INFOCUS - 333khiz8kiycv9po28mo1b14-wpengine.netdna-ssl.com€¦ · inFocus Spring 2014 – 2 They...

THE ENTREPRENEUR ISSUE

INFOCUS

In this issue:

A message from the Managing Partner

Important dates to remember

Preparing for Canada’s Anti-Spam Legislation

The next stepfor you and your business

Leader of the pack

Detecting and preventing fraud in your business

How to avoid bankruptcy

Cash is king

3

4

5

8

10

12

14

15

f

t

in

Facebook.com/CroweSoberman

Facebook is a household name and

might have already won its place in

your social calendar. It is a great way to

stay in the loop with family, friends and

acquaintances alike. Now, you can see

what is going on at Crowe Soberman –

view event pictures, take surveys or just

comment on our wall – we want to hear

from you!

Twitter.com/CroweSoberman

Twitter is a social networking and

micro-blogging site. Think of it as your

personal news feed for up-to-date

Crowe Soberman information.

Linkedin.com/companies/Crowe-Soberman

LinkedIn is a professional and business

networking site that allows you to

connect to your Crowe Soberman

advisor(s). You can see what they are

working on and recommend their work.

Youtube.com/crowesoberman

Since 2005, YouTube has been creating

instant stars. Your neighbor, co-worker

or the random talent you see at the

street corner can shoot into stardom

with this popular videosharing website.

Crowe Soberman has joined top global

brands, celebrities and extraordinary

ordinary people to provide you with

video content featuring our professionals

answering your frequently asked

questions. Check out our YouTube

channel today.

Join our online community

inFocus is prepared for the general information of our clients and other friends of Crowe Soberman. Specific professional advice should be obtained prior to the implementation of any suggestion contained in this publication.

3

www.crowesoberman.com

inFocusSpring 2014 – 2

They had removed the tip bowl. For the past few years, since I became a lover of their medium roast Breakfast Blend, the customary bowl and sign had sat in front of the cash register asking for the benevolence of Starbucks patrons. It was now replaced with a sign suggesting we use a mobile app to tip baristas. I hadn’t downloaded it yet, so I surreptitiously said to the cashier to keep the change. It was all I could do.

This got me thinking about the technological advancements happening in Starbucks, other coffee shops or for that matter all small businesses. It is astounding how in the last five years technology has changed the way companies interact with their customers. The speed at which change is happening is so fast, it is a wonder how business owners keep pace with innovation.

Take for example, in-store payment systems. We have gone from exchanging paper and coins, to swiping plastic, to

tapping cards, to now displaying our mobile phones. (One of my daughters helped me add the Starbucks app that very night.) PayPal has just announced that consumers can use their smartphone app at select bars, restaurants and food trucks in Toronto. With a quick glance of your photo verification, GPS, and a smile, merchants can charge your account where your credit card information is held. For consumers this means more options and convenience. And, what do these advancements spell out for the business owner? New infrastructure, new systems to learn and deploy, and quite possibly a new investment of resources (mostly monetary) are essential to stay competitive in the modern market.

But technology is not the only concern of the entrepreneur. With the list of changes coming down the pipeline, the next few months will pose a challenging time for business owners in Ontario.

One such change is the Ontario government’s announcement to raise the minimum wage from $10.25 to $11 per hour, effective June 1. While not a significant hike, the 7.3 percent pay increase for smaller operations may lead business owners to re-evaluate their costs to keep the budget afloat. A payroll increase could mean cutbacks in other areas of the business, which may have damning effects on the quality of service or products.

A MESSAGE FROM THE MANAGING PARTNERJerry Cukier, BComm, CPA, CA, Jerry Cukier Professional Corporation, Managing Partner

“Change is inevitable and it is one of those things you have to manage – whether as a result of forces within or outside of your control.”

4

www.crowesoberman.comAudit | Tax | Advisory

Also on the rise, Canada Post has introduced a new tiered pricing structure for their services. Higher prices went into effect at the end of March. Furthermore, in February Canada Post began their gradual cessation of door-to-door mail delivery, which is expected to take five years to complete. In terminating a service that many of you may rely on to reach your customers, how do you plan to respond to these changes?

Well, one thing is certain: without a plan, one fails.

