Alberta versus BC

Many clients tell us they plan to move BC because of the warmer weather but there are some things that they should keep in mind. Although Alberta and BC have equal small business corporate tax rates of 12%,  Alberta is still the rational choice for your headquarters.

Alberta’s differences over BC:

  1. Higher GDP with an economy size comparable to Finland vs. BC’s economy which is comparable to Romania. In 2017 Alberta grew at twice the rate of BC
  2. More than twice the exports as BC
  3. Alberta is less dependant on oil (a real resource) than BC is dependent on real estate (over-valued)
  4. Higher incomes
  5. No provincial sales tax, no provincial health-care premiums (BC’s monthly premium rate), least expensive motor vehicle licenses and permits, which all mean that in addition to higher incomes and lower cost of living, Albertans have more disposable income to spend on your business.
  6. Personal tax advantages to earning non-eligible dividends at $60,000 in a family.
  7. Alberta has no probate fee. However, in BC, where the gross value of all your real and personal property in BC subject to probate doesn’t exceed $25,000, there is no probate fee and where the gross value DOES exceed $25,000, the probate fees are:

    0.6% of the portion of gross value over $25,000 up to $50,000 and 1.4% for the portion of gross value over $50,000 (Example: $8,900 total probate fees if your gross value is $650,000)

  8. There is a property transfer tax (PTT) in BC. You are charged this transfer tax when you make changes to a property’s title. This tax is based on the fair market value of the land and improvements the tax is: 1% on the first $200,000, 2% from $200,000 up to $2,000,000 and 3% on the value greater than $2,000,000.  (Example: Fair market value of $650,000 property = $11,000 PTT payable)

Edmonton’s advantages over Calgary

  1. While there is money to made from the bigger population of BC, it isn’t worth the headache compared to dealing with a demographic with higher disposable incomes.
  2. Edmonton has a well-balanced economy: Petrochemical industries (reserves second only to Saudi Arabia), technology sectors -AI, nanotech, financial centre (Canadian Western Bank, ATB, Servus, TD, Manulife), retail: The Brick, Katz Group, AutoCanada, Boston Pizza, Pizza 73, Liquor Stores GP, Shaw Communications, Booster Juice, Earl’s, Fountain Tire
  3. Edmonton’s University of Alberta tops the schools in Calgary, so this will always help Edmonton’s real estate.

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Intro to Canadian Sales Tax

You are required to collect 5% of the sales of the goods and services you sell in Canda on behalf of the Canada Revenue Agency.   For provinces participating in the harmonized sales tax HST, it is 13-15%.  You must remit this money to the Canada Revenue Agency on a timely basis.  You can offset the money you collect with input tax credits (the 5% GST you pay on qualifying expenditures).

Important thresholds:

  1. Under $30K of sales in Canada your a small supplier and not required to register for and charge GST.
  2. Under $400,000 of revenue + GST collected allows you to file GST on a simplified method granted your election to use the quick method has been approved. However, you should remit it quarterly on a timely basis.
  3. Under $1.5 million of revenue, you are required to file your GST annually but you should prepay quarterly installments.
  4. Over $1.5 million but under $6 million in sales requires you to file and pay quarterly.
  5. Over $6 million in sales requires you to file and pay monthly.

Selling in o BC, Manitoba, Quebec, and Saskatchewan:

If you have more than $10,000 of sales in each “non-participating” provinces ie BC, Manitoba, Quebec and Saskatchewan, you will need to register for each of those provincial registration numbers individually.  Many clients are not registered in Manitoba or Saskatchewan because their small populations make it hard to surpass $10,000 in annual sales in each province.  For PST you need to enter about 5 numbers into the provinces’ websites to calculate your remittance.  At worst you may need to file BC quarterly and all other provinces annually in addition to the federal GST.

Running a Nail Salon

What are the three most important performance metrics?

The lifetime value of a customer is king, and the three things that drive it at salons are

  1. client retention
  2. technician retention and
  3. retail sales per client.

Client retention. Repeat customers generate a higher return on every dollar spent getting them in the door. Having a client return means higher average tickets–they buy more from you on subsequent visits–and they are also probably recommending you to other clients.

But identifying cash cows is not enough; you have to give them great service, too. Make your staff keep an especially close eye on those who tend to come in more often.

Customers are more likely to develop a bond with their technician than with the salon or the salon’s brand. That’s why technician retention is so important: If your technician leaves, her customers leave with her. In the salon business, technician turnover rates can run as high as 40% annually. That means more than a third of your staff might leave during the course of the year.

