy mysterious thing.
Anyway, it turns out that business banking is pretty much the same as personal banking. You have a bank account which you can access online. You have a card that you can buy things with. You can transfer money in and out to other accounts.
The thing that makes business finance more complicated than personal finance, is that you need to keep track of all of those transactions in a particular way. But let's not get ahead of ourselves.
Getting a bank account
First things first: if you're incorporated, you're going to need a business bank account. I decided to go with my local credit union. I didn't need anything fancy and the fees were low. When getting the account, I had to show evidence that the company was real, so that meant showing them my Articles of Incorporation.
Getting a business bank account was one of the first (but certainly not last) times that I encountered some issues with having a company that didn't have a well-defined focus. The bank wanted to know what the business did, and they wanted it to match up with one of the options in their dropdown box. It wasn't easy to find an umbrella that fit all of the things I was going to try. Ultimately, we settled on something along the lines of business and technology consulting (which is actually much more accurate now than it was at the start).
Spending money
The next thing you need is some money, because you will most likely have expenses before you have revenue. Your options are to apply for grants or investor funding (like a lot of startups do) or apply for a business bank loan (like a lot of regular businesses do) or to bootstrap. Bootstrapping means supplying the money yourself.
In the early stages, my business wasn’t very capital intensive, so I decided to bootstrap. From a practical perspective, this just means transferring some money from your personal account to the business account. From an accounting perspective, this is treated as a shareholder loan. Once your business earns enough revenue to cover the loan, you can transfer that money back to yourself without any tax implications.
How to spend that spending money
The next thing you need is a better way to pay for things than just your bank card. Your options are to get a corporate credit card or a corporate VISA/Mastercard debit card. I suspected that getting a corporate credit card would be pain in the neck, since they would probably need a business plan or something. I was happy to just get a corporate VISA/Mastercard debit card.
I first tried to get one from Float Financial, but they wanted various things like utility bills or bank statements in the name of the company (which I didn't have at the time). They also wanted to know what the company did. At the time I was super frustrated and impatient about all of this. I was like, why are you making me jump through all these hoops just to be able to spend my own money? Since then, I realized that they were just doing their due diligence. There's a lot of financial fraud that goes on and I guess my weird vague company raised some red flags.
Anyway, since I wasn't feeling very patient, I decided to go with Wise instead, which also offered a corporate VISA debit card (but no hard feelings to the Float guys...I get where you were coming from!).
Going global
Wise turned out to be so much more than just a corporate VISA debit card. They made it super simple to create accounts in multiple currencies. Since my client pool is global, I really liked the idea of being able to accept payment in my clients' local currency.
When I create an invoice through Wise in a specific currency, it includes the details of the relevant bank, say, in Belgium for EUR, in the UK for GBP, in the US for USD. That’s the bank to which the client makes the payment, after which, the money appears in the Wise account for that specific currency. It can sit there to be used (see next paragraph) or converted to CAD when the rate is favourable.
When you pay for expenses with your corporate card, it automatically pulls it from one of the accounts where the conversion rate is most favourable (best is when the currency is the same, since the conversion rate is zero). Most of my expenses are charged in currencies other than CAD, so I end up avoiding a lot of conversion fees. There is also a Wise personal account with the same multi-currency features, so you can pay yourself from a EUR business account to your EUR personal account and spend from there on your next trip to Europe.
Btw, I have no sponsorship/affiliate relationship with Wise, I just really love it!
The books (don't cook them)
The idea of the shareholder loan, was my first encounter with bookkeeping (which btw is the weirdest word to me...double-o, double-k, double-e ???). I asked around and it seemed that most people used Quickbooks for their bookkeeping, so I got a Quickbooks subscription. I have to say that I. Did. Not. Like. It. At. All.
Full disclosure, at the time I didn't really know what it meant to do bookkeeping. I just had this image of that movie trope of a small business owner going to an accountant with a box full of loose receipts...or receipts stapled to their jacket.
I didn't want to be that person.