On July 1, Canada’s Anti-Spam Legislation (CASL) will come into effect and will change the way you market, conduct sales and communicate with others about your services or products. CASL has fast become a hot buzz word in business circles, leaving many terrified about the severe financial penalties (in the millions of dollars) one can incur. The good news is, we clarify the new rules here, including identifying exemptions and explaining consequences, so you can achieve compliance in time.

In our very first issue of our newly renamed newsletter – inFocus, we dedicate articles to some of the ongoing challenges entrepreneurs are faced with day-to-day. We’ve also chosen to focus on major changes that are coming, some of which I’ve mentioned, and the risks they

in

pose to your business. However, always choosing to be optimistic, I might add you may discover within these situations opportunities for your business to differentiate itself.

Change is inevitable and it is one of those things you have to manage – whether as a result of forces within or outside of your control. In the next few pages, our experts caution readers on some of the traps to avoid as you manage these developments, but, more importantly, they provide you with the tricks of the trade to ensure your bottom line is a healthy one in the midst of uncertainty.

I encourage you to read on and contact any one of our advisors to help you plan to succeed.

JERRY CUKIERJerry is the Managing Partner of Crowe

Soberman and has been a member of the firm’s

Management Committee since 1997. Jerry

is deeply committed to growing the firm and

providing leading edge advice.

Connect with Jerry at: 416.963.7104 or

[email protected].

http://ca.linkedin.com/in/jerrycukier

Personal tax deadlines

Due to the CRA internet service interruption, the deadline for filing individual tax returns for 2013, if you and your spouse do not have self-employment income, is May 5, 2014. Personal returns filed on or before this date will not incur interest or penalties. The deadline is typically April 30.

Deadline for paying any income tax balance owing for 2013 – April 30, 2014, however, due to the CRA internet service interruption, any income tax balance paid of or before May 5, 2014, will not incur interest or penalties.

Important dates to remember

Continued on page 7

5



On July 1, 2014, much of Canada’s Anti-Spam Legislation (CASL) will come into force. CASL is intended to promote e-commerce by deterring spam, identity theft, spyware, viruses, phishing and the like. To some degree, individuals and organizations that make use of commercial electronic messages (CEMs) in Canada will need to comply with this law or potentially face hefty fines.

Crowe Soberman values and respects the relationships we have made with you. As a firm that regularly communicates with our clients and friends, our purpose in writing this article is to let you know what steps we are taking to ensure that we are not sending information to you that could be interpreted as SPAM under CASL. I will only cover the portion of CASL that pertains to sending CEMs.

The gistThe Canadian Government defines CEMs as “any electronic message that encourages participation in a commercial activity, regardless of whether there is an expectation of profit.” CEMS apply to “electronic messages” and “electronic addresses which applies broadly to all telecommunication. Common examples of CEMs are messages to email addresses, social networking accounts, instant messages sent to a cell phone and so on. It does not apply to telephone calls, faxes or traditional mail.

CASL has three basic rules for businesses to follow when sending CEMs. Businesses must:■ have expressed or implied consent to

send CEMs;

■ (clearly and simply) identify who is sending the CEM or if someone is doing it on another person’s behalf; and

■ provide a way for recipients to unsubscribe from receiving messages in the future.

It is important to understand the difference between express and implied consent. Express consent means that the recipient has explicitly agreed to receive electronic communication from the sender, such as opting in to receive inFocus by email. Implied consent is a tentative agreement between sender and recipient, such as dropping off a business card at a trade show. When consent is implied, CASL dictates that the sender may only continue to communicate with the recipient for two years unless express consent is given during that time. It is only six months if responding to an inquiry or application.

ExceptionsWhere CASL gets a little more complicated is in the various exceptions to these rules. For instance, CASL does not apply to

@

@

@@ @@

@

@

@@@

@

@

@ @@

@ @@ @ @@ @

@@@ @@ @

@

@ @@

PREPARING FOR CANADA’S ANTI-SPAM LEGISLATIONHeather MacDonald-Santiago, Business Development Manager – Marketing & Communications

6


CEMs where the recipient:■ has a “family relationship” or “personal

relationship” with the sender and they have had direct, voluntary, two-way communication;

■ is an employee, representative, consultant or franchisee of the same organization as the sender and the message pertains to activities of the organization;