A third important, though often overlooked, metric for measuring the health of a beauty salon is retail dollars per client. Salon revenue comes from two sources: services and retail (product) sales. Per square footage, the footage devoted to selling products is more profitable than footage devoted to service.

Salons should aim to generate about 20% of their revenue from product sales and 80% from services. That 20% is as profitable as the 80% coming in from services. Most salons don’t realize that until later on when they’re busy but struggling.

 

How much will I need to shell out in start-up costs and ongoing expenses?

Smaller beauty salons with talented technicians can make good money with only a handful of chairs. Still, there are economies of scale in this business, so a good bet is to have at least five or six chairs (and the same number of technicians).

Once up and running, your biggest expense is people. In the commission-based model, each technician receives a percentage of what he or she brings in. Commissions typically range from 35% to 60%. Some salons use a graduated commission scale to encourage technicians to lure more customers. For example, a technician might keep 35% of the first $1,000 she brings in per week, and 5% more for each additional $1,000. However, if you’re paying more than 50% in commissions, you’re not making any money.

As for other ongoing expenses, rent and property taxes (10% of sales); supplies have been historically 2% but we recommend 2-8%; marketing and advertising has been historically immaterial (under 1%) but we recommend 2% to 5%; maintenance historically has been under 1 % but we recommend budgeting for 3%; and insurance, 2%.

Finally, if you want to stay on the cutting edge, you’ll need some sort of in-house training program. Allot 2% of sales for education–including outside classes and the lost time in-house technicians burn teaching younger staff.  Good salons clock pretax operating margins of 36%.

What are the biggest external threats to your business?

Unless you comply with the Canada Revenue Agency’s recordkeeping requirements in regards to the tips their technicians earn, you will get taxed on the tips your technicians make–meaning you are effectively paying taxes on income you never received. Second, many talented technicians would rather have cash in hand today than wait two weeks for their paychecks.

These trends have given rise to one of the biggest threats to established beauty salons: booth rentals. In this model, technicians rent chairs, or “booths,” from the salon owner instead of sharing those commissions. That way, they get to pocket their cash from customers right away (and the salon owner avoids paying taxes on phantom income).

This is bad news for traditional technicians who boast neither a compelling location nor a big name to lure talented technicians. For example, one salon was doing well until a salon opened across the street and offered a signing bonus for booth renters, plus free rent every fourth week.

Under this method of compensation, the consequences of losing a key technician are dire. Every time a technician leaves your salon to rent a booth elsewhere, you are out not only the revenue from lost clients but also the investment you poured into training the technician or into purchasing the business complete with trained technicians.

In the salon world, the most precious resources are technicians, so keeping them around and happy is critical.

Inventory count procedures

Due to the susceptibility of supplies to misappropriation, supplies should be counted on a monthly basis. The furniture and large equipment may be counted on an annual basis. The tool counts should be conducted by a partner and approved by the second partner. The results of the supply counts are then forwarded to and reviewed by your external auditors.

The individuals conducting the count should sign the supply count sheets upon completion of the count and those sheets should then be forwarded to the other partner for approval.

Daily Cash Sales

The lack of segregation of duties creates an opportunity for staff to misappropriate funds. We recommend that the daily deposits and monthly bank reconciliations be prepared.

Cheques

We recommend that all cheques be used in sequential order. We also recommend all unused cheques be stored in a locked room or cabinet until they are ready to be used in order to minimize the risk of misappropriation. We also recommend that the owners obtain the bank statement directly from the bank and review the bank statement and supporting documentation for handwritten cheques and other unusual items before forwarding the bank statement for reconciliation.

Computer controls

Virus and spyware protection software should be in place on all individual terminals. The accounting data should be backed up nightly and taken offsite by management. The data should also be backed up monthly and taken offsite by an external auditor.

Our two server hard drives are set up with mirroring software (RAID) so that if one of the hard drives fails the other drive could assist in recreating the information that was stored on the failed hard drive. In addition, we back the server up on a portable hard drive every day.

Nature of controls

Controls are classified as detective controls or preventive controls. Detective controls are designed to identify errors after they have occurred while preventative controls are designed to prevent errors from happening. We recommend management have at least some detective controls in place, including the review of the balance sheet and income statement on a monthly or quarterly basis and a review of actual performance versus budget.

While these controls would likely detect errors or misappropriations after they have occurred it may take more than a month or a quarter to detect the errors and misappropriations. We recommend therefore that the company consider the recommendations in this report in an effort to strengthen many of the preventative controls. The recommended preventative controls will act in conjunction with the detective controls to strengthen the overall control environment of the company.

