Each business industry comes with its own guidelines and recommendations for accounting, taxation, and even insurance. Though many are the same for most service only businesses, there are differences that you should be aware of. How and where you provide your services are incredibly important particulars in determining your responsibilities and your expenses. Even two business consultants would have different needs, depending on how they operate their practice.
Differences begin to surface when things like equipment and furniture are involved or where the service takes place. For example, a business trainer and a photographer each offer services, but how and where they offer those services can differ greatly. It is here where you need to understand your obligations to the government as well as to your own business.
Accounting & Bookkeeping Practices
Accounting practices go hand in hand with your taxes. Set yourself up so that come the end of the year completing your taxes in simple and relatively stress free. If you don’t understand how to get your bookkeeping set up, get help before it gets overwhelming.
Depending on the type of consulting work you do you may want to track your revenue sources separately. This is a good idea when you are offering different services to your clients and would like to know at the end of the year where you’re making your money and ultimately focus your marketing.
For someone like Shelagh Cummins (profiled in the features blog), I would recommend tracking revenue at a minimum for: Grow Your Business (or your big program/promotion), monthly one-on-one consulting, and speaking engagements.
The types of expenses I would expect to see from Shelagh would be office supplies, office expenses (this includes rent/utilities – unless you work out of your home), advertising & promotion, insurance, conferences, training, meals & entertainment, bank fees, professional fees, and mileage (unless the business owns the vehicle, then all vehicle expenses).
Insurance – Do you have what you need?
Though we are not insurance providers we want to offer some food for thought for consultants based on our own experiences. Regardless of what you decide to do, do your research and figure out what will be best for you and your business. Remember, insurance is tax deductable and could save you and your business a lot of headache.
- Do your clients come to you or do you go to them? This is incredibly important when determining if you need insurance. If a client comes to you and falls on your property that is your responsibility. Conversely, if you or an employee goes to your client’s, are you covered in case of an accident en route?
- If you work out of your home you might be able to increase your home owner’s coverage to act as your business insurance – check with your carrier.
- Is there a chance that advice you give or a service you provide could negatively impact your client to the point of a financial loss? You may then want to consider professional liability insurance.
Taxation – What you can expense!
Consultants and coaches are service providers, much like accountants, that have very little overhead (unless you have a commercial space); this doesn’t mean though that there are not a lot of deductions to be used. All of the expenses mentioned under accounting practices are all applicable tax deductions.
Other expenses that you will most likely have, though quite infrequently, will be large capital purchases. Perhaps you need a new computer or desk and chair; these are much larger purchases and though you would consider them to be an office expense, they are actually not in the usual terms. Once your office supply is greater than an adding machine (according to the CRA) it technically becomes a depreciable asset and is usually expensed as “equipment and furniture”. Once you get into this territory you will want to speak to a professional or do a lot of homework on when you need to claim capital costs and how to depreciate your item.
Most consultants and coaches work from home. As a sole-proprietor you have the ability to take advantage of the “Business-Use-Of-Home” expenses. These are the expenses that your business and your personal life share, while your business occupies a portion of your home. Internet, utilities, and mortgage interest are the main expenses, but there is the ability for more. A portion of your maintenance, house cleaners and property taxes can also be included. Remember though, you can only expense a portion of these expenses based on the actual square footage your business occupies – an office, part of the entry, bathroom and kitchen. Don’t get carried away, it needs to be realistic and provable.
|Business Expenses (just to name a few)
Advertising & Promotion (including printing costs for business cards, websites, online ads…)
Office Expenses (including business telephone, office supplies – stationary, rent only if you have a commercial space, etc.)
Supplies (not to be confused with office supplies, supplies are items you MUST have in order to do your business – a florist needs flowers, designer needs props, a baker needs flower, etc.)
Automobile (track your mileage if you share the car for personal use, gas, insurance, maintenance if the business owns it)
Insurance (CGL, E&O, PL)
|Business Use of Home Expenses
Mortgage Interest, property taxes OR rent
Utilities shared (heat, hydro)
Maintenance (inside & out)
For more information direct from the CRA, follow these links to the allowable business expense listing and the income guide for businesses.