There are several things that need to be taken into consideration says Edmonton bookkeeping when a shareholder is going to get paid. They will need an accountant’s to help them figure this out. Not just so that they know what the circumstances of the business are financially. But so the accountants can help understand exactly how much money this year holder needs to make.
Regardless of how much money are shareholders going to pull out of the corporation. There are several rules that entrepreneurs needs to keep in mind. To ensure that they are doing it properly. And avoiding any errors. Or potential reasons for the Canada Revenue Agency to audit them.
The first thing that they need to keep in mind says Edmonton but keeping is that they will only do one shareholders draw per month for shareholder. And therefore, its importance that’s the know how much money do you need to make every month. So that they can draw the same amount every single month.
It can be suspicious looking if several shareholders are doing several drawers from the bank account several times a month. Therefore, Edmonton bookkeeping says this is an important way that an accountant as well as the shareholders can keep track of the money that they’ve taken out of the business bank accounts.
They also needs to calculate how much money they needs to pull out of the corporation each month. And then round it up to a whole figure. If they need $2437 in order to survive, they should just round it up to 2,400. So that any time the shareholders or their accountant sees that amount being drawn from the corporation. They will know exactly what that’s for.
When they take the shareholders draw out of their corporation. Edmonton but keeping says that they can do it by any means they would like. Including a transfer, or writing themselves a check. However, If they are writing themselves a check. They need to ensure that they are not putting salary or dividends on the check.
Otherwise the accountant might have their hands tied on how they can classify that income. Which might end up with the accountants not being able to do the most tax-efficient strategy of salary and dividend mix.
Something else for business owners to keep in mind says Edmonton but keeping is that they absolutely should be having a separate bank account for their business as for themselves. It can be very confusing to have business expenses and personal expenses come out of the account. And it might end up with a shareholder spending too much business money on personal expenses. Or business expenses with personal money.
Businesses that use I’m mixed accounts can expect to be audited by Canada Revenue Agency much more often says Edmonton bookkeeping. And if this is the case, the risk is that Canada Revenue Agency will not allow certain business expenses. Because it’s much more difficult to prove that they are business expenses and not personal expenses.
Edmonton Bookkeeping | What to Consider When Calculating Shareholder Draw
How much money I sure holder can take her to the corporation is important to know says Edmonton bookkeeping. And when they can take it out of the corporation is another important factor to know. The formula is important and must be known by the accountant. So that the accountant and the shareholders can figure this out together. And right it’s directly into the business plan.
By doing this, shareholders will know exactly how much revenue their business needs to be generating. Before they will be able to start drawing a salary. As well as, the shareholders and the accountant will know exactly what that figure is. Even before they get to that point in their business.
One of the most important parts of this calculation are the personal circumstances of the shareholders. The accountant will do a personal balance sheets and a personal income statement on all of the shareholders in the corporation. In order to figure out what their net worth is. And what resources they have to work with.
The reason why it’s important to know the resources. Is because this is how a shareholder is going to make ends meet. While they are growing their business. And before they can start drawing a salary. Also, Edmonton bookkeeping says that if they have additional resources. They may need to take some of those resources and put into their business. In order to help them achieve their business schools.
The first thing that shareholders will do with the accountant is the personal balance sheet says Edmonton bookkeeping. And this is going to be all of the Assets in the shareholders name, compared to all of the liabilities and their name as well.
Edmonton bookkeeping says the assets can includes things such as the home that is owned in the shareholders name, their vehicle, or any savings accounts such as rrsps or tax free savings account for example.
Liabilities would include things such as the mortgage on the home that they own, the car payments for their vehicle, or consumer that such as credit card, balance owing on lines of credit. And even things such as the taxes that they owe the government, or money they owe family members can be included here.
As the accountant subtracts the liabilities from the assets. They will find out exactly what resources the shareholder has at their disposal. The more money they have, the longer they will be able to go without taking salary from their business. If they absolutely have to.
The next thing to do is the personal income statement says Edmonton bookkeeping. And this is a list of all of the fixed and variable expenses the shareholder has. The fixed expenses are the ones that are not changing from month to month. And typically needs to get paid no matter what. This includes things such as their rent or mortgage, their car payments and their utility bills.
The variable expenses would be things that might not be able to be skipped. But there’s a lot more control over minimizing them, such as groceries, Pharmacy bills and fuel or Transportation costs. This exercise is very vital to shareholders says Edmonton bookkeeping. Because they will be able to see what are absolutely necessary expenses. And once they can probably cut. So that they don’t have to spend their savings on that particular expense.
When business owners have all of their resources laid out. And they know what’s their expenses are. They will be able to figure out how long they can live on their savings. And therefore no when they need to start drawing a salary In their business.