Christiane Caisse
Principal Director | CPA, CA, M. Sc. | Management consulting

The operating budget is an essential tool for the management of a company. Indeed, it allows, among other things, to address the concerns of the banker, test different scenarios and manage its human and financial resources. However, to be truly effective, it must be prepared methodically and strategically.

Conditions for success

First, the budget should be planned according to the vision, strategic plan and objectives of management. For example, if a Quebec company wants to conquer the rest of Canada’s market, the budget must reflect this ambition and not only include sales expectations in Quebec. Then, the related objectives must be ambitious and stir people into action. Indeed, one might tend to underestimate the budget by saying that they will be able to manage it and to win the banker’s favor. However, a realistic budget demonstrates not only the seriousness of the business, but also the quality of management: the vision of the entrepreneur and his ability to anticipate things and plan and set goals (realistic but ambitious).

Ensuring to communicate the objectives related to the budget is also an important factor for success. Concerning sales, for example, a seller may direct its work according to the objectives. It is also a great way to mobilize the team and empower every person concerning the elements under their control. Finally, for the budget to be a really effective tool, it will be necessary to plan it before the beginning of the year, to be sure to have only one official version and to be sure that it does not present too many details and that it is flexible during the year in the event that an interesting opportunity arises.

Methodology

The usefulness of the budget also lies in the way of conceiving it. A good methodology to establish the budget consists in:

Using projected sales as a basis
In the case of a company that is in its second year of operation, it is possible to rely on sales of the previous year, including the expected growth and inflation. For a start-up company, it is an estimate. In both cases, the estimates may be based on facts such as signed contracts, the volume of potential customers to approach, workforce hiring to come, purchase of equipment, premises, etc.

Preparing the budget as the internal financial statements
Adopting the same structure for the budget as that of the financial statements facilitates the comparison of the data, the measurement of the differences and then, subsequently, the decision making.

Gathering and properly documenting the assumptions
The assumptions are used for explaining the amounts included in the budget. They involve sales and expenses. For each of these aspects, assumptions are made taking into account the different elements.

1. Sales

They allow to track the overall growth of the sales figure. Sales include:

  • Projected sales by product or service or territory,
  • Business volume by customer.
2. Expenses

They reflect a good knowledge of the cost structure and help plan the resources needed to achieve the projected sales. It is necessary to examine historical data in order to establish them. Expenses include:

  • Factory overhead,
  • Selling expenses,
  • Administrative expenses,
  • Financial expenses based on debts,
  • Amortization.

In general, the assumptions can be made on a monthly basis to reflect cyclical or seasonal activities, or they can be divided by 12, which is standard practice in the case of a start-up company.

If you are to prepare a budget for your business and want to get advice from a professional, do not hesitate to contact us. Our team will be happy to guide you through the process.

03 Mar 2015  |  Written by :

Ms. Caisse is your expert in Financial Advisory Services for the Sherbrooke office. Contact her...

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France Vézina
Senior Manager | Pl. Fin., D. Fisc. | Tax

Writing a will is a complex endeavour, and it is essential to understand the tax consequences of certain clauses to avoid unpleasant surprises. For example, does a survivorship clause preclude a tax-free rollover of property or a registered plan as a spousal bequest?

Indefeasible vesting

The rollover of property to a spouse or spousal trust upon a taxpayer’s death is an exception to the rule of deemed disposition at fair market value of any property owned by the taxpayer immediately before death.

To benefit from a transfer, several conditions must be met, including the requirement that the property of the deceased be vested indefeasibly to the spouse, or to an exclusive spousal trust, within 36 months following the death.

When a will contains a classic 30- to 60-day survivorship clause, according to the Canada Revenue Agency (CRA), such a clause does not in itself preclude the rollover of property to the spouse, if the latter survives the testator beyond the period stated in the clause. However, the CRA also specifies that, should the spouse die within the period stated in the survivorship clause, the rollover provided by law does not apply, because the bequest would be retroactively transferred to someone else.

Registered plan bequests

Upon the death of a registered plan annuitant, tax-free vesting occurs by virtue of the premium refund concept.

At the time of death, the annuitant of a registered retirement savings plan (RRSP) or a locked-in retirement account (LIRA) is deemed to have received, immediately before death, an amount in the form of a benefit equal to the fair market value of property included in the plan. This amount should be included in the computation of the deceased taxpayer’s income.

Following the death of the registered plan annuitant, insofar as any plan amount is paid to the surviving spouse, child or grandchild financially dependent on the plan annuitant such payment will then constitute a refund of premiums that is deductible in the computation of the deceased taxpayer’s income. The end result will be tax-free vesting.

As for the taxpayer who receives the amount that qualifies as a premium refund, if the amount is transferred into an RRSP or used to acquire a life annuity for the surviving spouse, child or grandchild, the transfer is tax free, if certain conditions are met.

In the case of a registered retirement income fund (RRIF) or life income fund (LIF), the rules regarding tax-free vesting have the same characteristics of inclusion and deduction for the computation of taxable income as those of an RRSP.
In short, vigilance is a must when writing a will. When there are conditions attached to a bequest of property, it is important to verify whether such condition(s) will have a tax impact. Our will and estate planning specialists can help ensure peace of mind and financial security for both your loved ones and yourself.

19 Feb 2015  |  Written by :

Ms. Vézina is a partner at RCGT. She is your expert in taxation for the Québec office. Contact her...

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Management best practices for your municipality (Vol. 1, N° 9)

Commodity taxes often represent an additional financial burden for municipalities and paramunicipal organizations. To learn how GST and QST can optimize your projects, read our publication.

 

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This bulletin summarizes the new requirements of IFRS 15 Revenue from Contracts with Customers and what they will mean for entities in the real estate industry that apply International Financial Reporting Standards (IFRS).

To view this publication, click on the “Download” button on the right.