by Bron Vasic, More Than Enough Entrepreneurial Coach
Entrepreneurs sit across from me in bewilderment. They say something like: “Everything was going great and then our world was ripped apart. We never saw it coming and really don’t understand how we got to this place. It is not who we are as business people, we never thought…”
That is the familiar refrain from so many people that enter the world of business in Canada, and now are looking for guidance to navigate and resolve what I call the “Entrepreneurial Tax Trap”.
“WE OWE CRA MONEY THAT WE DO NOT HAVE!”
In summary, it typically goes like this.
- A business gets birthed or is taken over.
- The entrepreneur is off to the races and goes as fast and hard as possible, as they are living their dream.
- They are successful and doing financially great, they have cash in the bank and life is good.
BUT, the rest of the story (you knew that there needed to be a but).
- They forget that the money they took from the business is going to be taxed.
- They have forgotten that money should have been set aside for the HST that clients paid to them on their services – that is not their money.
- They have forgotten to set aside dollars for the corporate tax, and/or personal tax dollars that are owing to Canada Revenue Agency.
They have usually passed the 2-year mark of the business and they had always intended to:
- get the administration taken care of once they had some time,
- set aside the money they used on other things that really should have been set aside for the HST, and
- get the family and the business finances sorted out.
As well, there are always surprises along the way on this journey. You have done the compliance and thought that CRA owed you money, but they do an audit and they have different interpretations of what seemed like simple transactions. Now you owe them money instead. I am always surprised at the complexity that is built into the HST system, and with that, the amount of time and effort that entrepreneurs put into the administration of this responsibility.
This is where I hear the words that I started with: “We don’t have enough money and need to sort out how we can pay CRA all of that money and then get back on track.”
It is all too common a story that is taking a toll on Canadian business owners. It is a significant responsibility that is taken on by entrepreneurs, and they do this without much assistance. They are thrown into a significant responsibility that they need to own whether they want to or not. When the time comes and entrepreneurs find themselves in difficulty, it makes for a very difficult conversation. The image comes to me that it is like climbing Mount Everest and it is typically not a mountain you want to climb, but here you are!
The key is
Face your finances and get help. At More Than Enough, we often say that:
- FINANCIAL
- AWARENESS
- CREATES
- EMPOWERMENT
FACE your finances! It takes courage and facing your financial reality allows business owners to make better decisions in their business by knowing what is coming in and what is going out. It sounds simple, but awareness will allow owners to know how much HST they have collected in any given month, and then be able to set that aside for the government. Facing your finances will keep you from the cycle of “robbing Peter to pay Paul”, and will keep you from spending the money you really need to pay to CRA.
In the end
We take the words and wisdom found in the Book of Proverbs, chapter 3.
- Don’t lean on your own understanding.
- Acknowledge God in everything you do.
- Trust Him, and He will make your way straight.
This entrepreneurial journey is not for cowards. The good news is – you are not alone. Financial wisdom and coaching is out there, and at More Than Enough it is the heart of what we do – bringing hope and freedom into challenging and distressing situations.