No doubt, your business relies on good people (team work makes the dream work, right?). But that means it also relies on you to build the right team of people. And to do that, you need to understand when to hire, and when to outsource.

There is no hard-and-fast rule for when to hire staff versus when to outsource certain roles and positions. To make this decision, you need to look carefully at your company’s unique needs and goals. You also need to understand the difference between outsourcing versus hiring staff, which we’ll cover below. 

Outsourcing vs Hiring For Your Business: The Basics

First, let’s cover the basics. 

When you outsource, that means you find an outside independent contractor to handle certain roles and responsibilities. Contractors are generally hired for a specific project or task, and/or for a set period of time. 

Companies often outsource important duties that are essential to their success, but outside their expertise. This often looks like working with outside marketers, web developers, or virtual finance teamsBecause they’re independent, when you outsource to contractors, they’re essentially in control of how, when, and where they complete their tasks. That’s why you need to be upfront about your expectations when you take them on board. 

Meanwhile, when you hire, that means you’re taking employees on board. In other words, you hire staff members, either full or part time.

Unlike with outsourcing, you have much more control over hired employees—you get to determine how, when, and where they work. 

Outsourcing vs Hiring: The Nuances

So what’s right for your business? The honest answer is that it depends. 

When you hire staff, they have many rights, such as termination rights, the right to a final pay cheque, and sometimes severance pay. You’re required to withhold payroll taxes (CPP, EI, etc), and most employees will expect certain benefits like health care and sick leave. When you combine this with associated HR and accounting costs, employees are usually much more expensive than contractors. 

That said, employees are often worth the extra expense. That’s because good employees will be with you for the long haul, making up in loyalty, commitment, and stability what they may cost in strict dollar terms. 

Outsourcing is often much cheaper, but it’s important to only outsource the right type of work or projects. Outsourcing is usually the right choice for shorter, one-off projects, or for bringing in outside expertise where you can’t afford to hire full time staff. 

Outsourcing Your Finances

Outsourcing your finances is almost always the right choice for startups and small- to medium- size companies, or anytime budget is a concern. 

This is because managing your finances well is critical to your business success. And handling your finances is incredibly complex, best left in the hands of expert accountants—but hiring a full time CFO can get expensive really quickly. 

On the other hand, when you work with a virtual CFO who offers fractional services, you can get exactly the support you need, at a price you can afford. 

Plus, a virtual CFO can help you with other strategic hiring choices. That means you can outsource this one position, and gain well-informed guidance into what else you should outsource (win-win). 

Our financial expertise and knowledge can help take your business to the next level of financial success. If you’re interested in outsourcing your CFO services, see our packages here.

Financial statements are some of the most important documents you can have to help set your business on the course for success. But collecting all of these numbers, analyzing them, and making the right decisions based on the information they hold can make anyone’s head spin!

That’s why today, the financial experts at Virtual CFO Solutions will be breaking down the important financial statements you need to know.  Here’s how they can be used to leverage opportunities for your business!

What Are Financial Statements?

Financial statements are records and reports of all the financial activity that happens in your business. The most commonly used financial statements include profit & loss statements, balance sheets, and cash flow statements. 

How Are Financial Statements Used?

Financial statements are used as a general health check for your business – are you making a profit? Are your expenses being tracked properly? How can you strategically invest in your own business? 

In addition to your own knowledge, you may be looking for outside investment in your business. Financial statements are an important way for investors to get an unbiased view into how well your business is positioned for growth into the future. 

By making sure that you have accurate, up to date financial records, you can address any losses, capitalize on opportunities, and ensure you stay on the good side of the CRA!

How Are Financial Statements Prepared?

Generally, financial statements are prepared by your accountant, but with the advancement of cloud accounting software, these can be automatically generated for you. Our favourite cloud accounting software, Xero, can generate the reports you need from the accounting information you collect throughout the year. 

While having your financial statements available is one thing, ensuring that you are interpreting the data correctly and making the most of those insights is another. Having an expert’s eyes on your financials can help you see opportunities you may have missed, organize your business in a tax-advantage manner, and ensure your business thrives in the long run. 