■ is an employee, consultant or franchisee of an affiliate organization to the sender. Hence the organizations have a relationship, and messages sent concern the activities of the recipient’s organization;

■ has made an inquiry, complaint or has solicited a response;

■ is being sent a message to enforce a legal right, such as messages sent for debt collection, licensing, tariff and enforcing contractual obligations, etc.;

■ is receiving the message through an electronic messaging service if the identification information and unsubscribe mechanism are conspicuously published and readily available and the recipient consents to receive CEMs (such as on banking websites); and

■ was referred by an individual with an existing relationship to both the sender and the recipient, providing that it is a first-time response and the full name of the referrer is used.

Registered charities and political organizations that are raising funds or contributions are also excluded under specific circumstances. There are also exceptions to the need for consent (express, implied or otherwise), which include CEMs sent:■ as a quote or estimate requested by a

recipient;

■ during the course of a commercial transaction;

■ during the course of delivering a product or service;

■ when providing warranty or safety information related to your product or service;

■ when providing factual information about a subscription, membership or loan information; or

■ when you are providing employment or benefits information.

Crowe Soberman has taken much care over the years to ensure that any distribution lists that we use for our

electronic newsletters and invitations are permission-based. We ensure that the sender is clearly and accurately identified and we include a clear and obvious method for our contacts to unsubscribe from future marketing communications.

Going forward, Crowe Soberman will be taking additional steps to be compliant with CASL which include the following:■ Establishing a CASL-Readiness

Committee for our office to evaluate and address how CASL applies to our operations, policies and marketing. This will be ongoing.

■ Taking steps to improve our data management systems.

■ Determining the various types of communications that we make, of the consent that we already have and look to obtaining express consent from new and existing clients and contacts over the next several weeks.

■ Removing any email addresses we have obtained under the implied permission rule by July 1, 2017 unless we receive explicit permission from you to continue contacting you. We will review these lists on a regular basis.

■ Reviewing and revising, if necessary, any contracts we have with third-parties for CASL compliance.

■ Promptly unsubscribing any people or business who request it.

■ Continuing to ensure that our email subject lines are straightforward and not misleading.

■ Including a postal address or link to our address in the CEMs sent to you, and a

“...It is important to provide you with our interpretation of how the section of CASL pertaining to CEMs affects our business’ relationship with you and what steps we are taking to uphold this law.”

7



link to allow recipients to unsubscribe if they wish.

■ Tracking how and when we obtain your consent, since the burden of proof is on us to show that consent was obtained.

I am not a lawyer, nor is this article intended to be legal advice or an all-encompassing interpretation of the law. However, we do feel it is important to provide you with our interpretation of how the section of CASL pertaining to CEMs affects our business’ relationship with you and what steps we are taking to uphold this law. If we contact you via electronic means, we may contact you before July 1, 2014 in order to get express consent to deliver CEMs to you that are CASL compliant. Kindly respond if you would like to continue hearing from Crowe Soberman.

There are a number of very good resources on CASL, which clarify or interpret the law and all of its many facets. If you would like to know more, a good starting place would be the Government of Canada website (fightspam.gc.ca). And if you have concerns about how CASL affects your business, you should consult with a legal professional or consultant who is knowledgeable about CASL.

HEATHER MACDONALD-SANTIAGOHeather is the Business Development and

Marketing Manager at Crowe Soberman.

Heather has over 19 years experience within the

professional services industry.

Connect with Heather at: 416.963.7160 or

[email protected].

http://ca.linkedin.com/in/

heathermacdonaldsantiago

in

June 16, 2014

• Secondpersonalinstalment for 2014.

• Deadlineforfiling2013individual income tax return if you or your spouse has self-employment income. However, any tax balance owing must be paid by April 30, 2014 (or May 5, 2014 per page 4).

June 30, 2014

• Deadlinefortaxpayersin the construction business reporting on a calendar year basis to file information return T5018 to report all payments greater than $500 paid or credited to contractors for construction services. From CRA website: The T5018 information return is due six months after the end of the reporting period you have chosen.

Important dates to remember (con't)

ConsentYou must have expressed or implied consent to send a message.

IdentificationYou must clearly and simply identify yourselves and anyone else on whose behalf the message is sent.

