Ask the Experts
Rick Chittley-Young, Partner
Canadian Business Franchise
1: I'm entering my first year as a retail franchisee, so naturally, I'm looking to keep my costs low. While I want professional advice, how much can I rely on a bookkeeper to advise me on accounting matters? What can an accountant do that a bookkeeper can't?
The most efficient way to manage your financial system is to use a bookkeeper for bookkeeping and an accountant for accounting.
Here’s how these distinctions break down. The role of a general bookkeeper is to “keep the books:” enter transactions, compile data into a general ledger and prepare reports and financial statements. He or she can also assist with accounts payable and receivable, payroll, and government remittances. To minimize costs, consider contracting with a bookkeeping/payroll service company.
Bookkeepers, however, don’t have expertise with business decision-making. An accountant with a professional designation (chartered accountant (CA), certified management accountant (CMA) or certified general accountant (CGA) has the expertise needed to interpret and communicate the financial information generated by your bookkeeping. This professional is also knowledgeable regarding current legislation, regulations and standards that impact businesses, including franchises.
An accountant can also help you set up and monitor an effective bookkeeping system and discuss your financial statements with you to ensure you have the information necessary to make informed decisions.
2: I've been advised by many franchisees to incorporate my own franchise business. They all had different reasons why this was a good thing. From an accounting perspective, are there any advantages or disadvantages to incorporation? What does the Canada Revenue Agency (CRA) think about it?
There are a variety of reasons why owners incorporate their businesses – from limiting legal liability to claiming the $500,000 lifetime capital gains exemption on the sale of the shares of the corporation.
Tax advantages are another major attraction. From the perspective of the Canada Revenue Agency, when you incorporate your franchise, you and your business become separate legal entities. Therefore when paying income tax to the CRA, you would no longer pay as a sole proprietor or partner, by reporting income on your personal tax return. Instead, your incorporated franchise would pay corporate income tax.
It would also be eligible for the small business deduction, which substantially reduces your rate of corporate tax. This tax relief would enable you to accumulate income in the franchise that you can use to strengthen it.
At the same time, as an incorporated business, your franchise would also be subject to more regulations and record keeping. Federal and provincial corporation statutes and the Income Tax Act specify certain documents that must be maintained, including accounting records and annual financial statements
3. I’m strongly considering a move into quick-service franchising. Obviously I'll need an accountant to get started, but who should I go to for a recommendation? I know my would-be franchisor could recommend one, but is it wise for a franchisee to use the same accountant as her franchisor? Is there any potential for conflict of interest?
Your goal when working with an accountant should be to find an individual or firm that meets your specific needs. While all professional accountants abide by a strict code of professional conduct and client confidentiality – and therefore conflict of interest should not be an issue – you should seek a fit with a firm that complements you and your business.
Feel free to ask your franchisor for a referral. You might also want to ask trusted colleagues in similar businesses or other professionals such as your lawyer or banker, for referrals to accounting firms that work with franchises similar to yours.
Meet with two or three prospects and ask them questions related to your requirements and expectations. You want to be sure that your accountant has not only the expertise and services you require, but that you also feel confident in this professional’s ability to help you and your franchise succeed.
Rick Chittley-Young is a principal of BDO Dunwoody LLP (www.bdo.ca). BDO is one of Canada’s leading accounting and advisory firms, which helps entrepreneurs, family businesses, franchisors and franchisees succeed. If you have questions about this article or would like to receive BDO’s “Tax Factor” newsletter, contact Rick in the Oakville office at (905) 844-3206 or rchittley@bdo.ca.
