In 2024, improving a company’s financial and operational performance should be at the top of the list of commitments to be made.

A business’s financial aspects are often neglected by managers who focus more on improving business or manufacturing processes. Many companies do not employ specialist financial resources or even draw up annual budgets. They don’t carry out costing analyses, and end up setting the prices and rates for their products or services based on those of the competition.

Monthly monitoring of financial results

However, in these times of inflation and increased risk of recession, it is just as important to focus on the financial and operational performance of your business, in order to maximize its value.

By monitoring its financial results on a monthly basis, a company will be able to see the increase in its costs or the erosion of its profit margins as the months go by, becoming more agile in the face of economic upheaval.

For example, it will be able to know along the way whether it needs to compensate for this increase in costs by raising its prices or by improving its operational capacities.

What is looming in the coming months is the risk of an increase in certain costs, while our businesses will be under pressure to lower prices because of the economic slowdown. So, it’s on the margins that everything is going to come down.

By analyzing the costs per client and per product, it is possible to pinpoint the profitable and less profitable elements. In the field, for example, there are companies where 34% of clients are not profitable and 26% are generating losses. The ratio measuring marginal contribution will be of real importance in setting your prices without losing your shirt.

Management and production: Eliminating waste

By taking a closer look at financial performance, the company will be better equipped to determine its growth objectives and implement the necessary actions for improving its operational performance. And growth does not necessarily mean adding resources or production capacity to achieve its goals.

It makes more sense to turn to lean management and production methods, which focus on identifying and eliminating the waste that greatly reduces an organization’s efficiency.

Sources of waste

Here are a few examples of sources of waste:

Overproduction

There’s no point in producing more than demand, at the risk of generating too much inventory, wasted space and tied-up capital.

Stock accumulation

Unnecessary storage generates costs, and it is preferable to improve the supply chain.

Wait time

Delays, caused in particular by a lack of raw materials, equipment breakdowns or IT problems, are unproductive periods that obviously do not add value to businesses.

Unnecessary travel

Employees need to reduce the amount of time they spend travelling or handling things.

The importance of better operational optimization is such that a company could improve its production by more than 20%, without even having to add staff or equipment. In these times of labour shortages and economic uncertainty, such a strategy is bound to pay off.

In the age of robots and artificial intelligence

The digital transformation of businesses is another way of improving a company’s financial and operational performance. It must be at the heart of the business model and corporate development, which can now exploit a host of new technologies to improve their management and production methods.

In the age of robotics, wireless sensors, software, the Internet of Things (IoT), augmented reality, artificial intelligence (AI) and other cutting-edge technologies that can increasingly connect with each other, the digital shift offers the opportunity to create a smarter factory that can further optimize an organization’s management and production processes. We are even at the dawn of Industry 5.0, which takes this transformation even further by placing greater emphasis on the interaction between digital technologies and employees.

A digital plan will be needed to assess your situation, determine the processes to be put in place and prioritize the steps required to achieve your performance objective. For each process, an assessment of the expected benefits will be carried out. The selection of technological tools requires a structured approach that fits in perfectly with the digital plan.

Competitive advantage

This new development gives companies a competitive advantage and the opportunity to increase their market share. Companies that are slow to convert to digital technology perform less well and find it harder to grow, according to a number of studies.

Help with recruiting and retaining employees

This digital transformation not only has the advantage of making management and production activities more efficient, but also of tackling the labour shortage, while promoting employee recruitment and retention.

Automation and robotization initiatives enable companies to offer workers value-added jobs instead of performing tasks that may be repetitive or even dangerous.

According to a study by Sous-traitance industrielle Québec (STIQ) for dealing with the labour shortage:

  • 93% of companies had resorted to wage increases, but
  • 52% have implemented technology.

Pay rises are often a temporary solution with a limited impact on increasing the value and quality of an organization.

Transformation supported by financial aid

Companies can even benefit from government financial assistance to support their digital transformation projects. One example is the Canadian Digital Adoption Program (CDAP).

Thanks to the ESSOR program, they can also carry out a diagnostic to find out more about their digital maturity and implement appropriate solutions.

Experts from Raymond Chabot Grant Thornton have been certified to carry out this digital audit and support businesses in their initiatives. However, companies wishing to take advantage of the government’s financial assistance should act quickly, as the ESSOR program is due to end on March 31, 2024.

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Sylvain Gilbert
Partner and Vice President | CPA, M. Fisc. | Tax

In 2024, some tax issues have changed with regard to corporate sales and employee retention. Which ones and what will they change for you?

First of all, owners who are thinking of transferring control of their business to one or more members of their immediate family will benefit, as of 2024, from new measures that will make the transition easier, thanks to the harmonization of Québec’s taxation of intergenerational transfers of family businesses with the new rules announced by the federal government in its 2023-2024 budget.

