“I’m late filing my HST and now I have a six month payment agreement with CRA to pay off 2017’s HST. This number is only going to keep doubling… How can I reduce this burden?” If this sounds like your current situation and your business is beginning to operate in the negatives, you stumbled upon the right blog! We have plenty of tips to offer you and help you through this.
Banks are ugly. They are incredibly strict with small businesses like ourselves. You have to be a million dollar corporation before they even look at you. However, there are tons of other options out there.
If your Accounts Receivables are high and you sometimes go months where your business does not collect anything, invoice financing would be beneficial for you. The way that works is you are taking a loan out backed by a receivable. For example, when you send out a $50 thousand dollar invoice to your customer a third party company will loan you the $50 grand. Then you have to make weekly payments on that until your customer pays you in full.
Why is it Beneficial?
This is beneficial because sometimes it can take 30, 60, or maybe even 90 days before your customer pays their invoice. Then once they pay you back, you can pay off that loan or you can use it to finance other things. Afterwards, you can do it again on your next receivable. Invoice financing is kind of like an internal line of credit. They won’t bug your customers and they won’t collect payments from them. It’s a great and flexible way to fund short-term cash issues!
The maximum for small business owners is about $5 thousand in accounts receivables. However, if you are working with an accountant, the individual providing the loan will be more flexible with your needs. You will sit down and talk to the representative to figure out what numbers you need, whether it’s 20, 30, or 50. Invoice financing is a great short-term strategy to increase your cash flow and get your business out of debt with the CRA. If you would like to learn more about invoice financing and be connected to our representative, contact us and we would be happy to help.
If you don’t have enough accounts receivables, another option is a crowdfunding platform. This is more of a long-term strategy once you are no longer late filing your HST payments. It’s kind of like a ‘GoFundMe’ but for businesses and other Canadian investors to invest in your business. Although, it’s more of a formal loan so there are structured payments. Also note that the interest rate here can be higher than banks. The good news is that this means that the approval rate for small businesses is a lot higher!
A CRA payment would be a great candidate for this type of loan. Though, this loan is typically used for taking a large sum of money, such as $50 or 100 thousand dollars, and investing it in research and development to enter a new market. Investors get excited about that. Basically, you put an online profile together stating your case and you will get varied offers from several people.
You’re not taking on an investor yourself, you’re just taking on a loan. Lending Loop is a third-party crowdfunding platform in Canada. They pool all the investors together and then issue you a loan. So you won’t be taking on additional shareholders and setting up share structures or engagements. All of the management is done for you. Since it’s a loan payment, you pay it off and you’re done if you decide to be.
The interest rates that you will run into with Lending Loop will vary. Deals on that platform can be anywhere from 6.5% up to 25%. But the 25% interest rates are for the individuals who are in bad shape with the CRA or who aren’t very profitable. That makes it a riskier investment from an investor’s standpoint. For this reason, it’s important to pay off your CRA balance first.
Lease Assets, Don’t Buy
A third option to help reduce the burden of being late filing your HST is to lease your assets instead of buying them. You will typically only get half the depreciation value in year 1 on some assets. This isn’t the most cash effective way to invest or to buy assets. You should be leasing equipment or software. Especially software that will be out of date in 2 to 3 years from now when the newest version will be released. That way you don’t have to give all of the cash upfront. You’re only paying monthly and then you get a 100% deduction on it every month. We would suggest not to go above $500 to $1000 dollars a year in cash for purchasing assets.
Since a lease is not owned, it’s not an asset anymore. It’s the same idea as leasing a car. You’re making monthly payments, but you don’t actually own it. At the end of the lease agreement, you have to give it back. Just like cars, software depreciates very quickly and you have to end up buying a new one. A lease payment is definitely the way to go in this situation. You will be renting it every month instead of sinking all that cash in it. This is especially beneficial when you need that cash elsewhere to pay off the CRA, grow your company, and invest in new markets.
You can either consult the company you purchase your asset from and negotiate monthly instead of annual payments, or you can use a third party financing company. You should discuss payment terms with both companies. Then you can choose the option that will provide you with the best offer for your needs. Sometimes, if the company that’s selling the asset is willing to do the financing of it, they might provide better rates than a third party because they keep all the profit margin. If you need to be introduced to a representative for a leasing company, contact us and we would be happy to help you with that, as well.
Managing HST Billing
Going forward, we would recommend that you change your HST from annual to quarterly payments. Quarterly is usually the in-between step so that small business owners avoid receiving a giant bill at the end of the year. Moreover, the installments will force you to do the books and close them every quarter. Although, you will have to be tight with that close because you will only have a month to get your payment in, as opposed to three months after a year.
Another way to avoid late filing your HST in the future is by opening a savings account dedicated to tax payments. Once you open a savings account, you should automatically put 15 to 20% there every time you get paid. This will ensure that you have secured enough funds for your HST and corporate taxes. If you currently have debts to pay off, start with 10 or 15%. Once your cash flows are no longer an issue and you have a better idea of how much you should allocate to that account, you can increase that percentage to 15, 20, or even 25%.
We understand how stressful you feel being late filing your HST. UpSide Accounting has tried everything spoken about here first before getting behind it. So we can assure you that these are UpSide Approved ways to reduce the burden of a limited cash flow and the CRA being on your back. Our team is always happy to help. If you are stuck in a situation like this, let us help you out of it!