What Financial Statements Can Tell You About An Organization

Financial statements give a black and white look into the financial health of a business. The highlights of these documents include:

  • Accrued profit
  • Cash availability
  • Cash received & used
  • Where they are allocating money to expenses
  • Where they are generating profit from
  • How profitable a business is

These are all important factors in future viability, and are important to keep an eye on, to ensure that your business is reaching its goals.

Investors and Financial Statements

While financial statements are prepared throughout the year, one of the most important times that you’ll use your financial statements will be when you’re seeking investment. Investors want to know the facts of your business’s financial situation, and financial statements are the best way to accomplish this. 

Why Financial Statements Are Important To Investors

Financial statements give investors the hard facts on your business’s financial position. They want to know your profitability, accrued assets, cash use, and investment in the business. Financial statements are an important part of any investment pitch! You may have big dreams, but you need the plan that will back up any big ambitions.

How Financial Statements Help Investors

Investors are looking at the big picture of your business, including your vision, goals, strategy, and past success. While it’s important to tell the story of your business, a big part of that is the financial background of your company. Investors are able to measure growth, opportunity, and potential to scale from these documents.

What Financial Statements Do Investors Look At

Investors review profit & loss statements to see how the business has historically performed, as well as pro forma statements, which forecast future growth. Both of these are critical in helping investors see the potential of your business!

Financial Statements For Sole Proprietorship

For sole proprietorships, one of the main measurements that owners keep an eye on is their net income through profit and loss statements. Unlike incorporated businesses, all profit after expenses is considered to be income and is taxed accordingly. This is why it’s so important to properly track expenses and determine how to best manage your profit & income through the business. 

Financial Statements For Corporations

Tracking your financial information accurately becomes even more important when your business is incorporated, as the reporting requirements from the CRA are higher. This is where having a professional to guide you is invaluable. Providing strategic input on retained earnings, dividends, expenses, and salary can help you position your business for growth, while providing owners with the income they need. 

Are Financial Statements Confidential Or Public Information?

If you have a privately owned company, whether you’re a sole proprietor or a corporation, your financial statements are not public information. However, if you start trading publicly through stocks and outside investment, these documents do become publicly available to those with a vested interest in your business. 

Looking for guidance on your financial statements? Reach out to the team at Virtual CFO Solutions to prepare and analyze your financial statements, and get expert advice on planning for the future of your business!

After working from home for months, and with no end in sight, setting up a home office or workspace is critical to long-term productivity and well-being. Having a space that is dedicated to getting work done is one of the best ways to separate work and life, in a time where that can be tricky to navigate.

We’re sharing our top 10 tips on how to set up your home office for success!

