As the life blood of our practice, cash flow is the total amount of money transferred in and out of a business. Negative cash flow, or outflow, is the amount of money we spend. Positive cash flow, or inflow, is the amount of money we make from providing our services. For our business to thrive and survive, the inflow must always outnumber the outflow.
Every time we spend money to generate more income for our practice, we incur a business expense. Canada Revenue Agency refers to a business expense as “funds spent with the intent of generating revenue under reasonable circumstances.”
It is not enough, however, that we understand the definition of a business expense. It is more important to understand the difference between a productive and unproductive expense. In short, a productive expense is something that directly increases the amount of revenue generated.
Ways to reduce spending
1. Bundle is best
When dealing with your office bills, it’s best to find companies that will “bundle” your services together to reduce your total expenditure. This is most commonly done with phone, Internet and cable TV services.
2. Ring out the savings
The easiest way to find savings is to ask. When looking to reduce your cell phone bill, call your provider and ask for any promotions that would fit the way you do business. Often, promotions are never advertised, but you can access them to save your business money.
3. Bank on lower fees
Many big banks can charge up to $100 per month for a business account. As of late, many banks and credit unions offer fees ranging from $0 to $25 per month. This saved me almost $1,000 per year.
4. Break tradition, get a broker
If you are looking to spend your money on a major capital purchase, like real estate, it’s best to get yourself the best rate. Brokers typically have rates that are 20 points lower than most Canadian banks and their job is to source the best possible fit for you and your practice.
Taxes, taxes, taxes
When it comes to taxes, tax preparer Dalton Green has simple advice. He says no venture is too small to claim business expenses. If you use your stapler from the kitchen in your home office, expense it. If you’re going to have coffee with someone during a business meeting, keep a travel log and the coffee receipt, and expense that too. Little things add up, and what you leave out will end up costing you.
“There’s advertising, supplies, travel, rent. It’s all valid and, many times, people don’t think of them in that way,” says Green, owner of Green Financial Online Inc. “You’re giving money to the government for no reason.”
To understand which rules apply to you, Green recommends visiting a professional consultant, adviser or accountant to get a firm grasp on what can and cannot be expensed, which rules apply to you, and which ones don’t.
To help you maximize your tax return, here are the top three expenses – as listed by Green – that the self-employed can claim when working from home.
If you’re heading out for a work related spin, make sure to track the three Ds. “Date, destination and distance,” says Green. “If you’re getting gas, meeting a potential customer, marketing – those are all valid. You wouldn’t have got in your car if it weren’t for business.”
The size of your office – relative to the size and number of rooms in your house – is used to determine how much you can claim as a business expense. Cleaning supplies, light bulbs, condo fees, utilities, even a percentage of your rent or interest on your mortgage are all legitimate claims. It’s best to speak with an expert to determine what those percentages are.
From plants and drapes to tables and chairs, they’re legitimate expenses so long as they directly relate to your business. In my practice, Nitro, my nine-pound toy poodle is a business expense because he is actively involved in individual patient treatment, as well as the overall atmosphere of the clinic.
Regardless of your practice philosophy, it is important to remember the definition of a business expense, a productive expense, and how to use common tax-deductible expenses to your advantage.
Anthony Lombardi, DC, is consultant to athletes in the NFL, CFL and NHL, and founder of the Hamilton Back Clinic in Hamilton, Ont. He teaches his fundamental EXSTORE Assessment System and conducts practice-building workshops to health professionals. Visit www.exstore.ca for information.
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