Glossary of Terms

Accountants

Accounting is the language of business. If you do not speak or understand it, it’s imperative that you have someone on your team that does, and does so fluently!

Types of accountants

The word “accountant” can be used to describe a number of very different roles ranging from an entry level bookkeeper to a Vice-President or Director of Finance. Here is a list of  what people may call an “accountant”:

► Bookkeeper
► Payable Clerk
► General Accountant
► Controller
► Chief Financial Officer (CFO)
► Director/VP Finance

Bookkeepers are commonly used to help companies write up their books. While a designated accountant can do the job of a bookkeeper, a bookkeeper CANNOT do the job of an accountant! Generally speaking, designated accountants do not do bookkeeping.

Designated accountants

It’s also important to recognize there are two categories of accountants. Those that have taken some level of certification or designation and those that have not. The accountants that have a designation are:

Role of an accountant

Chartered Accountants (or CAs as they are known) can typically work in what is termed “the profession” where they practice as an accounting firm (much like a lawyer, or engineer). In this role, they typically provide accounting, auditing and tax planning services and work with companies to file their corporate tax returns. We strongly recommend that you use the services of a designated accountant (CA or CGA) these external accounting needs.

CAs can also work in what’s termed “industry”, where they typically work in a company as an employee and depending on the size of the company, typically play the role of a Controller, CFO or Director/VP Finance. CGAs and CMAs can also work in this type of role.

These accountants are typically involved in all of the day-to-day financial activities of the business, ranging from overseeing the accounting department (which is typically made up of bookkeepers), arranging bank financing, strategic issues, dealing with the external accountant on tax planning issues, and reviewing and analyzing the financial results of the business.

We also recommend that you use the services of a designated accountant (CA, CGA or CMA) for your internal accounting (not bookkeeping) needs. As a full-time designated accountant can be expensive, consider using thier services on a part-time or consulting basis.

It’s worth spending the extra money if you consider that you will be relying on the advice of an accountant on how to spend your hard earned money!

Cutting costs on an “accountant” is a very common thing, and often becomes a significant ontributing factor when a business gets into trouble.

Please see our Vendors section to view a selection of Accountants in your neighbourhood.

Bookkeepers

A bookkeeper is a person who creates and maintains the financial books and records of a business (typically called the general ledger or “GL”). This is a data process function, and the type of work they do usually includes the following:

► Bank reconciliations
► Government returns for things such GST, sales tax and WSIB
► Payroll processing, including T4s and monthly tax remittances for the government
► Year-end working paper files for the external accountant (see Glossary of Terms: Accountants      for this role)

Generally speaking, bookkeepers do not have the technical training to provide higher level analysis and interpretation of the underlying financial performance or the viability of a business. The bookkeeping business is very fragmented with a large number of independent or “one person firm” providing ongoing bookkeeping services to a group of clients.

Finding a bookkeeper

Almost every designated accountant will have a bookkeeper to refer you to. You can also use a company that provides bookkeeping services. They typically provide you with both a bookkeeper as well as also a designated accountant who will act as the account manager/supervisor and oversee the bookkeeper.

Bookkeepers typically cost in the $30 to $60 per hour range, with the independents closer on the lower end of that range and the bookkeeping company, which includes the supervisory function, at the higher end.

In deciding on cost, it’s important to recognize that if the bookkeeper does not prepare an accurate set of records, your year-end external designated accountant will be required to make the necessary adjustments to correct the records and will charge you at their hourly rate for this.

It’s also important to consider that, as you will regularly review the financial results of your usiness, the records need to be correct. Please see our list of Vendors to view a selection of bookkeepers in your neighbourhood.

Bank loans/financing/capital

The majority of businesses require money (capital) to fund their start-up costs, purchase equipment and to help them at the start of the business.

Lenders

There are various types of lenders and various types of loans available. It’s important to recognize that this group primary lends you money and gets paid a rate of interest. You can also get money from investors (see “Other ideas” below).The rate of interest they charge typically varies in proportion to the level of risk they perceive is associated with you and your business and the amount of money you are borrowing. Lenders can include:

► Regular banks
► Credit Unions
► Asset based lenders

Types of loans are generally divided into two types:

► Unsecured
► Secured

For secured loans, the lender typically asks the borrower (you) to provide some form of collateral (also known as “security”) so in the event of default, the lender can look to the collateral to get paid. Lenders will typically charge a lower rate of interest if they have collateral.

Quite often, the collateral is in the form of the business assets, such as the office furniture\and equipment, inventory (if any) and accounts receivable (any monies that the business is owed when it sells its goods or services on credit to its customers).