  1. Find a permanent space: Allow yourself to separate from work life and home life with a dedicated spot for working. While not everyone has a separate room they can devote to their office, having a desk, corner of the dining room table, or a place in your living room that’s your daily location for working will help to set the rest of the house apart. Pro tip – definitely don’t set this up in your bedroom! That’s a recipe for disrupting sleep and impacting your well-being.
  2. Make sure you have the tech you need: When we’re working from an office, all the tech we need is usually supplied to us. However, with the transition to home-based work, it can leave our work station lacking essential components. Talk to your employer or invest in the best tech for yourself. This could include multiple monitors, an elevated keyboard, a special mouse, a printer, and more. 
  3. Dedicate a desk chair: If you’re sitting for 8 hours a day, a dining room chair isn’t going to cut it. Invest in an ergonomic chair or seat pillow to keep you comfortable all day long. This is another great way to separate work from home, putting you in the right mindset to get things done!
  4. Get organized: Keep all your work documents and supplies together and avoid having them creep across your entire house! Ensure you have a location for all the documents and supplies you may need at your workstation. Make sure you’re stocked up on the things you’d normally have around at a traditional office (pens, paper, notebooks, USB drives, etc.). Reach out to your office and see if these can be supplied, or go for some fun office supplies that match your decor or personality!
  5. Personalize it: Your home office is a part of your home, and the perfect opportunity to make it feel like ‘you’. Get art, decor, and even furniture that coordinates with the rest of your home to make the space feel comfortable instead of an eyesore – especially for open-concept homes where everything is visible!
  6. Stay connected: Between Zoom calls, downloading files, watching videos, and sending emails, your Internet connection can make or break your workday! Make sure your work location has a strong internet connection, and purchase a WiFi booster if needed.
  7. Keep inspiration nearby: When you’re in an office, you’re often surrounded by the company’s vision, big plans, and goals. Incorporate that into your own office by setting up a whiteboard for brainstorming, inspirational quotes on your computer background, or a vision board for your big goals nearby.
  8. Cut the noise: If you aren’t able to shut the door to your home office, being able to find quiet in the chaos is key. Investing in noise-cancelling headphones, or having a secondary location where you know you won’t be disturbed can help make your day go smoothly.
  9. Get video ready: Zoom calls are the new conference room meetings, and showing your face is a great way to stay connected with your team and clients. Try to find an area where you have a clutter-free background, and consider investing in a small ring-light to make sure your colleagues can clearly see you on video.
  10. Little luxuries: Did you always wish you could have a mini-fridge or heated blanket at your desk in your old office? Maybe you wanted a little more desk decor than was allowed? Now is the time to customize and invest in the little luxuries you’d always wanted but couldn’t snag at your old workplace. Especially if you’ll be working from home for the long-haul, it’s worth it!

We hope that these tips will give you practical steps to make your home office feel like your own, and help to create a productive space that allows you to make the most of your work time, and your off-time!

Raising funds is a major milestone for any business, especially a startup.  so many options, it can be overwhelming to decide which type of capital is right for each business.. 

When considering sources of capital most business owners think in terms of debt and equity.  However, there are many combinations of debt and equity, and there isn’t a one-size-fits-all solution for every business. 

This is why it’s important to view capital in strata or layers, as a ‘stack’, instead of an individual decision. Different types of funding make the most sense at different times in a company’s life cycle, or for different initiatives and stages of growth. 

There are several types of equity and debt as well as other sources of capital that can help your start-up reach the next level of success:

  • Debt:
    • Senior Debt
    • Mezzanine Debt
    • Convertible Debt
  • Equity:
    • Preferred Equity
    • Common Equity
  • Other sources of capital:
    • Grants and government incentives
    • Crowd-sourcing
    • Retained earnings

Using Equity vs Debt to Fund Your Business

When it comes to funding your business, there are two main types of capital – equity, and debt. Both of these options can provide necessary funding for your business, but there are pros and cons for each.

Debt is the process of taking on a loan that needs to be repaid. While ‘debt’ may sound scarier than ‘equity’, the advantages of leveraging debt in your business are that it allows you to maintain autonomy in your business, and can give you more control of your business decisions moving forward. 

Equity is an important part of your business’s financial structure. For Solopreneurs, small teams, or founder-only startups, having 100% equity in your own business means that you take all the risk, but also get all the reward! Sharing this equity with other stakeholders is a great way to increase the capital in your business, leverage the expertise and advice of seasoned investors, and limit the need for debt in your business. However, by definition, it means you are selling a portion of your business. Are you ready for that?

Each business owner will have a different tolerance and desire to fund their business with debt or equity. In most cases, incorporating both equity and debt into your capital stack will be the best route for you!

It’s important to keep in mind that the ratio of debt to equity in your business may impact your future capital options, so it can be advisable to work with business advisors and financial planners to determine your long-term strategy and help make certain that your financing choices are made with the future in mind. 

How to Choose the Right Capital Stack For Your Business

Choosing the right capital stack for your business is a unique decision, and can be influenced by a variety of factors. While you may read or hear that one type of funding is better than another (the glamorous stories raising VC capital can be alluring to any startup founder!), it’s important to work with your financial team to come up with a plan that balances current needs with future aspirations. 

This is the beauty of having a capital ‘stack’ instead of a single form of funding for your business – different streams of capital can help fund different components of your business, and be leveraged at different times. Instead of committing to one form of capital, having multiple options empowers you to make the best decision for your business at a given moment. 