The SwissBooks Terms of Engagement

  1. Preface: The following document embodies a series of principles that outline the tenets and beliefs of the SwissBooks community. This article has been written with brevity and ease of reading in mind, links relevant to further discussion are given for each topic where available. The information herein is by no means exhaustive.
  2. Revenue:  Your venture will annually earn between $300,000 and $6 million each year. We are completely dedicated to helping like-minded business owners reduce the only 3 sources of negative cash flow that matter if you are doing it right: taxes, payroll, and housing.  It is not fair to recommend a product that is not going to be tailored to your needs.  Over $6 million of revenue in Canada requires monthly reporting to the CRA and usually means you are less anti-fragile.  After-tax net income is more important than your gross income before expenses.
  3. Real estate and debt: You will abstain from rental properties before you either have your own scalable corporation or are financially independent. You will abstain from debt except under extremely lucrative circumstances. Consider an income property only after you’ve paid off the mortgage on your residence. If you divide the net operating income from a rental property by the cost of the property you get the investment yield. From this value, we can determine if it is economically viable to rent out the property or sell it. Having positive cash flow is not good enough to determine economic viability.  Do not fall into the temptation of cheap credit and live far below your means.  In German, borrowing is ‘schulden’, the same word for sin. If you make a 20% down-payment you should consider a home less than 2.5x your gross annual household income. If you can make a down payment of at least 30% you could consider a home that costs up to 4x your gross annual household income. A condo is usually less desirable – only if the alternatives simply do not suit you or if you have the resources to acquire a multi-unit property.
  4. Ventures to avoid: Unless you personally net more than $20,000/month after-tax you will refrain from the following ventures: real estate, franchises, consulting, auto sales, and any business that has more than 15% of their revenue coming from a single customer. Stick to businesses that have at least $300K annual revenues with 20% pre-tax margins (recurring revenue and scale).   Catering to all businesses is a horrendous waste of time and frustrating by definition- all energy is wasted. Help people who have the potential to improve – they must make at least as much as they would through a regular job– otherwise they should focus on sales or a career. Without the career capital to support your business it will just be a downward spiral and 100x harder to fix.
  5.  80/20 Rule. “All activities consume the same limited time and attention. If you service low-impact activities, you’re taking away time and attention you could be spending on higher-impact activities. And because your time returns substantially more rewards when invested in high-impact activities than when invested in low-impact activities, the more of it you shift to the latter, the lower your overall benefit.”  -Cal Newport, DEEP WORK
  6. Everyone in our lives is either moving up or out of our lives.  Selectively choosing the people you surround yourself with is essential. 80% of your problems can be attributed to 20% of your customers.  Busyness and exhaustion are your enemies.  All regrets in life involve wasted time. This is the only thing you can never get back so never waste a second on marginal returns, short-term gains and people with no value. We have no sympathy for those who created their own mess. Poor choices reveal poor character. This eliminates the empty work that plagues all other accounting firms and allows us to focus on what really matters. It is amazing how our customer service improved when we focus only on people that like us.  Not a big deal, just not the same interests.   We don’t have a problem with your choice – we just don’t cater to everyone’s needs.
  7. Living far below your means. Easily done when you are after-tax earnings are at minimum 2x-4x the median.  Aim to set aside 50-90% of all the money you collect, until you can fund your lifestyle entirely with passive income. Then 100% of your active income can go towards riskier investments. Losing $1 million dollars when you still have $3 million is worth the risk when you have the change of being worth $12 million.
  8. Annual lifetime spending.  You agree that spending $5 million between ages 20-40 is better than spending $50 million at age 60-80.
  9. Investment in society.  Our value proposition (the whole reason our company exists) is that at a cost of just 1% to our subscriber we reduce their total costs by 3-30%.  Our job is to legitimately minimize taxes– NOONE can take more than what they pay in taxes. We will not be an accessory to negative tax rates whereby the government gives someone more (through benefits + through use of tax-funded infrastructure and services) than they remit in taxes.  The roads, healthcare system, schools, police, and government can not function without a net contribution from society.  You will pay at least $7,200 in corporate income tax based on the minimum $300K revenue with minimum 20% pre-tax margins.
  10.  Operations: Use your business account (bank/credit card) for expense transactions vs. cash or personal debit/credit cards. Send us your statements in 1 of 3 formats in order of preference: .csv, .pdf, paper statement. There is too much choice and we all suffer decision fatigue. Embrace minimalism and bring focus and clarity to your life. Have your necessities automatically delivered to you in a biweekly shipment. Shop only one per year – towards the end of your fiscal year to accelerate access to CCA on capital additions.
  11. Product Improvement.  Our clients and ourselves commit ourselves to the best quality in its products and thus creates long-term added value for customers.
  12. Customer Service. We listen to our subscriber and give them clear and understandable answers in a friendly manner. We concentrate on finding solutions for the challenges of our customer. We support our customer reliably and carry out what we have promised. We always answer customers’ questions promptly and simply.
  13. Continuity and maintenance.  We efficiently produce error-free work with mechanical precision. We touch things only once: paper, email etc.We are clear, accurate, and thorough  (high level of detail). We do not multi-task or switch between tasks. We are extremely focused and perform our work with interest and commitment. We work in an orderly/systematic manner. We adhere to all relevant laws and regulations, internal directives and rules. We work independently on routine tasks. We are trustworthy, reliable and responsible.
  14. Quality and performance (for computing tasks).  We concentrate for minimum uninterrupted 90-minute blocks.  We only check email twice per day to reduce cognitive residue.

