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Adopt Habits / Achieve Goals : January 12, 2024
Anyone who has glanced a non fiction bestseller list over the past few years has likely noticed a book called “Atomic Habits” . The thesis of the book is that small incremental changes to our habits (i.e. atomic units) can lead to significant changes in our lives, over time. He explains the behaviour that drives habits, provides strategies for forming good habits and helps to break bad ones.
I mention this as I was thinking about my goals recently (as one does in a new year) and realized that I had some work to do on defining and refining them. My starting point was an internet search on “how to set goals” which lead me to James Clear’s (author of “Atomic Habits” ) website and this post. He provides some great insight on how to set, attain and measure goals. However, the most interesting insight to me was that the systems (i.e. habits) are more important than the goals:
End of Year Retrospective
As we rapidly approach the new year, with all it's possibilities and uncertainties, it can be gratifying (and revealing) to appraise the current year. We can do this through various lenses. We can examine our accomplishments and failures. We can determine how much we have changed - are we more cynical or more hopeful than we were last year? We can review our goals from the beginning of the year and assess if we were able to achieve all or at least part of them.
Training and Taxes
Most people would agree that lifelong learning is a good thing. It helps to keep you sharp, improves confidence and likely makes you more interesting at parties (assuming you don’t nerd out too much :)). It can also be quite gratifying to acquire new knowledge or a new skill, especially in an area of interest.
In Canada, there are also some tax benefits to be had from training. On an individual level, you are eligible for the tuition tax credit or the training tax credit assuming you :
File an income tax return
You were a Canadian resident for the full year
Tuition or other fees were paid to an eligible educational institution for courses that you took in the year that you are claiming the credit for or to certain bodies for an occupational, trade or professional examination
Is Your Hobby A Business?
Hobbies by definition can be deeply fulfilling. When engaging, you often lose track of time and while the outcome might be important, it is the journey that provides us with most satisfaction. There is a meditative aspect to being deeply immersed in doing something that you enjoy or love and might include knitting, playing video games, or taking photographs of nature.
For some of us, hobbies can actually turn into revenue generating activities which is (quite literally) an added bonus. It seems like the dream to actually earn some money or even make a career out of doing something that you love. Sadly, Revenue Canada (CRA) or whatever revenue agency you happen to be closest to, is in the business of marring perfection and demands closer scrutiny of any activity that brings in cash.
What is Your Value Proposition?
I was talking to a young business owner in the field of digital marketing recently where we shared information about our respective businesses. As I was trying to communicate to him what I did, I could see his eyes glaze over until I said that it was crucial that every business owner, whether or not they have an accountant, to understand their numbers. Amid the the barrage of information I had given him , it was this simple statement that resonated. For me, it was a revelation as I realized that I had work to do on both understanding and communicating my own value proposition.
A value proposition (VP) is a way of communicating the benefits that your business provides or the challenges that it solves, as succinctly and clearly as possible. Ideally, it should be no more than two or three sentences.
Hiring Your First Employee
As discussed in previous newsletters business owners have a hard time. You are required to have a working knowledge of a variety of functions to run your businesses in addition to core work of creating and refining your product and/or service. As you grow you might find that you to start to feel overwhelmed and your work life balance is non existent. It is at this point that you realize you need help.
This is easier said than done as it can be difficult to relinquish control and change the mindset that tells you that no one else can do the job as well or in the same way as you do (which I am certainly guilty of). Of course, this is not true and there is a good chance that an employee will actually do the job better as they might have more expertise and a narrower focus.
Branching Out
There’s a quote from Carl Jung that I really like: “Where your fear is, there is your task”.
During a recent consultation, a client mentioned that she had been wanting to start a business, but was afraid and overwhelmed by the sheer amount of (sometimes conflicting) information available. This resonated with me, as there are numerous times that I have clung to the status quo due to the fear of the unknown.
Excel at Excel (Or Google Sheets)
So, perhaps it won’t be surprising that I’m a bit of an excel nerd. It’s capabilities are impressive and it can used by pretty much anyone who knows how to use a computer. Understandably, many business owners that I have spoken to are intimidated by it or are unaware of its functionality. The good news is that it is fairly simple to use and there are a limitless number of resources available to become better at it.
In my view, every business owner needs to have at least a working knowledge of spreadsheets. It is essential for almost any type of financial analysis as it can provide powerful insights and save you a great deal of time. There are numerous other types of ways in which excel (or google sheets) can help. Some of the ways in which I and my clients use excel include:
Is an Accounting System Really Necessary
I was helping someone set up their accounting on QuickBooks recently and was asked about the purpose of the profit and loss statement and how it was relevant to their business. The question was surprising to me, but I quickly realized that many business owners while understanding that accounting is important often have to figure the why by themselves.