Finding the right source of capital involves more than the cost of a loan or equity stream.  . Before deciding on a path, ask yourself the following:

  • How much capital will you be able to get from each source?
  • Are there any covenants (read: restrictions) that you have to follow once you take the money, including how the funds must be used?
  • Are you giving up some control over your business, or gaining value from the expertise of your investors, and how does this relate to the economic cost of the capital?
  • How much time and effort will be involved in getting the capital? What will you have to prepare for diligence and who will work on it?
  • What is the economic cost?
    • For Equity: What are you giving away?
      • How much of the company are you selling?
      • What’s the valuation?
    • For Debt: What’s your interest rate, fees, and any pass-through costs?
      • Prepare a cash flow profile to better understand your business’s ability to take on this type of debt.
  • Does this limit your ability to raise additional capital in the future? Does it make it easier?
    • Some of these can be technical reasons (i.e. relating to covenants)
    • Some of it can be more subjective (i.e. can they introduce you or help raise your profile to other investors or lenders)

Companies should consider current and  future needs.  A diverse capital stack that provides flexibility and room to grow will set you up for successful capital raises in the future.

Types of Capital

Senior Debt

Senior debt is generally provided by banks or bondholders. This type of debt is usually in the form of a line of credit available to the business, and is secured through collateral in the business, making it a low-risk debt option for lenders. The defining factor of senior debt is that in the event of a bankruptcy, the senior debt holders are the first to be repaid. 

Mezzanine Debt

Mezzanine debt bridges the gap between debt and equity financing. It is a high-risk form of debt where the issuer is able to convert their debt to equity in the company in the case of a bankruptcy or default on the loan. 

Convertible Debt

Convertible debt is acquired through a group of investors, with the expectation that the debt be used to generate equity and revenue that is distributed in the future. The terms of future payout are established at the time of the investment being made and can be a great way to independently seek out funding for your business. 

Preferred Equity

Preferred equity is a category of shareholder equity that gives preference when cash or equity payouts are being made. 

Common Equity

Common equity is a standard class of shareholder, which is generally last on the priority list for receiving payouts and dividends after preferred equity holders and other debt classes. 

Grants and Government Incentives

Grants and Government incentives can assist businesses in a variety of stages to grow their business or weather difficult times. Incentives are usually targeted at a specific area of your business, for example, hiring or investing in technology. Grants can also be an attractive option for young, female, or BIPOC founders seeking support and additional funding. 

Crowd-Sourcing

Crowdsourcing is an excellent way to raise initial funds for a new startup or product. Instead of a loan with interest, these contributions are often in exchange for a product or service once the funding goal has been met. This is a particularly powerful tool for products or services that solve social issues and have a compelling story. The power of crowd-funding sites such as Kickstarter has allowed startups to share their story and promote themselves ahead of launch, all while raising low-risk capital. 

Retained Earnings

If you have been in business and generating a profit, your corporation can rely on retained earnings to fund future growth. Retained earnings are one of the lowest-risk ways of growing your business, but can take longer to generate and can potentially slow growth depending on your revenue compared to your needs. Work with your financial team to see what the most tax-advantaged breakdown of retained earnings, dividends, and payroll makes sense for your business. 

While there are several types of debt or equity a business can take on, it’s never an “either-or” choice, but more so a constant exercise at building up your capital stack to prepare you for the next stage of growth.

Looking for guidance on how to prepare your business for raising capital? Our team of experts will help guide you through your options, prepare the right financial documents, and take the headache out of financially preparing for funding! 

This blog post was made in collaboration with our friends at Easly. Learn more about their innovative Capital-as-a-Service program and get your startup funded online with Easly!

Whether you’re just starting a business, or have been operating for a while, building a budget is one of the  best ways to set yourself up for long-term financial success. Budgets allow you to plan for the future, identify opportunities to streamline or grow your business, and ensure that you can invest in your business (and yourself!) for years to come. 