Lifestyle design for 2018 and beyond

There is too much choice and we all suffer decision fatigue. The start of the year is a good time to plan out the rest of the year. Life is too short to spend time shopping – shop as little as possible and have your necessities automatically delivered to you in a biweekly shipment.

Likewise, map out your personal expenditures and set it on auto-pilot.

How do you pay yourself from your Alberta corporation?

Choose one of the 5  options below to transfer from your business account to your personal account each month (set up an automatic transfer through your bank).  And don’t use your business accounts for any personal transactions!  The amounts below are per person.

  1. Personal income of $2,500/month = $73/month in taxes ($870/year)
  2. Personal income of $4,167/month = $356/month in taxes ($4,266/year)
  3. Personal income of $5,000/month = $529/month in taxes ($6,347/year)
  4. Personal income of $6,667/month = $884/month in taxes ($10,608/year)
  5. Personal income of $8,333/month = $1338/month in taxes ($16,057/year)

Basic: Keep your monthly personal income below your worst month in 2017, repeat this every year.

Protip: Remember everything you pay for outside your corporation really costs you 1.5x more since you would be paying for it with after-tax dollars rather than pre-tax dollars.  Even at 0% interest, you will need to earn more than $1.5 million to pay for a $1million house.

Wealth Composition

90% of your wealth should be safe: business+ real estate + balanced index funds (no not a mutual fund) + your stock only if you are financially independent.

10% of your wealth should be in high-risk investments. For some, it’s cryptocurrencies.  Losing 10% will not wipe you out, but it’s enough to efficiently increase your wealth. Once your principal doubles, take back your principal and put it back into you safe mix and re-balance as required.

High-risk investments cause increased electricity demands so that’s a hint of the stock in our full optimized wealth breakdown.

Hope everyone had a Merry Cryptmas and Happy HODLlidays!

How to make 2018 your best ever!

Cryptocurrencies can be a key to increased wealth.  No other asset class has performed as well recently and we don’t need to spell out its more obvious capabilities of decentralization.  There are only 3 sources of negative cash flow that matter: taxes, payroll, and housing. If you have those 3 in order nearly everything else you do (Lambo or not) doesn’t matter.

Your business (contracting, online sales, specialty services) should accept cryptocurrencies. Whether you like it or not, over 20% of the consumer demographic will be using crypto by 2020. Payments of $LTC are confirmed in 2.5 minutes or less and as a merchant, you incur 0 fees to accept payment.

The cost of paying your vendors in $LTC is 0.001 LTC (24 cents) plus you cut out Visa or the Bank from making money on the exchange.

Is it safe?

The blockchain is the end product of the transactions produced by the coin’s p2p network consensus. Like THUT Accounting, it is a double spend database. What makes it safer than traditional currency is that is backed by cryptography, P2P and game theory and no central bank can print more money for their spending. Elliptic curve math underpins the security of Bitcoin.

Blockchain Solutions for your Business

Sign up at Coinbase as a merchant at Coinbase.

Coinbase has integrated business tools for you to use: https://developers.coinbase.com/docs/merchants So the tools on that link you can add payment button to your website, or a shopping cart plugin.
Other things to look into: crypto options in Shopify and Stripe, and coinpayments.net.
If you have a physical address you can have your Litecoin QR code/address on display for customers to scan.
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Necessary Tool for your Blockchain Transformation
  1. Ledger Nano S Cryptocurrency Hardware Wallet – Although the blockchain is safe from being hacked, the exchange can be hacked so store you crypto on this Ledger Nano S.

More info

If you want to learn more stick to white papers written only by coders and not finance/business people.

Based on electrical costs, we believed Bitcoin was due for a correction downward. But its value could go even higher all depending on how successful the upcoming Lighting Network fork is.