Unsubscribe Mechanism

In every message you send, you must provide a way for recipients to unsubscribe from receiving messages in the future.

3 SIMPLE RULES TO FOLLOW WHEN SENDING CEMS

Reference: Canada’s Anti-Spam Legislationwww.crtc.gc.ca/eng/casl-lcap.htm#tabs1_1

8


Have you spent a great deal of your working life creating a successful small to medium-sized business (SMB), only to realize that retirement is on the horizon? Succession planning should become your priority several years before retirement or any transition approaches. It can take three to five years to put together an effective succession plan and execute it, while ensuring that you maximize your business sale or transfer price. If caught unprepared, you may have no other option than to simply close your business or dispose of it cheaply and inefficiently (think—tax).

This article is meant as a primer. How can you maximize the value of your business and after tax dollars, while ensuring a smooth transition of your business to new owners?

Common missteps that we see caused by planning failures include:■ Unreliable financial information;■ Overly centralized management; ■ Non-transferable goodwill;■ Poor exit timing; and ■ Too little, too late tax planning.

Steps to take and things to consider:

1. Identify and target potential new owners Assuming that your business will continue to operate indefinitely, there are several ways to sell the business, including selling to a third party, a family member, management, or to investors. Identifying at least two “special purchasers” has a massive impact on exit price. You must have two parties with special interests and/or synergies with your business to bid against each other.

2. Ensure the company’s financial information is accurate This will help potential successors and business valuators ascertain the value of your business. You may want to consider increasing the level of assurance on the annual financial statements, as buyers will be more trusting of statements that have been audited or at least thoroughly reviewed by a public accountant for several years.

Purchasers will also want to know the potential of your business in the future. For instance, a strong, recurring revenue stream increases the value of the company by instilling confidence in successors and, thereby, increasing the worth of the business. Prepare well-supported projections plotting out the next five years of profit expectation. Value is all about future expectations. History is simply a benchmark to help make assumptions about tomorrow’s potential.

3. Deciding on the right time to sell Business, external and personal factors all come into play and should be considered. For instance, sell when: ■ You have established upward sales/

profit trends;■ Key management is aligned with your

objectives and able to transition with the business;

■ Tax planning is in place; ■ The market is strong and there are

purchasers readily available; and ■ You are in a place of financial security,

under no true compulsion to transact.

Jim Muccilli, MBA, CPA, CA•IFA, CBV, CFE, ASA, CFF, Partner, Julie Zylberlicht, CPA, CA, CBV, CFF, Manager,Alisa Zorina, HBA, CPA, CA, Specialist – Valuations | Forensics | Litigation Group

THE NEXT STEPFOR YOU AND YOUR BUSINESS

9



4. Preparing your company Mold your company so it possesses the qualities prospective buyers will be attracted to. Purchaser objectives are to minimize risk while maximizing their return. The following suggestions are ways to increase the value of your business to prospective buyers: ■ Build and maintain a strong,

transferable customer list and reduce economic reliance on any one, or small group of customers;

■ Create a stronger recurring revenue stream by putting in place long-term contracts or some other incentive/loyalty program;

■ Maintain a strong and up-to-date physical infrastructure; and

■ Have a knowledgeable and experienced management team (as prospective successors will want assurance that when you leave, key success factors, knowledge and skill remains with the business).

5. Goodwill In order to increase the value of your business, it is important to create commercial saleable goodwill, and reduce any personal or individual goodwill, since the latter has nominal, if any, value to a new owner.

Ways to create commercial goodwill include: ■ Decentralizing control and knowledge; ■ Sharing contacts and transferring

personal relationships to existing management; and

■ Focusing on building the reputation of the business and brand (instead of any personal reputation).

6. Capital gains exemption (if available)When selling your business’ shares, the capital gains exemption (CGE) is a great way to avoid paying taxes. The CGE is a tax benefit for individual shareholders of Canadian private businesses, which meet the qualifying conditions (as defined by the Income Tax Act). That is, each individual shareholder avoids paying taxes on up to $800,000 (as of 2014) of capital gains.

In order to ensure that the shares of a corporation will qualify, your business may need to be “purified”. To “purify” the business, redundant and ineligible assets should be removed from the balance sheet and any non-business related expenses should be removed from the income statement. This process may need to precede the sale date by two years.