But budgets can feel tricky – if you’re still in the early stages, you may think it’s impossible to make an accurate budget. Or if you’ve been operating for years, tracking every nickel and dime can make your head spin! But regardless of where you’re at in your business journey, having a business budget allows you to be proactive, instead of reactive, for your important expenses. 

Looking to start building your business budget? Here are our simple tips to help!

Start with Expenses

Starting with fixed expenses lets you know your break-even point, and the primary bills that need to be covered. These are the easiest to find because they tend to be the same month over month (rent, internet, hosting, staffing costs, etc.). Then, determine variable expense (COGS, variable staffing, utilities, etc). You can include a variety of scenarios for this budget depending on your income for each month. 

It’s also important to note down seasonal, annual, or one-time investments. If you decorate the office for the holidays, make sure you account for that expense in your December budget! If you require additional staff in the summer, make sure your staffing budget allows for that. If you have a large upcoming expense, such as new equipment or furniture, you can also begin setting aside money each month to fund the purchase, instead of having payments afterwards. 

List Your Revenue Streams

Depending on your business, you may have multiple streams of income. From multiple clients, to different streams of your business, or even investment income, it’s important to account for all of the different sources of revenue your business has. If you’ve been operating for years, you can use historical data to determine what your average monthly income will be for each month. If you’re just getting started, you may want to mark down a minimum revenue needed to keep your business operating smoothly. 

Most businesses have high seasons and slow seasons, so accounting for the increased revenue at different times of year is important, as it can impact your expenses as well (more sales could mean more supplies, longer hours, and additional support). 

Plan for the Future

Are you thinking of growing your space, investing in new equipment, or breaking into a new market? After subtracting your expenses from your revenue, you can now start to look for opportunities to invest in your business and set yourself up on a path for growth. 

If you have accrued revenue in your business, consider how that could best be spent on the business, or if an additional investment is the way to go. If you see that there’s some wiggle room in your monthly budget, perhaps a new team member to help take your business to the next level, or an investment in streamlining and automating your systems to scale would be a great way to use those extra funds!

Prepare For Any Scenario

When building a budget, it’s worthwhile to plan for any scenario. Ideally, you’d want to have a ‘break even’ budget – knowing which expenses you could cut or revenue streams you could rely on if you needed to simply break even each month. Then, you can make a ‘stretch’ budget – if you reach all your big goals, what would that look like for revenue, expenses and investment in your business?

How To Track Your Budget

The easiest way to track your budget is through cloud-based accounting software that automatically tracks your expenses and revenue, and tracks how much you have in each of your accounts for a 360-degree view of your business finances. We recommend using Xero for its simplicity, user friendly design and powerful features!

Meeting with your accounting or virtual CFO on a monthly or quarterly basis also helps you to stay on track, and get an expert perspective on your business’s finances, helping you make the most of your current position and setting yourself up for success in the future.

Looking to take your business to the next level? Reach out to Virtual CFO and let us guide you in making the best financial choices for your business.

One of the main concerns of small business owners and startup founders in Canada is ensuring that their GST/HST is properly accounted for. But there are so many questions about the who and how of paying your GST/HST – which is why we’ve developed this quick-guide for Canadian businesses to make sure they’re informed about their GST/HST obligations!

Which Businesses Need To Pay GST/HST? 

Businesses need to register for GST/HST when they generate over $30,000 in revenue over all four quarters of their business year. However, you also have the option of voluntarily registering for GST/HST even if your business makes less than $30,000 per year. 

How Much Is GST Or HST? 

GST or HST is calculated as a percentage of your gross revenue and varies by province.

GST/HST Amount by Province 

5% (GST) in Alberta, British Columbia, Manitoba, Northwest Territories, Nunavut, Quebec, Saskatchewan, and Yukon

13% (HST) in Ontario

15% (HST) in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island

How Do You Register For GST/HST? 

Registering for your business’s GST/HST number is simple! You are able to register online through the CRA here, or by phone or mail. 

