Business owners often struggle with understanding basic business finances, which can create a problem early on in their business says Edmonton bookkeeping. Into it, or the makers of accounting software QuickBooks surveyed entrepreneurs and small business owners in order to find out their basic business financial literacy was. Asked questions such as what is an accrual, how to improve their cash flow, what the role of a balance sheet is. 82% of all respondents scored less than 70% on the test. Therefore it is very important that business owners understand when their accountant says that they should utilize a parent corporation, what that is and what it entails.
One thing that many entrepreneurs do, is they hear that it will require them to file two separate corporate year ends, and that extra money is something they want to avoid pain, so they avoid structuring their business this way. However, if they took the time to understood all of the benefits of a parent corporation, they would understand that they may be able to save enough in taxes to make the additional money to pay inconsequential.
One of the first things that business owners should understand is what a parent corporation is. It is also known as a holding company or a limited liability company. And these are corporations that own other corporations. Their sole purpose is to control a business. However, that is not the only thing that they can do. They can hold as well as buy and sell assets, such as real estate and buildings, stocks, as well as patents and trademarks for example.
The next thing that helps business owners understand why there is a benefit from utilizing a holding company, is what an intercompany transaction is. These refer to the transactions that happen between a holding company and an operating company. Also, these transactions can happen between related companies. What a related company is says Edmonton bookkeeping is when a shareholder or their spouse that owns at least 25% of the corporation also owns at least 25% of another corporation.
Why is important to understand what intercompany transactions are, is because as long as all of the corporations are Canadian, the transfer of money between these entities is completely tax-free. Instead of a business owner distributing the dividends to shareholders who then must have to pay personal taxes, which could be as high as 48%. They can now get those dividends transferred to their corporations completely tax-free, where they can strategize the best way to take that money out of their own corporations to minimize taxes or to invest those funds.
By understanding how important the role a holding company plays in minimizing taxes can help business owners use that strategy with their accountant in their Edmonton bookkeeping company to minimize the taxes that they have to pay in their business. However, it is important that an entrepreneur sets this structure up ahead of time with their accountant in order to get all of the benefits early on in their business.
Edmonton Bookkeeping | What Is A Parent Corporation
One of the biggest reasons why entrepreneurs go into business for themselves is that they can increase the wealth that they have says Edmonton bookkeeping. Therefore, it is extremely important that business owners learn from their accountant what a parent company is, so that they can use that corporation to minimize the taxes that they will have to pay in their business. By minimizing taxes, an entrepreneur can increase their wealth, and increase the amount of money that can stay in their business they can use to improve and grow.
There are several things that business owners need to keep in mind if they have their corporate structure this way, and that is what they need to do in order to minimize bookkeeping errors. A business owner must ensure that they are keeping track of all of their finances for each corporation separately. If their Edmonton bookkeeping company does not have the right information, it could cause them to classify transactions in the wrong corporation. They can also cause the bookkeeper to miss classify where there were transactions should be accounted for. If an entrepreneur is not taking care to keep track of all of their finances accurately, they could end up with financial statements that are extremely inaccurate.
A business owner needs to understand that not only does each corporation need to balance at the end of the year, but they also need to balance with each other. One way that they can work with their Edmonton bookkeeping company to ensure that happens, is to ensure that their books are kept up-to-date every single month all the time. That way, when it gets to the year-end, there is a greater chance that the financial statements are correct, requiring an accountant to do less work to do the fiscal year-end.
Another reason why this is so important, is in order to get all of the tax benefits of having a parent company, the financial year ends for each corporation need to be different from each other. Therefore, in order for a business owner to ensure both year ends can be accurate even when filed separately, they must ensure that their Edmonton bookkeeping company is updating the financials every month. That also benefits the business owner by ensuring that they have the most accurate and up-to-date financial statements in order to make the best financial decisions about their business as well.
By understanding what they must do to ensure that they are keeping their books as accurate as possible, business owners can ensure that not only are they getting the benefits from utilizing a parent corporation, that they are also understanding what is going on financially in their business. By utilizing this in their business can help business owners grow their business, and accumulate their wealth. Therefore, it is very important for business owners to set up a meeting with their accountant before they create their corporation in order to understand which corporate structure they should use, so that they can do it correctly from the very start.