7. Estate planning Estate freezes, combined with family trust and holding company structures can potentially transfer a business to family members and provide significant tax benefits. This strategy allows you (the original owner) to retain (and withdraw over time) the current value of the corporation while transferring future growth to others.

Advantages of this strategy: ■ The ultimate amount of income tax

payable on death can be estimated; therefore, you can purchase sufficient life insurance to guarantee liquidity or be able to maintain enough funds to pay those taxes;

■ Minimizes the potential future tax liability by income splitting;

■ The current business value can be paid out over a period of time;

■ You (the original owner) can retain control of the business while your family members join the business, allowing for a smoother transition; and

■ Potentially allows multiple CGEs to be ultimately utilized among family members, thereby creating more tax savings overall.

8. Determine the fair market value Before selling your business, enlist a Chartered Business Valuator (CBV) to assist with calculating the value of your business. This will help manage expectations, while allowing you to take advantage of opportunities to enhance the value of your business prior to sale as described above. The CBV will help you to identify key value drivers, purchasers perceived risk considerations, economic and competitive issues as well as optimal timing and structure.

9. Assemble a team well in advance Start thinking transition five to seven years before it will happen to maximize value. It would be effective for you to assemble a team including management, your lawyer, accountant and a chartered business valuator, to help execute the above recommendations.

JIM MUCCILLIJim is a partner in the Valuations | Forensics

| Litigation Group at Crowe Soberman. Jim

has worked in this field for over 20 years and

brings with him a vast knowledge in the areas

of business valuation, loss quantification and

forensic investigations. He is also a qualified

expert witness.

Connect with Jim at: 416.963.7132 or

[email protected].

http://ca.linkedin.com/in/jimmuccilliin

10


Recently, a number of us at Crowe Soberman were fortunate to meet a young fashion designer and visionary entrepreneur, Laura Siegel.

Laura is a Toronto native who launched her first socially conscious collection in 2012. Laura’s identity as a designer has been shaped in large part by her encounters with artisans in Kenya, Peru and India. These artisans, usually women, have practiced their crafts for generations. The sale of these pieces supports their families and in some cases sustains entire communities.

The sharing of knowledge between generations is both an economic and a cultural process; families and communities are built and strengthened by this grass roots entrepreneurialism, and Laura and her company have been able to provide guidance, structure and support to these women and their businesses.

What is important to note is the surprising number of commonalities between the stories of these artisans and Canadian women entrepreneurs.

Women retain ownership in almost half of the small and medium sized enterprises in Canada. In 2011, the economic contribution of female-owned business was an estimated $148 billion, with a forecast increase of 10 percent over the next 10 years, according to “Women Grabbing the Baton,” a recent RBC Economics Report. There are as many reasons for starting a business as there are business start-ups. We know Canadian women tend to start businesses because they feel passionate about an idea and/or to make life better for their families, whether by providing more financial resources or more flexibility in terms of time. A 2012 Forbes article reinforces this, stating women tend to start

businesses that “align with personal values and offer freedom and flexibility.”

Not only do women start businesses for reasons that may differ from men, women entrepreneurs tend to perceive or experience different impediments to growth than do their male counterparts. The RBC Economics Report states that female-led businesses face more impediments in obtaining financing for expansion. A wide-ranging British study identified “lack of sufficient managerial experience, capital and access to business networks” as posing particular challenges to women business owners.

At Crowe Soberman, we have been working with women business owners since the inception of our firm. In 2015, we will celebrate the 20th anniversary of our Women for Women program, a networking and resource sharing program established

Susan Hodkinson, BA, Chief Operating Officer

LEADER OF THE PACK

11



to provide opportunities for our female professionals to get to know our female clients and colleagues better. As the firm with the highest percentage of women partners in our market, we have a special affinity for women business owners. Your successes are our successes.

Here, three of our female partners offer some ‘words of wisdom’ for women who are business owners:

To learn more about our Women for Women program and events, visit our website or connect with one of our advisors.

SUSAN HODKINSONSusan Hodkinson is the Chief Operating

Officer at Crowe Soberman, where she has

management responsibility for the operations

of the firm, including finance, information

technology, human resources, facilities and

marketing.