To register, you will need to provide:

  • The effective date of registration. This is the date when your business reached the $30,000 revenue threshold for mandatory registration.
  • Your fiscal year dates. If your business is incorporated or has a fiscal year schedule that differs from the standard January-December schedule, then you’ll need to identify that. 
  • Your business’s total annual revenue from your taxable sales.
  • Your SIN
  • Your date of birth
  • Your postal code
  • Your business name
  • Your business number, if applicable
  • Type of business or organization (such as sole proprietor, partnership, corporation, registered charity)
  • Name and SIN of all owners
  • Your business’s physical address
  • Your business’s mailing address (if different from the physical address)
  • A description of major business activity

The Advantages Of Registering For GST/HST

While many businesses are required to register for GST/HST, some businesses may choose to voluntarily register for GST/HST for their business. The main advantage of registering for your own GST/HST number is that you are able to write off any GST/HST that your business pays and credit that amount toward your taxes at the end of the year. If you purchase supplies or services from other Canadian businesses, this can make a major impact on your bottom line!

How Do You Pay For GST/HST Online?

GST/HST payment can be made online through a variety of channels. Your GST/HST payments can be set up through your online banking by using your GST number. If you’d like to pay by debit, you can do that through the CRA My Payment site. For credit cards, there are a handful of CRA recommended third-party sites that can be used.

GST/HST Remittance Requirements

Your GST due date depends on your tax filing period. Some businesses choose to pay their GST/HST quarterly or annually. For more information on how to remit (pay) your GST/HST, the CRA has additional guidance here.

GST/HST Reporting Requirements  

When you charge GST/HST, there are certain requirements for the information you must provide to anyone purchasing your goods and services. In addition to making it clear on all sales documentation that you are charging GST/HST, the following information must also be included: 

This information will be used by your customers to file for their GST/HST tax rebates. For more information on GST/HST reporting, the CRA has an in-depth guide here.

Making sure your GST/HST taxes are properly collected and paid is one of the most common accounting frustrations for businesses. Switching to cloud-based accounting can make sure you have all your bases covered – let the team at Virtual CFO Solutions provide guidance and support for your business!

Dreaming of running your own startup, or already assembling your dream-team to make it happen? Wonderful—startups are a great way to bring your ideas to life, fuel your passions, and, of course, generate big profits. 

That said, starting and running a startup is an incredibly complex process—one that requires lots of research and education at the start. That’s why we’ve compiled key startup finance terms that you need to know before starting your journey. 

Think of it as your ‘Startup 101’ lesson for the day!

Key Startup Finance Terms

Get a handle on these important elements of startup financing, and you’ll be well on your way to success. 

Seed Capital

By definition, startups need financing, and a seed round is a great way to get it in the early stages. Seed capital is the initial money you use to start your business, often coming from family and friends, or, if you’re well-organized, early shareholders and angel investors.

Seed capital typically means giving up a hopefully small percentage of your business, but for many startups, it’s also how you get your company off the ground. 

Angel Investors

Speaking of angel investors, these are wealthy private investors who provide startup capital, usually in exchange for fairly large equity. 

While they can be incredibly helpful and in many cases more flexible than venture capitalists , they may also want a significant say in how you run your business. 

Cash Runaway

Something to definitely watch out for! Cash runaway is how long your business can stay sustainable until sales rise or you can raise more money. In other words, it’s how long you can operate without any new incoming money. Get tips on how to handle your cash runaway here

Cash Burn

To determine your cash runaway, you need to have a solid handle on your bash burn, which is the total money you’re spending (or ‘burning’ through) each month. Find tips for managing your startup cash flow here. 

Cash Flow

Cash flow is essentially how much money is coming into and out of your startup, comprising your revenue, costs, and assets. Learn how to manage your startup’s cash flow here

Capital Stack

Startups are more likely to succeed when they have a diverse capital stack, which is the structure of capital that is invested in your startup. It’s important to see your capital as layers, split between debt, equity, and other sources of capital—all of which make up your capital stack. 