It’s very important to be aware that if you have given your business assets as collateral and you default, the lender will have a right to seize and sell your business assets (often referred to as “receivership”).

The collateral cold also be outside of the business. This can be a complicated issue, especially when the collateral is a home and there is a husband and wife who both own title to it.

Lenders will also often request your personal guarantee (see: Liability).

Given the complexity of giving collateral and the significant repercussions if you default, we strongly recommend you get a lawyer involved before signing any documents pertaining to the question of giving collateral.

For unsecured loans, the lender does not ask for any collateral but may ask for a personal guarantee.

Types of loans

While there are many different buzz words out there for loans, there are typically two main types:

► Working capital loans
► Term Loans

Businesses typically need cash to help them meet their day to day cash needs. This is very typical for a business that sells its good or services on credit (or terms) and where the customer has 30, 60 or 90 days to pay.

The working capital loan is typically provided in the form of an operating line of credit (which can be either unsecured or secured and require a personal guarantee). Conceptually, your business gets approved to borrow a certain amount of money from which it can borrow and repay as it sees fit. 

Terms loans are loans that are typically used to help a business make longer term purchases for items such as machinery, equipment and automobiles. They typically have a fixed monthly repayment and have a defined repayment period (eg: 60 months). Lenders normally take the purchased equipment as collateral to secure the term loan and can ask for this loan to be personally guaranteed.

Other ideas on financing your business

Below are some other ways to generate extra cash for your business. It’s important to recognize that some of these options could involve giving up some ownership in your business, so it’s critical that you carefully think through some of these options and weigh the pros and cons of each scenario.

Silent investor
A person who will invest money in your business for a percentage of its ownership and not be involved in its day-to-day operation.

Angel investor
Very similar to the silent investor, but one who will likely want to play some role in the business operations and want some idea of how he or she will one day make his or her money (cash out) from your business.

Factoring
Selling your accounts receivable (ie: money that your customers owe you from sales made to them on credit. They will pay that in 60, 90 or even 120 days) to a third party at a discount to its face value.

For example, if you are owed $1,000 from a customer who will only pay you in 90 days, but you need the money for working capital today, you can sell this account receivable for say $950 and get the money today, and the factor company will wait the 90 days and collect this receivable. There are some pros and cons to factoring, so be sure to understand them before using this option.

Leasing
This technique is very commonly used with assets whose value depreciates over time, such as computer equipment, automobiles or office furnishings and equipment. It’s important to recognize that in a true lease, you do not actually own the underlying equipment. It’s like a long-term rental arrangement and at the end of the lease term, you simply return the asset or opt to purchase it at its fair market value.

A lease that allows you to purchase the asset for $1 at the end of the lease is really a disguised bank term loan, but because it’s called a lease, it may not form part of your borrowing base when you approach a bank for a loan.

Legal stuff

Selecting the right lawyer can be a valuable asset and we recommend you budget an amount of money each year to get business feedback from your lawyer.

While there are hosts of varying legal services available, you typically need a lawyer with commercial business experience and one that offers cost-effective and practical solutions to your specific business needs.

You should use a lawyer to help you with the following documents:

Shareholder Agreements
Having a business partner is like having a spouse. We strongly recommend you have a reasonably good shareholders agreement hat specifically addresses dispute resolution and the valuation of the business if a partners decides to leave.

Incorporation
There are a number of prudent reasons to do this and we have a detailed section on this in the FAQ section for you to review.

Business name registration
As with incorporating, there are a number of prudent reasons to do this and we have a detailed section on this in the FAQ section for you to review.

Patents
A patent is a unique way of doing something or making something. The patent is the legal way of protecting your unique idea so it cannot be replicated. You typically find patents on items such as drugs, recipes or chemical combinations that produce unique products.

Patents can be expensive and time consuming to obtain, but if your product is unique enough and your projected sales will generate enough money to justify it, it’s worth doing. Patents typically expire after a certain number of years.

Trade names and trademarks
A trade name is the same as a business name registration and needs to be registered in the same manner as a business name (see FAQ’s on Business name registration). 

A trademark is a symbol that is specific/unique to your business. Examples include the Nike™ “swoosh” or the Coca-Cola™ logo.

Contracts
Where you are dealing with customers, suppliers, banks, vendors, distributors, sales agents, consultants and employees, as well as other types of service providers, there is always going to be a need for some form of contract to be prepared or reviewed.

In order to get the maximum value from your lawyer, we recommend you typically negotiate the primary business terms with the respective parties and then take them to your lawyer to review. They can then understand the business issues and identify any possible important issue you may have missed.