So I was really focused on being able to keep track of all my receipts. Turns out that Quickbooks was pretty bad at that. Quickbooks also didn't have very good multi-currency support that played well with my multi-currency account with Wise. And it was cluttered with a tonne of other features that probably made sense for someone running a dry cleaning business or something, but seemed really superfluous for me. I looked around for other software that would do what I wanted it to do but didn't find it.
So I decided to build my own light-touch Quickbooks clone from scratch in Airtable...something that didn't have all those bells-and-whistles I didn't need, but had the multi-currency support I wanted. No surprise, this turned out to be a bit more tricky than I initially expected, but in the process I learned about double-entry bookkeeping, and what bookkeeping is actually for, which is to give you a clear picture of your business's financial health at any point in time.
Tracking and categorizing your transactions is the first step, but then you use all of that to generate reports like Profit and Loss statements and Balance Sheets, which are like a dashboard for your business. You then use these to understand how business is going and how to make better decisions etc.
Now that my Airtable system is set up, it’s super efficient and makes total sense to me at least. Eventually, I will outsource my bookkeeping. But diving into the weeds was totally a worthwhile exercise because of what I learnt.
Anyway, if getting into the weeds is not your jam, that is totally ok. I am in no way recommending that you build your own bookkeeping system. I'm sure Quickbooks is actually fine if you know what it's for. And if you know how to learn what it's for without building it from scratch yourself, then totally do that.
To the one CPA that is reading this post right now and cringeing...👋
HST registration
In Canada, you're required to register for HST (harmonized sales tax) once your revenue hits $30,000, but you can also register voluntarily before that.
The point of doing that is if you charge HST on top of your invoices, you get to claim back the HST you paid on business expenses. If you're not registered, you still pay HST on everything you buy for the business, but you can't claim it back.
Year-end planning
One decision you have to make as a business owner is picking a fiscal year-end. This is when your business "year" ends for tax purposes. There are some rules about it being within 53 weeks of when you first incorporated, but you can choose any date. Once you pick it, you're mostly stuck with it.
I tend to like doing things myself at least once, but in the case of corporate tax filing, I plan to get a professional to do it. Incidentally, if they look at my Airtable bookkeeping system and tell me to cut out the shenanigans and hire a bookkeeper, I will humbly take their advice!
Money for the taxman
When you're an employee, taxes are usually automatically deducted from your pay. But as a business owner you're responsible for making sure the money is there when tax time comes.
One way to do it is to keep a separate savings account specifically for taxes and transfer a percentage of every payment received into it. The exact percentage depends on your situation, but some people say to set aside 25-30% of your revenue.
It's still my first year, so I don't really have any personal advice here, except that I think it's better to be conservative and have money left over at the end of the year than to owe the government a chunk of money you don't have.
What to do with all those gainz?
The first thing I did when revenue started coming in was pay back that shareholder loan to myself.
What about the remaining profits?
There are two main ways to get money out of your corporation: pay yourself a salary (as a director/employee) or pay yourself dividends (as a shareholder).
Salary involves setting up payroll, withholding taxes, and remitting them to the government. It's more admin work, but the money is taxed as employment income.
Dividends are simpler (you just transfer money and account for it properly) but they're taxed differently and you don't get RRSP (Canadian retirement thing) contribution room.
I haven't decided yet how I want to handle this because it depends on my financial situation at year-end. But my feeling is that I'll probably go with dividends to start with. Setting up payroll seems like a thing I don't want to deal with until I have to.
Business finance is kinda fun
Maybe I need to get out more, but learning about business finance stuff has been super interesting for me.
I love my Airtable system. I love that I can look at a dashboard at any time and see how everything looks. I feel like if I wasn’t able to do that, I would be super stressed. But I’m not.
You definitely don't need to get into the weeds as much as I did, but understanding how to read the financial reports and making smart decisions about what to buy when, whether to take on another client, how to be ready for taxes etc. is something you should learn how to do.
Obligatory disclaimer: None of this is financial advice. You situation may vary. Do your own reserach. Hire a professional. Etc.
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