Until then we hold very little bitcoin (see portfolio below). Litecoin offers comparatively good value and we expect the price to at least reach $500 Cad ($400 USD). While we don’t encourage trading, at that time we will reevaluate bitcoin’s scalability issues, and decide whether or not to sell LTC. We recommend you start off with less than 4% of your wealth in cryptocurrencies. If you understand your position then you can dollar cost average an equal amount into any dips. Never hold more than 10% of your wealth in cryptocurrencies because of the risk involved.  

Ethereum -developed for smart contracts has more diverse applications: a Swiss municipality uses it for citizen registration, and Switzerland’s largest banks have converged on a new blockchain powered by Ethereum network.

2017 was better than 2016, and 2018 will be better yet as we prepare you for your blockchain transformation.

 

Click here for the optimized wealth breakdown.

 

 

How Does Your Income Stack Up?

Do you know how well you’re doing income-wise? Many of us have no accurate idea because we don’t know how much our peers earn.

While constantly comparing yourself to others may lead to unhappiness, you should know where you stand because it dictates your strategy going forward. If you don’t know where you are today, you can’t plan your future.

One of the best ways to gauge your performance is your after-tax income.  At THUT we focus on after-tax income rather than net worth since advancing net worth beyond what you will never spend is a poor use of our limited time.

We are often asked which businesses are wise investments. Different businesses require different skill sets and have a different cost to set up. Some require extensive and expensive education.

According to the latest Edmonton census, the average household income in the Edmonton area is $94,447.  This is lowered by large numbers of low earning demographics but we included a sample of client neighborhoods in the table below along with the average earnings for 5 major client groups.

After-tax
AREA Median Gross After-tax Monthly
Henderson Estates, Edm. 182,912 139,404 11,617
Sherwood Park 180,224 137,536 11,461
Oakmont, St. Albert 153,329 118,844 9,904
Westridge, Edmonton 150,221 116,684 9,724
Sturgeon County 141,509 110,628 9,219
Castlebrook 121,771 96,910 8,076
Edmonton Average 94,447 77,920 6,493
Edmonton Median 91,860 76,122 6,344
Kennedale 78,379 66,014 5,501
CLIENT GROUP After-tax Monthly
Recurring revenue, tech, online   300,000 25,000
Restaurant   240,000 20,000
Oilfield services and construction trades   180,000 15,000
Medical, Consultants 150,000 12,500
Nail salons 120,000 10,000

Takeaways:

Even if you are not involved in a tech-oriented or online business, you can use strategies from those businesses like paying for traffic online, boosting facebook posts, leverage automation apps, and consider disintermediation (cut out the middlemen – source from China, or cut out the bank and learn about cryptocurrencies).

The similarities in online/tech biz, restaurants, and some construction outfits are scalable practices.

Attainable Networth in $Cdn by Age 40 (assuming self-made from a developed country)

  1. Coding/Engineering: $9.4 million
  2. Oil & gas: $4.9 million
  3. E-commerce: $4.8 million
  4. Law: $4 million
  5. Dentist/Doctor: $3.4 million

This brings up another question, “Why Edmonton?”

Over the past 12 years, Edmonton has become regarded as being one of the most attractive places in which to live and work.  Originally designed for the oil, gas and pipeline sector, SwissBooks by THUT now specializes in other sectors that focus on recurring revenue.  However, we maintain a particular affinity to one of the world’s largest hydrocarbon processing region which in the last couple years has been forgotten as the reason why this is all possible for everyone.

 

  • Alberta is a monster economy and even during a recession, Alberta’s per capita GDP exceeds $80K – on par with Switzerland’s and nearly DOUBLE the rest of Canada and Europe. It takes a million more Norwegians to generate the same money as Albertans.
  • If you live in Edmonton there is money everywhere. PCL Construction generated record revenues of $8.5 billion in 2015, $9 billion in 2016 and its only getting better.
  • The Swiss have a wealth-based taxation system that is easier on the average worker. While the Alberta system is supposed to be progressive – up to 48% for the highest bracket, business owners can escape these taxes with strategic planning. For example, in 2016, a well-executed strategy would have someone pay $16,000 in taxes net of Canada Child Benefits on a $260,000 income or a tax rate of 6%.  This is a 10% less than what a single income family with 2 children would have to pay on a $50,000 wage.

 

If you don’t like your after-tax take household income, speak to your accountant.  Get to work as soon as you can to improve since time is the only resource you can never get back.

http://view.mapinseconds.com/map/yeg-census-2016-ct-median-income

SaaS businesses generate on average $150K-$200K revenue per employee (it can be as low as $100k of revenue per employee or as high as $300K per employee).