The business owner does not know why their accountant set up their corporation as two separate entities say Edmonton bookkeeping, this might create confusion when they are keeping track of all of the there transactions. There are several things that business owners should understand when they own a corporate structure like this to ensure that there keeping an accurate record of their finances, and communicating that there bookkeeper an accountant.
The first thing that business owners should understand is what is a holding company. Holding company is a corporation that owns another corporation for the sole purpose of controlling a business. There are several reasons why an accountant would make this recommendation for a business owner that includes giving them a layer of protection. Since the parent corporation is the one that owns the business, it also owns the liability. Even though a corporation limits the liability to the business owner, by utilizing a holding company, a business owner is able to limit its liability even more.
The next thing that a business owner needs to understand when they own a holding company as well as and operating company is what intercompany transactions are. These are the transactions that happen between the holding company and the operating company. This could be transferring money from the operating company to the holding company in order to pay a management fee bill. It might be to use as a mechanism to pay the business owner. Regardless of the reason why, if an entrepreneur is using there to corporations to transfer money back-and-forth, this is called an intercompany transaction.
It is important to know that there can be errors if an entrepreneur does not keep track of these intercompany transactions accurately. Their Edmonton bookkeeping company needs to enter these transactions into their financial statements, and if they have not been told what transactions should be on what company, can end up with both the operating company end of the holding company having mistakes on their financial statements. Not only do each of the years ends need to be balanced, but the holding company and the operating company need to balance with each other as well. This is made much more difficult if mistakes have been made throughout the year.
In order to help avoid having a difficult year-end, not only should an entrepreneur be communicating with their Edmonton bookkeeping company about which transactions should be on what corporation, but that they are also doing the finances on a monthly basis to ensure the accuracy of the information month-to-month, which will make the corporate year ends of both corporations go smoother because there are no errors that have perpetuated since the beginning of the year.
By understanding that they have a corporate structure that is unique, can help business owners understand what they need to do to ensure that they are keeping track of their finances accurately. This will also ensure that a business owner will have accurate financial statements in order to make better financial decisions in their business.
Edmonton Bookkeeping | What To Know About Holding Companies
If business owners planning on owning more than one business or assets, Edmonton bookkeeping says their accountant might to set up a holding company for the business owner. This holding company will then own their business. This helps limit a business ownerís liability, but it also has a lot of other benefits that business owners need to be aware of.
It can help entrepreneurs minimize tax when planning with their accountant, help them concentrate their assets, help with succession planning and offers entrepreneur flexibility in their business. There are several reasons why a business owner might have a holding company, but regardless of the reason, it is very important that a business owner is aware of this corporate structure they can keep accurate financial records.
Mistakes can very easily be made if an entrepreneur is not careful, because not only can transactions be accidentally put into the wrong corporation, they can also be misclassified as well, increasing the chances of how many errors are possible. Edmonton bookkeeping says there are some common mistakes when it comes to intercompany finances. The most common one is entering in the transactions into the wrong corporation. Another common mistake is entering in the expenses of the business into the wrong corporation, and incorrectly classifying expenses to the shareholders’ loan account. By understanding, these common errors can help a business owner avoid making these errors in their own corporations.
One of the ways that an entrepreneur would get paid if this is how their corporate structure is set up is by the operating company receiving a bill from the holding company for the business owner’s management services. The operating company would then transfer the money that they owe to the holding company says Edmonton bookkeeping. One of the benefits of this is this intercompany transfer can be done tax-free until the dividends of the corporation is issued to the business owner. This is especially beneficial if the business owner has an overdrawn shareholder loan account, being able to flow income from one corporation to the next can give them the mechanism that they need to delay paying themselves.
Edmonton bookkeeping says that business owners should ensure that all assets that are owned are owned by the holding company and not the operating company. That way, not only is the holding company making their own money but so that the assets are kept separate from the operating company. The reason why this is important is so that a business owner can have a lot more flexibility for what they do with those assets, whether they keep them, or sell them.
By understanding the benefits to utilizing holding companies, business owners can learn what they need to do to ensure that their Edmonton bookkeeping company is able to keep the accurate financial record. This is beneficial so that a notch been our can have the most accurate financial statements in order to make great business decisions, but ensure that they have the best records so that their year-end can be done accurately and quickly.