Connect with Susan at: 416.963.7172 or

[email protected].

http://ca.linkedin.com/in/susanhodkinson

“Women often negotiate more effectively for others than they do for themselves. As your business advisors, we understand your business and can provide perspectives and options you may not have considered prior to a big “ask” or negotiation. Another set of eyes always helps!”

Chandor Gauthier, Partner – Audit & Advisory

“It is important that woman entrepreneurs think globally in order to really expand their businesses to the maximum potential. Working with our affiliates around the world, I see multiple opportunities and enjoy using my expertise and connections to open up new frontiers.”

Karyn Lipman, Senior Partner – Tax

in

“Support and expertise that goes beyond simply understanding the financial results of your business is essential in order for you to continue to see your business grow.”

Debby Stern, Deborah Stern CPA Professional Corporation, Partner –

Audit & Advisory

12


Where illegitimate opportunity for personal gain exists with a small chance of being caught, there is a higher likelihood that the opportunity will be exploited.

Small and medium-sized businesses (SMBs) are highly susceptible to such opportunities. SMBs make up 32 percent of occupational fraud cases reported in a 2012 survey by the Association of Certified Fraud Examiners (ACFE).

Fraud is not cheap. The ACFE survey also shows that private companies experienced median losses of $200,000 per incident. This loss is in addition to time and energy spent dealing with the fraud once uncovered. Since nearly half of victim organizations do not recover the losses, prevention and early detection is the most cost-effective way to limit fraud.

Understanding the types of fraud is the first step to prevention. External fraud includes theft of customers’ financial information, mobile fraud, and other intentional external ruses. Internal fraud, also known as occupational fraud, includes billing schemes, corruption, and other internal machinations performed for personal gain to the detriment of the business.

Often because of limited resources and/or internal control weaknesses, such as lack of segregation of duties, the fraud risks assumed by SMBs differ from those faced by larger organizations. They frequently include the following:

1. Billing schemes As the most common fraud committed in SMBs, it encompasses instances where an employee sets up bogus entities that charge the employer for fabricated services, expenses or personal items.

2. Cheque tampering Consist of instances where an employee steals, and/or alters cheques.

Jim Muccilli, MBA, CPA, CA•IFA, CBV, CFE, ASA, CFF, Partner, Alisa Zorina, HBA, CPA, CA, Specialist, Julie Zylberlicht, CPA, CA, CBV, CFF, Manager – Valuations | Forensics | Litigation Group

“Being proactive about fraud prevention and detection is paramount. Providing ethics training and fraud awareness to employees can significantly reduce losses in organizations of all sizes.”

DETECTING AND PREVENTING FRAUD IN YOUR BUSINESS

13



3. Payroll schemes Occur when an employee with responsibility over payroll adds ghost employees, or claims fictitious overtime.

4. Skimming schemes These schemes encompass instances when cash is stolen from the business before it is recorded. An example is the theft of cash payments from customers while manipulating the accounting of receivables and/or sales.

5. Non-cash fraud Consist of misuse or theft of non-cash business assets, and can include theft of inventory, proprietary trade secrets, customer lists, etc.

Being proactive about fraud prevention and detection is paramount. Providing ethics training and fraud awareness to employees can significantly reduce losses in organizations of all sizes. Furthermore, the following preventative actions can be taken to lessen the chances of fraud in SMBs:

1. One top-ranking detection method is to implement a fraud-reporting mechanism, which allow employees to report anonymously potential fraudulent activity.

2. Increase perception of proactive fraud detection by making corporate fraud policies highly visible.

3. Retain forensic accountants or risk consultants to review and implement fraud policies and controls.

4. Instill integrity into corporate culture.

5. Increase segregation of record-keeping and cash handling duties.

6. Conduct pre-employment background checks.

7. Pursue an open-door policy to enable communication.

8. Conduct anonymous surveys of employee morale.

9. Watch out for red flags discussed below.

Red flags

As employees gain seniority in the business, especially top management, a degree of caution should be exercised as more reliance and trust is placed on them. Specific red flags act as warning signs and should not be overlooked in lieu of faith in long-term employees. The ACFE fraud survey indicates that although only 25 percent of fraud is committed by employees with more than 10 years tenure, the cost of fraud generally increases with the level of seniority of the perpetrator.