Transfer of a family business: a tax reduction of over $542,000

To put it plainly, this is the greatest tax gift to family business owners in a long time. An entrepreneurial couple selling their business to family members for $1 million, for example, could each benefit from a tax reduction of some $266,550 instead of giving this money to the tax authorities.

To prevent family business owners from giving their children an advantage when transferring a business, the government had adopted tax measures that many consider unfair. Government authorities took it for granted that parents were transferring the business at a price lower than the fair market or open market value, thereby enabling them to pay less tax.

Smoother rules for corporate sales

Since 1985, the Income Tax Act has stipulated that entrepreneurs are exempt from capital gains tax if they sell their business to a third party, but are taxed at a rate of up to 48.7% if a family member buys the business.

In 2016, the Québec Finance Minister introduced amendments to the Québec Taxation Act that made it easier to transfer a family business to members of the same family, but subject to a number of conditions.

At the federal level, new measures were adopted in 2020, but under different conditions to those in Québec, which made them difficult to manage. Full harmonization of the rules has changed all that.

The new measures indicate that the transfer must be made immediately within 36 months or gradually over a period of 5 to 10 years. The tax authorities have also removed the requirement to provide the Canada Revenue Agency with an independent valuation of the fair market value of the sale of the business. However, managers have every incentive to transfer their business to the next generation at the right price, as the government reserves the right to assess the transaction for a period of between 6 and 13 years.

Labour shortage: tax breaks for employees

Faced with a labour shortage, companies need to be increasingly imaginative when it comes to recruiting and retaining employees. From cash bonuses and reimbursement of public transport costs to the granting of shares and other incentive programs, here are some initiatives that will help companies retain and attract employees.

Performance bonus in cash or shares

The annual cash bonus, paid on the basis of performance, is the most common way of rewarding employees. Bonuses paid in shares are much less common, but deserve just as much consideration, since they have no tax impacts for the company and are highly advantageous from a tax point of view for employees.

Stock option plan

More widespread in listed companies, this formula enabling employees to subscribe to their employer’s shares should also be more widely used by SMEs. However, managers must accept a certain dilution of the shareholding, except in the case of preferred shares. The percentage of a company’s shares reserved for stock options usually varies between 5% and 15%.

A direct equity stake

The purchase of shares at a reduced price is another type of incentive that enables employers to reward and retain key employees.

Creation of a joint stock company

Setting up a joint stock company can be a useful way of facilitating the transfer of a business to key employees. The company then pays dividends that enable employees to accumulate the capital they need when they eventually buy an interest in the organization.

Creation of an employee trust

Legislative changes currently under consideration are expected to make the creation of an employee benefit trust much more attractive from a tax perspective. This formula allows employers to set up a trust in order, once again, to allow employees who are beneficiaries of the trust to buy out the company. Employers then retain greater control over the company’s shareholding than in the case of a stock option plan.

Gifts and rewards

Employers can treat their employees to gifts and rewards that will not be considered taxable benefits if their value does not exceed $1,000 (Québec tax) or $500 (federal tax).

Public transport allowance

Paying for public transport for employees is a financial incentive that entitles employers to tax deductions equal to twice the expense incurred.

In 2024, should we incorporate or not?

Many self-employed people or registered business owners wonder whether it would be advantageous to incorporate. Incorporation certainly offers a number of tax advantages, and the situation must be analyzed on a case-by-case basis.

However, companies generating net income of at least $50,000 or more should look into the matter. Incorporation brings with it tax advantages specific to this type of legal vehicle. In return, they must accept certain constraints, in particular the obligation to file financial statements and tax returns separate from those of the owner, unlike self-employed workers or registered businesses.

Lower tax rates

One of the main advantages is the tax rate of an incorporated company compared with that of an individual. There is a major difference, where a company will be taxed at rates of between 12.2% and 26.5%, while an individual’s marginal rate can rise to over 53.31%.

Capital accumulation

At the same time, the low tax rate allows the incorporated company to accumulate more capital more quickly, which it can use to make investments and expand.

More flexible remuneration

Incorporation offers greater flexibility in terms of remuneration and taxation. It is possible to pay yourself a salary or dividends and thus choose a remuneration with a more advantageous tax rate than that of a self-employed person or income from a personally-operated business.

Tax deferral

An incorporated company can defer the payment of taxes, but be careful: this is a deferral, not an elimination.

Granting of tax credits

An incorporated business is entitled to tax credits, in particular the Tax Credit for Investments and Innovation (C3i), which allows a business to reduce its costs for the purchase of manufacturing and processing equipment, as well as computer equipment, including management software packages. This credit varies between 15% and 25% for the years 2024 to 2029.

Company versus legal entity

A business and an individual have separate legal personalities. That’s why incorporation can help protect personal assets in the event of a lawsuit, since it’s usually the business that will bear the cost, not the self-employed person or the registered business.

