creative briefing

I’ve been busy. Well, that’s a little bit of an understatement. But nonetheless, I’ve been busy. Our clients must have read my post on things I like to do with my downtime, and decided to contact me - all at once. But naturally, no complaints. They do pay the bills after all.

While juggling a dozen or so active projects, I’ve also had my hands tied with some big tings (that’s “big things” for those of you who are not “wit it”). Part of this pocket of work includes cleaning up, reorganizing, and formalizing the structure of my personal business and that of my agency. It’s a fairly tedious and administrative process, and I’ve only just scratched the tip of this dirty, dirty iceberg. However, I wanted to share with all of you some of the things that have been on my to-do list lately as I think it holds a lot of value to freelancepreneurs (my corny amalgamation of freelancer + entrepreneur) that are just starting out, or have been running the show informally for some time and want to look at formalizing some of it.

The story thus far…

Let me take a step back and give you a better picture what my setup. I’m a web designer architect who owns and runs a creative agency (a corporation) that does web, print and brand services for small to medium sized businesses. While I own the agency, I’m not formally an employee of it (don’t worry about the technicalities of why). And neither are my partners who also own equal parts of the business. Up until recently, I was really just a ‘floater’ who was raking in revenue from a corporation without formally belonging to any company.

I hired an accountant at the beginning of the year to help me take care of my personal income tax filings (one of my smartest moves to date). He informed me that, to play nice with the government, there are a handful of housekeeping items I needed to do that would inevitably have me formalize a freelancing business on my own (separate from my agency/corporation). Hopefully this list will help out some of you, as it was certainly an eye-opener for me.

Note #1: The general concepts are universal, but some of the specific amounts and rules will definitely vary for places outside of Canada. So if you’re not operating in Canada, be sure reference your local set of regulations.

Note #2: I’m not an accountant and I’m not a lawyer. Please bear that in mind as I try to describe to you my accontant’s recommendations to the best of my understanding and interpretation (which hopefully isn’t far off from the truth). :)

Here we go! Grab your taskpad and follow the checklist after the jump!

1. Formalize the business

As mentioned, up until recently, I was making money without formally belonging to any company. But as the money I made became more significant, it became more and more important for me to clean things up and formalize the business. Essentially, I was told, if I wasn’t an employee of my agency, then I needed to be an employee of another corporation, a partner in a partnership, or a sole proprietor of a business and incur revenue through that entity. In my case (and in most freelancers’ cases), setting up a sole proprietorship made the most sense.

The best part about setting up a sole proprietorship is that there’s nothing you need to do. Unless you want to have some kind of branded business name, then there was nothing to register and by default, the sole proprietorship was already created by the very act of me doing business. I didn’t bother registering for a business name, so the Verne Ho sole proprietorship was [formally] born.

2. Register for a GST number

“Will you make more than $30,000 in 2008?”, my accountant asked. I proudly responded with a “Yes”, followed by a “….I better” after-thought. The purpose of the question was to determine whether I needed a GST number. The [Canadian] rule is that if a business makes over $30,000 a year, it is required that they charge GST on their services. So, just like my agency has a GST number, I needed to get one for my sole proprietorship. I hopped online and found the Business Registration Online checklist (or BRO for short… which I can’t see why nobody finds funny). A quick and semi-painless 15 minutes of online forms later, I had myself a GST number and a business number (which gets automatically created for you during the process).

3. Get a separate bank account and credit card

The next recommendation my accountant made was to get a new bank account and credit card that would be used for all transactions relating to my sole proprietorship. It’s a bit of an extra hassle to manage a few more accounts, but the purpose of doing so is to keep business records clean and separate from personal ones.

After setting everything up and getting everything activated (which took a week or two), I started transferring a lot of my bills that had to do with my business over to my new credit card. Phone, internet, and hosting accounts were all thrown over to the business card. Future paycheques from my agency will also now be deposited in my new bank account. And when I need to pay myself, I just transfer the funds to my personal account.

4. Keep clean records of all other transactions and expenses

The same idea applies for all other aspects of the personal business: keep as many records as possible and keep them as organized as possible. For example, an important element in being able to claim a percentage of my car lease, insurance bill and gas expense is to keep a log of the business use of the car. Every meeting I drive to, I take note of how far I travelled. At the end of the year, the number of kilometres I’ve travelled for business divided by the total kilometres for the year gives me the percentage that I can claim from my car expenses.

Pretty much any transaction that results from my business is now tracked and organized to be passed onto my accountant at the end of the year. Whether you have an accountant already or are looking to get one, clean records will make their job a lot easier and will cut down on the hours they charge you for.

5. Invoice your corporation

Naturally, the end goal of doing all of this is to get paid. So to do so, at the end of each month (or whatever payment schedule you work off of), my personal business will invoice my agency. Yes, essentially, this means that I’m invoicing myself, but this ensures that the transaction of me getting paid is a legitimate one in the eyes of the government. This is also where a great tool like FreshBooks comes in hand!

And since I have a GST number registered, I have to add the extra 5% tax on top of the subtotal of the invoice. It may seem like I have to charge more to my agency now, but in reality, businesses that pay taxes on transactions get to claim it all back. Likewise, while I’m gaining an extra 5% on each invoice, at the end of the year, I owe that accumulated amount to the government. So in the end, it all nets out to be the same.

As a sidenote, if you’re like me, and have only registered for a GST number halfway through the year, and are only implementing this invoicing process midway through the year as well, know that you do not have to charge GST on previously performed services if the total accumulated earnings year to date does not exceed $30,000. However, services invoiced for after the effective date of the GST number must include tax. Hope that made sense.

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So as you can see, it’s been a busy few months going through some of these administrative hurdles while managing a big tub of projects. There’s still plenty more to tackle on the agency side (details I’ll continue to keep hush hush for now) but in the mean time, I’m happy to say that I’ve gotten through the basics.

It wasn’t until about a year ago that I acknowledged the fact that I was actually a freelancer (I just always used the more traditional ‘entrepreneur’ label), but it’s a label I’ve grown to carry proudly. :)

Verne Ho, Esquire Freelancer