Specifically, a diverse capital stack can be comprised of:

  • Debt, which is a loan that needs to be repaid, typically found in the following forms—
    • Senior debt, which is generally provided by banks or bondholders
    • Mezzanine debt, which is a high-risk form form of debt where the issuers can convert the debt to equity if you default or go bankrupt
    • Convertible debt, which is acquired through a group of investors, with the expectation that it will be used to generate equity and revenue that is distributed in the future
  • Equity, which is essential ownership—of both the risks, and the rewards. It can look like the following.
    • Preferred equity, a shareholder equity that gives preference when cash or equity payouts are being made.
    • Common equity, which is a standard class of shareholder, which is generally last on the priority list for receiving payouts and dividends after preferred equity holders and other debt classes
  • Other sources of capital
    • Grants and government incentives
    • Crowdfunding (also called crowd-sourcing), which is a great way to raise capital in the early stages of your startup, because instead of being a loan with interest, people give capital in exchange for a product or service, once a goal has been met (see more ways early stage companies can finance their startup here).
    • Retained earnings, which are low-risk because they’re essentially a portion of your startup’s profit

Fractional and/or Virtual CFO

Startup financing is complex, and it’s also make-or-break. But ironically, since money is so tight in the early stages, many startups aren’t able to hire a full time CFO to help manage their finances. 

‘Fractional’ means you can get part-time financial support, in the areas where you need it most. And of course, thanks to the pandemic, we all know how virtual services work!

When you hire a virtual CFO, we can do a cash flow analysis of your startup. You’ll learn your complete financial picture and get expert advice about how to best control your finances. 

We offer virtual CFO services specially catered to startups, with multiple plan options to meet your budget and goals. Reach out to learn more.

As an e-commerce business, one of your top priorities needs to be keeping your finances in order – but it can also be the biggest headache! Whether you’re shipping all over the world, or a local shop that’s recently expanded online, there are many moving pieces of your accounting that need to be kept organized. 

Accounting for your e-commerce business can become complicated with international taxes, cost of goods, and payment portals, and it’s helpful to have a professional’s insight to make sure you’re CRA compliant while making the most of your revenue!

Today, the experts at Virtual CFO Solutions are giving their advice on how to best manage your e-commerce accounting.

Common E-Commerce Accounting Issues

Not Charging the Correct Tax

What amount of tax to charge can be one of the most confusing parts of setting up and running your e-commerce store, especially if you ship internationally! Sales tax is determined by the location that the item is being shipped to, which can make calculating, charging, and paying your taxes more complicated. Having integrated cloud-based accounting software can help automate this, and alleviate your stress!

Pricing Your Products To Account For Additional E-commerce Costs

By selling your products online, there are additional costs that need to be accounted for. Some costs, like shipping, can be passed along to the purchaser, but things like credit card processing fees, website costs, and the cost of your packaging need to be built into the price that you set on your online store. 

Relying On Traditional Accounting

Traditional accounting can be cumbersome for an e-commerce business. Instead of taking your information from online to offline, switching to cloud-based accounting allows you to integrate your accounting software directly with your payment processor, invoicing software, credit card, and website. By having all of your software working together, you can easily get a moment-by-moment snapshot of how your business is performing financially. 

Taxes and E-commerce 

Taxes can be calculated for each order, and are based on where the purchaser is located. Certain e-commerce website platforms, such as Shopify, have apps that make it simple to automatically calculate, charge, and track tax amounts. Depending on the platform you’re using, there will likely be a preferred sales tax integration that will help each customer pay the correct amount of sales tax.   

Best Online Accounting Software For Ecommerce

Xero

Xero is the only cloud-based accounting software we use, and it is by far the easiest to use by both accountants and business owners while providing valuable information to both parties.

Here are some of the main highlights of using Xero:

Xero can be used anywhere, as long as you have Wi-Fi available. This means you can check out your live data whenever and wherever.

Xero can integrate with hundreds of different cloud-based apps. I’ll be listing out a couple of them but there are many more available that can provide added value depending on your business goals.

Xero connects to your bank and credit card accounts and will automatically upload your transactions through an API connection. This means you are saving roughly 50% of manual data entry and getting the information on a daily basis (instead of monthly or annually).