For the benefit of employees

Incorporation gives businesses with employees more options, particularly when it comes to remuneration. In some cases, it allows them to avoid losing benefits linked to government programs such as child benefits, Old Age Security pension or certain tax credits.

Capital gains deduction

A business that can be sold will benefit from the capital gains deduction if it is incorporated.

To determine what is most advantageous for you from a tax point of view, consult your expert. They will help you make the right choices.

09 Jan 2024  |  Written by :

Sylvain Gilbert is a taxation expert at Raymond Chabot Grant Thornton. Contact him today!

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Eric Dufour
Vice-President, Partner | FCPA | Management consulting

The start of a new year is a good time to commit to good management practices and invest in your health as an entrepreneur. Here is how.

In times of economic uncertainty, a company’s resilience and agility can be put to the test. Business leaders must be able to make quick and effective decisions, hence the importance of taking a step back in order to assess and strengthen key areas within the organization to ensure its long-term future.

What is your talent retention strategy?

Talent is the cornerstone of any company’s success. In a competitive market, attracting—and especially retaining– top talent becomes a strategic objective. Employees who are looking for stability will turn to companies that invest actively to foster employee motivation and engagement.

Adopting transparent communication practices

Adopting transparent communication, valuing individual performance and providing professional development opportunities are all effective strategies. Introducing flexible and customized career paths is also an excellent way to encourage employee loyalty.

Identifying core skills

Companies must also identify core skills that will be needed in the future and offer tailored training. Core skills include technical abilities as well as management, communication and teamwork skills.

Valuing innovativeness

Encouraging employees to continue to build their skills, experiment and learn from their mistakes helps to create an environment where innovation is valued. Mentoring programs as well as online training could also be provided.

How can you reassess your company’s governance?

During the holiday break, it would also be important to reassess corporate governance, a process that touches upon different areas.

Do a comprehensive assessment

Assessing the company’s current situation in detail will allow you to identify challenges and specific opportunities.

Review the corporate structure

This allows you to see potential weaknesses or inefficient processes that could undermine the company’s ability to position itself effectively.

Assess available skills

This will allow you to determine if your current team is equipped to meet the challenges that have been identified.

Mobilize influential members of the organization

This step is vital. Including key people in discussions ensures a better understanding of the challenges being faced and allows for a collective approach to be adopted in order to find solutions.

Do you have a succession plan?

A company’s long-term viability depends in large part on its ability to have an effective succession plan in place.

Introduce share ownership plans

Share ownership plans are an effective way to retain talent. Offering employees shares of the business helps to foster a sense of belonging and the desire to contribute to the company’s success.

Promote the company’s vision

Developing a plan that showcases the company’s vision and values helps to ensure that the company and its employees share the same objectives. This plan also fosters commitment and an employee’s desire to remain with the company for the long term.

All this not only helps to ensure a smooth transition when there is a change in leadership, but also allows investors and stakeholders to be more confident that the company is in a stable position.

As an entrepreneur, are you taking care of your own mental health?

Employees’ mental health is important. However, entrepreneurs need to take care of their mental health as well. There are many stress factors that can weigh on the minds of business leaders. Such factors could include economic instability, the technology gap, repayment of pandemic loans, regulatory changes, supply chain management, environmental and social responsibility, and the list goes on.
Developing resilience strategies

Resilience strategies must be developed in order to assist entrepreneurs. This involves creating support networks that can help entrepreneurs manage their stress more effectively.

Finding a work/life balance

Business leaders must also be encouraged to find a good work/life balance. It is important to encourage work habits that allow people to take time for themselves and their loved ones without neglecting their professional duties.

Managing in times of uncertainty requires business leaders to be attentive to many areas of the business. Managing talent, taking care of their own mental health and ensuring proper succession planning all help to lay the groundwork for a successful and resilient company.

09 Jan 2024  |  Written by :

Éric Dufour is a management consulting expert at Raymond Chabot Grant Thornton.

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As at December 31, 2023, there were thirteen countries around the world whose economies were considered hyperinflationary. Entities whose functional currency is the currency of one of these countries and that have December 31, 2023 reporting requirements have to reflect the requirements of IAS 29 Financial Reporting in Hyperinflationary Economies in their IFRS financial statements.

IFRIC decisions relating to hyperinflation

The IFRS Interpretations Committee (IFRIC) have previously considered a number of accounting issues in relation with hyperinflation. These include the following items:

  • Translating a hyperinflationary foreign operation and presenting exchange differences;
  • Accounting for cumulative exchange differences before a foreign operation becomes hyperinflationary;
  • Presenting comparative amounts when a foreign operation first becomes hyperinflationary;
  • Consolidation of a non-hyperinflationary subsidiary by a hyperinflationary parent.

We encourage careful consideration of these issues when preparing IFRS financial statements and applying IAS 29.

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