Millennials will be the next driving force in the business world, bringing with them a unique mindset that will change the way the business world operates. Millennials value autonomy and flexibility, as opposed to the standard workplace structure of an office hierarchy. A study by Intuit of millennial-age entrepreneurs revealed, “one-quarter of millennial-age entrepreneurs have never held a full-time job prior to starting out on their own.” Since many do not have significant workplace experience, there are a few things millennials need to know before jumping into entrepreneurship.
Taxes and Bookkeeping
Entrepreneurs are incredibly independent and operate on their own terms. This includes making purchasing decisions in the business, and possibly working from home. As these are out-of-pocket expenses, you can reduce your taxable income by claiming expenses incurred while conducting business. If you have a home office, you can claim a portion of your utilities and mortgage as a business expense. The number of expenses and deductions are extensive, and vary between businesses. Visit the Canada Revenue Agency (CRA) website for a wealth of information regarding your self-employed income tax return. It is important to know what you can claim against your income earned in the business.When you are independent, you do not have a payroll department handling tax implications on your behalf. If you were an employee, your T4 indicates your contributions to Employment Insurance (EI) and Canada Pension Plan (CPP). As an entrepreneur, you still have to pay into these government programs. Note that when you are an employee, you pay into a portion of the CPP, as does your employer. If you are self-employed, you receive a standard exemption of $3,500. Take your net business income (income less deductions), subtract $3,500, and multiply the total by 9.9%. This is the amount of CPP you have to pay for the year, up to a maximum of $4,960.
If you are striving for independence, it is important to become familiar with accounting procedures to make educated decisions. As an entrepreneur, whether you are selling a product or service, determining the incurred costs is crucial for pricing and profitability. There are two methods for determining cost: absorption or variable. With variable costing, all direct costs incurred plus the variable manufacturing overhead costs are included. Fixed manufacturing overhead costs are included at the time the expenses are incurred. With absorption costing, all direct costs incurred, plus both the variable and fixed manufacturing overhead costs are included. The difference between absorption and variable costing is how the fixed manufacturing overhead costs are reported. With variable costing, fixed manufacturing overhead runs independently of the other costs incurred to create the good or service. Since you have control over your business and costing methods, consider which method works best for the good or service you are providing.Consider investing in accounting software. Accounting software, like QuickBooks Online, can sync with other apps and ensure you are using the most current data. You can easily create cash flow reports, projections, and other reports for reference.