A large number of business owners believe that the primary purpose of an accounting system is to ensure compliance with tax obligations. This is correct, however, a well set up system can be much more than that. It can give you insights into numerous aspects of your business that ultimately ensure its success. Some examples of how it can help
Automate Your Way to Productivity
A few years ago I read a book called the The E-Myth Revisited: Why Most Small Businesses Don't Work and What to Do About It. (which I highly recommend). The gist of the book is that too much time spent working in the business and not enough time spent working on the business is a big reason why 50% of new ventures fail within the first 5 years. In other words, many of us (I am certainly guilty of this) spend too much of our time on the technical or management of the business rather than growing it. The book focuses on the franchise model, which allowed McDonald’s (and everyone since) to expand (and create empires) relatively seamlessly by systematizing, documenting and automating processes.
Why some costs are not immediately deductible
Depreciation is one of those accounting terms that sounds like technical jargon, but is actually conceptually straightforward. It simply refers to the measure by which asset will lose value over time. For example when you buy a car (which are notorious for losing a significant amount of value as soon as you drive it off the car dealership parking lot), it will be worth less each year as it starts to deteriorate. Finally, at some point in the future you will have to replace it.
Survey Says…:
As a business owner, I think a well crafted survey can provide you with a wealth of information about your customers. Creating a good survey, however ( as I have learnt), can take time and effort. It can’t be too long, shouldn’t have too many open ended questions and has to anticipate the needs of your audience. One of my goals is to get more general information on my readers and where there interest and more importantly, their challenges, lie.
A Primer On Business Expenses
The question that almost every small business owner wants to know, especially at this time of year , is what expenses can I deduct to lower how much I owe in tax. This newsletter is not going to reveal anything groundbreaking, but hopefully it is a useful reminder for expenses that you might have overlooked.
First, lets start by looking at what a business expense is. As defined by Revenue Canada it is “a cost you incur for the sole purpose of earning business income.”
Budget 2023 and Your Bottom Line
As many of you know, the federal budget was released last week. They now give these budgets descriptive titles - this one is Making Life More Affordable and Supporting the Middle Class which is an interesting focus (I imagine they have a marketing department that comes up with these). Given that the biggest economic headline from the last year or so has been inflation, I suppose it is important that this budget is seen as an effort to help make life easier for Canadians. Unfortunately, the budget does not have much in the way of inflation targeting nor is there anything significant for small businesses. There are however (as always) some items of interest.
Tax Time Observations
Given my immersion in tax season, and since this is at its core a financial newsletter (despite my occasional meanderings), I thought it might be useful to address some common questions and issues:
Prepping for Taxes
As anyone who reads the news (or this newsletter) knows, tax time is upon us. Anyone can file their taxes from now until May 1st (since April 30th is a Sunday) without penalty. If you owe tax and don’t file by May 1st, a penalty based on the amount of tax that you owe will be charged. Additionally, you will have to pay interest. If you do not owe taxes or are expecting a refund, there are no penalties or interest but benefits to which you might be entitled (child care, gst credit etc.) will be delayed.
RRSP vs TFSA - The Ongoing Debate
If you search for RRSPs vs TFSAs on the internet, there are about 3.6 million results (some of which I have linked to in the past). But, since the RRSP deadline is approaching and I have spent many hours contemplating and discussing the topic, I thought it might be an opportune time to have a brief discussion. Like most money topics, it isn’t necessarily super exciting , but a good decision can literally make you richer
The Salary Question
As we approach the tax filing deadline for T4s (and RL1s in Quebec), I thought it might be useful to (briefly) explore salaries for small business owners, and their implications.
When you’re an employee of a business to whom you are not related, your salary is a representation of the value that you bring to the job that you are doing and is often based on a market rate. If you are a small business owner, you often do not have the luxury of paying yourself a market rate (especially in the early years).
Financial Implications of the Digital Economy
I would like to preface this by saying that as I was going down the rabbit hole of the digital economy, I realized that the term has almost become synonymous with business. The number of business that do not participate in some kind of online activity (whether it is your entire business or some part of it) is increasingly shrinking:
The Opinions of Others
Hope everyone is having a lovely start to the new year! As a gift please find a mild rant below (please feel free to email me with your own opinions on this):
I’ve had various conversations with people on the subject of small business and personal finance which start with “my friend told me”. This can be compared to a game of broken telephone where the original knowledge is interpreted by the various recipients and often results in amalgam of truth and opinion, presented as fact.