The support for Xero is efficient and useful and can be accessed by accountants or business owners.

Stripe

Stripe is one of the largest payment processors that can be integrated with a variety of e-commerce platforms. Stripe has competitive fees for credit card processing and has a user-friendly interface that gives you a snapshot of your daily performance.  

Shopify

Shopify is one of the best all-in-one e-commerce platforms. They make it simple to get started, and have powerful integrations and apps that take the headache out of shipping, taxes, reporting, and accounting. 

A2X

A2X is an integration software that connects your Shopify store with Xero, our recommended cloud-based accounting software. This increases your automation and seamless accounting across all of your e-commerce store’s platforms and software. Take the guessing, tracking, and paper records out of the equation and seamlessly integrate your store with your accounting software.



Dreaming of running your own startup, or already assembling your dream-team to make it happen? Wonderful—startups are a great way to bring your ideas to life, fuel your passions, and, of course, generate big profits.

That said, starting and running a startup is an incredibly complex process—one that requires lots of research and education at the start. That’s why we’ve compiled key startup finance terms that you need to know before starting your journey.

Think of it as your ‘Startup 101’ lesson for the day!

Key Startup Finance Terms

Get a handle on these important elements of startup financing, and you’ll be well on your way to success.

Seed Capital

By definition, startups need financing, and a seed round is a great way to get it in the early stages. Seed capital is the initial money you use to start your business, often coming from family and friends, or, if you’re well-organized, early shareholders and angel investors. Seed capital typically means giving up a hopefully small percentage of your business, but for many startups, it’s also how you get your company off the ground.

Angel Investors

Speaking of angel investors, these are wealthy private investors who provide startup capital, usually in exchange for fairly large equity.

While they can be incredibly helpful and in many cases more flexible than venture capitalists , they may also want a significant say in how you run your business.

Cash Runaway

Something to definitely watch out for! Cash runaway is how long your business can stay sustainable until sales rise or you can raise more money. In other words, it’s how long you can operate without any new incoming money. Get tips on how to handle your cash runaway here.

Cash Burn

To determine your cash runaway, you need to have a solid handle on your bash burn, which is the total money you’re spending (or ‘burning’ through) each month. Find tips for managing your startup cash flow here.

Cash Flow

Cash flow is essentially how much money is coming into and out of your startup, comprising your revenue, costs, and assets. Learn how to manage your startup’s cash flow here.

Capital Stack

Startups are more likely to succeed when they have a diverse capital stack, which is the structure of capital that is invested in your startup. It’s important to see your capital as layers, split between debt, equity, and other sources of capital—all of which make up your capital stack.

Specifically, a diverse capital stack can be comprised of:

  • Debt, which is a loan that needs to be repaid, typically found in the following forms—
    • Senior debt, which is generally provided by banks or bondholders
    • Mezzanine debt, which is a high-risk form form of debt where the issuers can convert the debt to equity if you default or go bankrupt
    • Convertible debt, which is acquired through a group of investors, with the expectation that it will be used to generate equity and revenue that is distributed in the future
  • Equity, which is essential ownership—of both the risks, and the rewards. It can look like the following.
    • Preferred equity, a shareholder equity that gives preference when cash or equity payouts are being made.
    • Common equity, which is a standard class of shareholder, which is generally last on the priority list for receiving payouts and dividends after preferred equity holders and other debt classes
  • Other sources of capital
    • Grants and government incentives
    • Retained earnings, which are low-risk because they’re essentially a portion of your startup’s profit

Fractional and/or Virtual CFO

Startup financing is complex, and it’s also make-or-break. But ironically, since money is so tight in the early stages, many startups aren’t able to hire a full time CFO to help manage their finances.

‘Fractional’ means you can get part-time financial support, in the areas where you need it most. And of course, thanks to the pandemic, we all know how virtual services work!

When you hire a virtual CFO, we can do a cash flow analysis of your startup. You’ll learn your complete financial picture and get expert advice about how to best control your finances.

We offer virtual CFO services specially catered to startups, with multiple plan options to meet your budget and goals. Reach out to learn more.