Drastic changes in lifestyle of key employees, including sudden purchases of luxury items, can indicate unusual deviations from known purchasing capabilities. Living beyond their means is an indicator in over one-third of fraud cases reported in the ACFE survey, so do not be quick to dismiss employees deviations as lottery winnings.

Vacations, or lack thereof, is another red flag. Employee reluctance to let someone else cover the position for a short period of time demonstrates excessive control issues that can stem from the employee having something to hide. Be wary if management exhibits such behavior along with long hours spent at the office and reluctance to delegate basic tasks. Dedicated employees

help the business prosper, while employees dedicated to covering their tracks stump business growth.

The impact of fraud is not only financial but can also damage reputation, reduce morale and impact relationships with stakeholders that have a vested interest in effective control of the business’ assets.

If you see multiple warning signs exhibited by employees and unusual fluctuations in financial results, take the time to check it out. It may not be fraud, but active vigilance will reduce the risk of getting caught off-guard.

JIM MUCCILLIJim is a partner in the Valuations | Forensics

| Litigation Group at Crowe Soberman. Jim

has worked in this field for over 20 years and

brings with him a vast knowledge in the areas

of business valuation, loss quantification and

forensic investigations. He is also a qualified

expert witness.

Connect with Jim at: 416.963.7132 or

[email protected].

http://ca.linkedin.com/in/jimmuccilli

in

14


It is difficult to sustain a business operation and at the same time deal with demands from your banker, suppliers, services providers, or CRA’s requirement to pay and garnish bank accounts. When you run into a situation like this and you do not have the ability to meet such demands, you are in financial distress. This may cause other problems in your personal life such as inability to focus, marital breakdown, shareholder disputes and family disputes. The questions to ask yourself are: what can you do to get out of such a situation and into a healthy financial one; how do you avoid the embarrassment of bankruptcy or the winding up of your business?

A “proposal” – an alternative debt solution.

A proposal is a legal form of debt solution, administrated under The Bankruptcy and Insolvency Act of Canada. A proposal or a consumer proposal is a repayment plan or settlement agreement that is negotiated between creditors, the debtor, and the administrator or trustee.

A consumer proposal, is intended for individuals who have debts of less than $250,000, excluding the mortgage on the principle residence. It can be filed by a corporation, or an individual with liabilities over $250,000.

A proposal or a consumer proposal can be made at any time when you become aware that you are unable to generate sufficient income to repay your liabilities. Sure signs

of problems are when you are not paying all your bills; when your bank account is garnished; or your taxes are in arrears and/or a certificate is registered against your real estate, when you receive collection notices; or suppliers stop delivering and demand that you pay cash on delivery (COD).

To proceed, you will require the assistance of a trustee in bankruptcy or an administrator of consumer proposals. A trustee will carefully examine your financial affairs and assist you to develop a plan to present to your creditors.

Once a plan is developed, a formal proposal will be filed in the prescribed manner with the Office of the Superintendent of Bankruptcy. The creditors will be notified to consider the Proposal, and to vote on the terms. Where there is a disagreement, negotiations will be initiated, until all parties are satisfied with the terms of the proposal.

A proposal is a contract with your creditors which allows a continuation of your business operation or practice, and enables you to retain control over the operation and your assets. It freezes ongoing interest, reduces your payments to a more manageable amount of once per month, and provides an immediate stay of proceeding to protect you from creditors’ legal actions and/or collections. This procedure allows a variety of terms to satisfy both your needs and those of your creditors. When the approved terms are met in full, you are released from any further legal obligations to those creditors.

That being said, a proposal is an attractive debt solution providing help to a person or a business taking back power and control of its financial affairs. This form of debt solution has become very popular in Canada due to its accessibility and creditor acceptance.

FEI XUEFei is an Estate Administrator and Registered

BIA Insolvency Counsellor with Crowe

Soberman's Corporate Recovery and

Turnaround Group.

Connect with Fei at: 416.963.7156 or

[email protected].

HOW TO AVOID BANKRUPTCY Fei Xue, BAS (Hons), Estate Administrator, Registered BIA Insolvency Counsellor - Corporate Recovery & Turnaround

“The questions to ask yourself are: what can you do to get out of such a situation and into a healthy financial one; how do you avoid the embarrassment of bankruptcy or the winding up of your business?”

