TOP 10 WAYS TO IMPROVE YOUR BUSINESS IN THE NEW YEAR
Originally published on January 19, 2006
In business, the start of each new year brings with it a time to reflect, analyze and act.
If you could relive your past business year, what would you have done differently?
What changes today will bring the most benefits emotionaly and physically? Is the implementation of a new idea tricky?
What is the cost to your business if you don't act?
Here are my top 10 ideas for improving your business results in the coming year:
■ Re-examine your current business structure
While it's unfair to speak in generalizations, a tax lawyer told me this past year that every farm proprietorship should be converted to a farm partnership.
His reasoning was that a written partnership agreement that says the farm partnership will survive the death of a partner gives the farm family substantially more estate and tax planning options.
The Income Tax Act provides rollover rules for farm property such as depreciable property, land and agricultural quotas but does not apply these same rollover rules to farm grain and livestock.
The partnership agreement does not have to be equal and can be split in varying portions. A written husband-wife partnership agreement of 99 percent to one percent achieves the same end.
■ Consider using your capital gains exemption
Farmers are able to transfer qualifying partnership interests to a corporation, elect to use their capital gains deduction on the transfer and receive a share-holder's loan equal to the fair market value. This enables them to access the low cor-porate tax rate for the subsequent dis-position of assets, inventory and de-preciable property.
Keep in mind that you have the option of including or excluding the land in the transfer.
■ Go over your will with your family, accountant and lawyer
Receiving a joint interest in land does not guarantee ownership of the property. In a joint ownership arrangement with a parent, if the child dies first, title to the property will revert to the surviving parent and the child's estate receives no interest.
If the child intends to build a house on jointly owned property with a parent, then provisions should be made in the father's will about what will happen to the land should he become the sole owner of the land as a result of being the last surviving joint owner.
■ Commit to better records
As the Canadian Farm Business Management Council noted in Accounting for Successful Farm Management: "To remain competitive and meet the pressing demands of today's agricultural industry, Canadian producers need high quality management information."
The need for accrual accounting, Canadian Agricultural Income Stabilization filing and cash management has emphasized the degree of sophistication required at the farm level.
For example, there are few corporate farmers who are not converting to a computerized accounting program to manage the business.
■ Establish yourself as an employee in your business
The Canada Revenue Agency will not allow a company to confer benefits to its shareholders without tax consequences. The same does not apply to company benefits paid to its employees.
A written employment contract should allow you to set up a private health services plan, which allows for reimbursement of medical costs on a tax deductible basis to the business and a non-taxable basis to the employee.
The CRA notes that a health plan for a sole proprietor with no full-time employees does not qualify as a private health services plan because it does not contain the necessary elements of insurance.
However, where a plan provides coverage for a proprietor and one or more full-time employees, it would qualify as a private health services plan even if the employees deal at non-arms length with the employer.
A written employment contract may also enable you as an employee to receive a non-taxable travel allowance or two non-cash gifts for special occasions, provided that the aggregate of the gifts is not more than $500 per year per employee.
■ Expand your network of outside advisers
Farmers pride themselves in being jacks-of-all-trades, but the management of today's farms requires some outside help.
In my Sept. 22, 2005, column, commodity brokers explained how a pure hedge uses the futures market to manage canola price risk on the farm.
Their 2005 pure hedge added an additional $1.10 per bushel to their fall-delivered canola revenues and an overall hedged canola price of $6.55 per bu.
While your CAIS forms, year-end financial statements and income tax returns can be completed without outside help, the trend is going in the opposite direction, which is toward specialization in the industry.
■ Set some costing and efficiency benchmarks
The Dec. 29 edition of The Western Producer contained the following data: For Saskatchewan grain farms with revenue of $100,000 to $250,000 in 1998-2002, the net cash income of the top 20 percent never fell below $30,000 ...
The bottom 20 percent consistently had negative market income and relied on program payments to break even or post a small positive cash income ... fertilizer and pesticide bills of the bottom 20 percent were twice as high as for the top group ... in the beef example, except for salaries and wages, the top 20 percent consistently had lower expenses.
At www.bestpracticeofleadingfarmers.com you are able to compare more specific farm costs against industry-specific top farm producers in Canada.
■ Measure the overall health of your business
If you know your weakness, you know your strength. Business ratios can help identify key trends in your business and point out areas of strength and weakness.
Benchmark for Success is a federal-provincial-territorial initiative that compares the performance of your farm with other farms of similar size and type.
For more information, call Agriculture Canada at 866-452-5558 or visit www.agr.gc.ca/compare.
■ Commit to improving farm management skills
One of the fastest growing trends I've noticed over the last three years is the number of farm management workshops.
At www.farmcentre.com, you can access conferences, a learning centre and farm software links from around the world.
I have yet to find a farmer who has acknowledged no benefit in attending an agricultural conference of his choice.
■ Set business goals and monitor your progress
Numerous Saskatchewan and Alberta government publications can help farm families evaluate their objectives for the coming years.
One system that I find helpful is the SMART goal, which can be used to evaluate and set farm specific goals:
S - Specific.
M - Measurable (What does success look like?)
A - Accountable (Who is responsible?)
R - Realistic (How will it happen?)
T - Time-sensitive (When will it happen?)
I hope some of these business resolutions will help you in the management of your business.
Pick at least one or two and reflect, analyze and act.
Allyn Tastad, chartered professional accountant, is a partner in the accounting firm of Hounjet Tastad Harpham in Saskatoon at 306-653-5100, e-mail at email@example.com or website www.hth-accountants.ca. All data and information provided is for informational purposes only. Readers are cautioned that laws and regulations are subject to change. Consult your accountant for current professional advice tailored to your situation.