Running a business isn't just about your day-to-day operations. It also means managing your finances smartly.
From banking in a sensible way to paying taxes and estimating your costs—if you run your finances well, your business is far more likely succeed. Here's your roadmap to financial success in the heart of Canada's entrepreneurial hub.
Business banking
Opening a dedicated business bank account is crucial for keeping your personal finances separate from your business transactions. This makes it easier for you to keep business records and file taxes. A few things to keep in mind:
- Choose the right bank—Look for a bank that offers business accounts with low fees, good terms, and solid customer service.
- Gather your documents—You’ll typically need your business licence, articles of incorporation (only if you’ve created a corporation), partnership agreement (if that applies to you), and your ID to open a business bank account.
- Fill out the application—Most banks let you apply online or in person. Choose the method that works best for you.
- Deposit funds—Some banks require a deposit to open your account, so be prepared for that.
- Apply for a business credit card—Through your card, your business can qualify for rewards programs and improve its credit score. Use your business credit card as responsibly as you use your personal credit card to avoid paying high interest on your debt.
Banks also understand the needs of growing companies and offer financing solutions to help you achieve your goals. Once you’ve selected a bank, ask about how it can help your business.
Paying taxes
Taxes work in different ways depending on how you set up your business.
Talking to a qualified accountant who is familiar with Alberta's tax landscape could be one of the most valuable things you do. Accountants will have great ideas about how to set up your business and maximize your tax benefits.
Sole proprietorship or corporation?
Once you’re familiar with how business taxes work, you’ll be able to decide whether to set up as a sole proprietorship or a corporation.
A sole proprietorship is the simplest business structure. You and your business are considered one legal entity. You report your income on your personal tax return, and pay personal income tax on your net business income.
Creating a corporation means that your business is, legally speaking, a separate entity from you and any other owners. Corporations pay corporate income tax on their profits. While you may see some legal and tax advantages to creating a corporation, doing so can be more complex and expensive to manage.
The great news for corporations is that Alberta boasts the most attractive corporate business tax rates in Canada. Here's a quick breakdown:
- Low corporate tax rate—Alberta has a low overall provincial corporate tax rate at 8%, combining with the federal rate for a total of 23%.
- Small business benefit—Businesses with active income below $500,000 get an even better deal with a combined rate of only 11%.
- No additional taxes—There are no provincial sales taxes, payroll taxes, or health-care premiums for businesses in Alberta.
Managing your tax records
Keeping your business finances organized throughout the year is not just good practice, it's essential for a smooth tax season in Alberta. Talk to your accountant about the best ways to stay organized. For now, here's a breakdown of key record-keeping practices to ensure you're prepared come filing time:
- Maintain separate accounts—Opening a dedicated business checking account streamlines how you track your expenses and makes it easier to keep records.
- Do smart planning—You need to plan for tax season by researching and estimating what you will owe in taxes throughout the year. Set aside funds regularly, or even opt to pay monthly or quarterly so you’re not scrambling to find the funds when you file.
- Get a good record-keeping system—Develop a clear and consistent system for recording all your business income and expenses. This can be a physical filing system or a cloud-based accounting software.
- Categorize your transactions accurately—This ensures accurate tax calculations and simplifies your reporting at tax time. Common expense categories include rent, office supplies, marketing costs, travel, and salaries.
- Keep organized receipts—Always get receipts for your business transactions and costs, and store them securely. File physical receipts or scan and store them electronically.
- Use technology—Many accounting software programs specifically cater to small businesses. These can automate tasks like categorizing your expenses, generating reports, and even helping with tax calculations. Consider exploring these options to save time and ensure your records are accurate and up-to-date.
Planning your business budget
Building a realistic budget is essential to ensure your business stays financially stable. A well-thought-out budget helps you put resources where they’re needed, plan for future growth, and take care of unexpected expenses.
Pay attention to marketing and advertising, supplies and inventory, personnel, and debt costs when you plan your business budget.
Marketing and advertising
Marketing and advertising are critical as you promote your business and attract customers. Here’s how to plan for these expenses:
- Determine your marketing channels—Costs can vary depending on whether you go for digital marketing, print ads, TV/radio spots, or event sponsorships.
- Set your goals—What do you want to achieve with your marketing efforts? Are you looking to increase brand awareness, generate leads, or boost sales?
- Allocate your budget—A good rule of thumb is to spend 5% to 10 per cent% of your revenue on marketing and advertising. New businesses might need to invest more to build their brand.
- Track and adjust—Keep an eye on how your marketing campaigns are performing and adjust your budget based on what works best.
Supplies and Inventory
You need a steady supply of materials, equipment, and products to keep your business running smoothly. Here's how to budget for these:
- List what you need—Identify all the materials and equipment you need to operate your business day to day.
- Estimate costs—Research prices and get quotes from suppliers to get a clear idea of your total supply and inventory costs.
- Plan how much inventory you’ll keep—Make sure you have enough inventory to avoid running out, but not so much that you tie up a lot of capital.
- Include extra costs—Remember to budget for shipping, storage, and handling fees.
Personnel
Your team is a key part of your business's success. Budgeting for personnel involves more than just paying people. Here are some things to consider:
- Competitive salaries and wages—Determine competitive salaries for your employees based on industry standards and the roles you need to fill.
- Benefits and perks—Offering perks makes your company more competitive in the job market. Include the cost of health insurance, retirement plans, paid time off, and other benefits.
- Contractors versus employees—Decide if you need permanent employees or if contractors can handle specific tasks. Contractors can offer you flexibility and help you take on less risk, but they might cost more per hour.
- Training and development—Budget for ongoing training and professional development to keep your team skilled and motivated.
Debt costs
If your business has loans or other financing arrangements, it’s important to include the cost of that debt in your budget. Here’s how:
- List all debts—Make a list of all loans, lines of credit, and other financing arrangements your business has.
- Calculate monthly payments—Figure out the monthly payments for each debt, including both principal and interest.
- Know your interest rates—Be aware of the interest rates on your debts and factor these into your calculations.
- Plan for repayment—Make sure your budget includes enough funds to meet all debt obligations and avoid late-payment penalties.
Running a successful business requires you to be disciplined financially and plan strategically. By establishing a solid business banking foundation, understanding your tax obligations, and thoughtfully estimating your costs, you'll be well on your way to managing your finances and launching a successful business!