15



Sales maximization can make sense, for example where a new product has to break into a market and gain credibility or market share. However, it is important to understand the effect on the business in terms of cash contribution and earnings. This exercise requires sufficient management information and ensuring related systems are able to generate reliable data.

If you have neither the time nor the inclination to deal with these issues yourself, then I advise you hire an expert. With the assistance of an accountant, you are free to continue working on aspects of your business you enjoy. Meanwhile, you can be satisfied knowing important financial details are being managed.

Alternatively, you should sit down with your Crowe Soberman advisor and review your cash flow practices to look for areas of improvement.

PAUL RHODESPaul is a partner in the Audit & Advisory

Group. His professional experience includes

construction, manufacturing, real estate and

internal audit engagements.

Connect with Paul at: 416.963.7217 or

[email protected].

http://ca.linkedin.com/in/rhodespaul

As an entrepreneur either just starting out with a business idea or growing an already established business, it is easy to get buried in the big idea and neglect the administration or business details. Here I highlight three big picture ideas that any entrepreneur should keep in mind.

Working capital:Working capital in the business is likely to be made up of several components. Effective management of cash and near cash items requires that each component, including the systems surrounding it, be reviewed to ensure that it is used optimally. For example: ■ What credit terms are offered to

customers; are different payments terms offered to different groups of customers; are discounts provided for prompt payment; are invoices issued as soon as work is complete.

■ What is the process and policy for chasing overdue accounts; are credit limits reviewed periodically and adjusted as necessary.

■ Are inventory levels minimized, are order quantities optimized for different products.

■ Are corporate income tax instalments decreased where possible, based on expected earnings for the current year; does the company perform any work which is in nature research and development and may qualify for investment tax credits.

■ Consider leaving profits in the business to avoid borrowing, or pay bonuses and loan the net pay back to the company; consider financing specific assets, such as factoring receivables or using SR&ED credits as security.

Maintain a cash flow forecast: Typically, insufficient time is spent on cash and cash flow forecasts while a business is getting off the ground. More often than not, the founder/entrepreneur takes more interest in creating and developing the idea.

Given the amount of cash required by many businesses to finance working capital, you should always monitor and manage cash closely. By identifying future financing needs early, management will be able to pro-actively seek additional funding or take corrective action before it is too late.

Maintaining a cash flow forecast allows you to predict when additional credit is required so you can avoid the need to raise finance at short notice. Delay generally leads to unfavourable terms and higher financing costs.

Control the company’s growth and set the right goals: The downfall of many an entrepreneurial business is to grow too fast and run out of cash, because the focus has been on maximizing sales.

CASH IS KINGPaul Rhodes, BSc, MA, ACA, CA, Partner - Audit & Advisory

in

$$ $$

Crowe Soberman LLP2 St. Clair Avenue East Suite 1100Toronto ON M4T 2T5

Publications Mail Agreement Number 40010965

OUR PRIVACY POLICYAt Crowe Soberman, we have always recognized our responsibility for protecting the privacy of your personal information. Canada’s Personal Information Protection and Electronic Documents Act (PIPEDA) has made privacy an even greater priority.

If you have any questions, comments or concerns about our administration of your personal information, please visit our website for our complete privacy policy or contact us at [email protected].

ABOUT CROWE SOBERMANOur services include Audit & Advisory, Business Diagnostics Solutions, Corporate Recovery & Turnaround, Due Diligence, Estates & Trusts, Management Services, Mergers & Acquisitions, Personal Insolvency, Sports & Entertainment, Succession Planning, SuRE Services for Family Business (Succession, Retirement, and Estate Planning), Tax and Valuations | Forensics | Litigation.

Crowe Soberman – 2 St. Clair Avenue East, Suite 1100, Toronto. ON M4T 2T5T 416.964.7633 F 416.964.6454 Toll Free 1.866.964.7633 www.crowesoberman.comMember Crowe Horwath International

INFOCUS - 333khiz8kiycv9po28mo1b14-wpengine.netdna-ssl.com€¦ · inFocus Spring 2014 – 2 They...

Documents

Transcript of INFOCUS - 333khiz8kiycv9po28mo1b14-wpengine.netdna-ssl.com€¦ · inFocus Spring 2014 – 2 They...