If a business owner is planning on owning more than one company, or purchasing assets Edmonton bookkeeping says that they may want to look into utilizing a holding company as part of their corporate structure. The reason why is by owning a holding company, that company can own several corporations and assets on behalf of the business owner. This way, an entrepreneur can keep all of their companies and assets separately from each other, while maintaining control over them. Even if a business owner is not planning on owning more than one company, their accountant may suggest this corporate structure to give them the flexibility they will need for growth.
However, business owners need to keep in mind that if this is there corporate structure, each corporation will be considered a separate legal entity, and each corporation must file its own corporate year-end. Edmonton bookkeeping says that not only do they need to have separate finances, but it is also important that the holding company and the operating company balance with each other at the end of the year as well. Therefore, only do business owners need to be very careful in keeping track of all finances, but also be communicating that with their bookkeeper, and letting them know not only what transactions are, but which corporation it needs to be posted to.
There are common errors that can happen when a business owner does not keep their Edmonton bookkeeping company updated with what each transaction is. For example, if a business owner sends a deposit, the Edmonton bookkeeping company might assume that that is a deposit that should get entered into the profit of the operating company. If that assumption is wrong, not only would it end up with the operating company having errors on their financial statements, but so will the holding company as well.
Other common errors that could cause an Edmonton bookkeeping company to end up with inaccurate financial statements would be: mixing up what company the expenses should get posted to, entering in shareholder loan information incorrectly, and simply posting transactions to the wrong corporation. A business owner should ensure that their Edmonton bookkeeping company is matching all transactions for all corporations every month. Doing it monthly can help minimize errors so that they have the most accurate financial statements every month. Also, ensuring that each month balances can make the fiscal year ends much easier, because there should be very few errors that would need to be fixed.
By understanding this corporate structure, and also what a business owner needs to do to ensure that not only will they corporations balance themselves, but that they will balance with each other. This is important to learn to do from the beginning and can help a business owner the longer they own their business, especially when they start adding assets like purchasing buildings and stocks. If a business owner has this corporate structure, they should check with their bookkeeper an accountant to see if they have any tips on how they should be managing their finances.
Edmonton Bookkeeping | Why An Entrepreneur Should Use A Holding Company
Business owners often struggle with understanding basic business financial literacy says Edmonton bookkeeping. The company behind accounting software QuickBooks did a survey of small is owners in order to test them on their knowledge of business finances. They were asked questions about what an accrual is, what is a balance sheet and how to improve cash flow. 82% of the business owners that took the quiz scored less than 70%. Many business owners struggle with understanding their business finances. If they own a corporate structure that involves a holding company, this can make their finances even more complex, which is why they should understand what they need to know in order to ensure the accuracy of their finances.
Reasons, why it is very important to ensure that an entrepreneur is avoiding errors on their corporate finances, is because they need to have the most accurate and up-to-date financial statements such as income statements and balance sheets. These are important says Edmonton bookkeeping because a business owner must consult these financial statements prior to making any financial decisions in their business. Therefore, ensuring that they have the most up-to-date income statement and balance sheet every month is vitally important. When a business owner has to corporations, they need to ensure that they are not only keeping a great record of all transactions but they’re communicating that their Edmonton bookkeeping company can do the bookkeeping accurately as well.
One of the benefits of having a holding company is so that they can use that as a mechanism to transfer money between corporations in a tax-free manner. This can help a business owner avoid taxes while they pay themselves, or delay paying themselves if they have in overdrawn shareholders loan account. Therefore, it is very important that a business owner keeps a very accurate record of all of these transfers that are happening between corporations to allow an entrepreneur to flow income easily.
Something else that business owners need to keep in mind when they have a holding company is that while these corporations might have different year ends. This will require their Edmonton bookkeeping company to have the most accurate and up-to-date financial records so that they can avoid mistakes when one corporate year-end is done, but not the other one. However, there is a benefit to having two separate corporate year ends. These different year ends gives the entrepreneur the ability to delay paying themselves if they have in overdrawn shareholders loan account.
There are so many benefits that come with utilizing a holding company in the business, that many accountants often set up business owners corporations this way. However, they also need to understand what they should do in their company to keep an accurate financial record so that they can end up with accurate financial statements in their business, and be able to utilize the benefits of this corporate structure whenever they need.