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Sole proprietor invoice template for corporations

are you wondering whether it is time for you to incorporate your business or just stay a sole proprietor if you run a small business in Canada well in this video that is what you're going to learn you're going to learn the pros and cons of incorporating and honestly find out whether it's actually just a big waste of money hey my name is Jessica Morehouse and welcome back to my channel uh this channel is about all things money so if you are interested in learning more about entrepreneurship and small business and taxes and also investing and budgeting and everything under the sun personal finance that is what this channel is all about so make sure if you're not already to hit that subscribe and that Bell notification so you can find out when I have new videos coming out and I will have plenty more coming out and also for any of you who are already subscribed in your long time viewer hello and I'm so excited that you're here and look at my new YouTube Studio not bad right it took me several months to put this together and I think I finally got it right got a new fancy lens got some fun colored lights and uh doing the YouTube thing what do you think looks good let me know in the comments if you like it because it's I can't change it now I've bought way too many lights and I have to use them all so this is what we got this is what we got in any case I wanted to do this video uh this was actually I did a call out for suggestions on topics and this was a topic that someone asked me to do on and also I've been getting questions about this and comments over the past months and years about hey can you do a video about whether I should incorporate my business or not and I know the reason why you are wondering this because I used to wonder for years should I incorporate because I feel like if you're running your own small business oh my gosh there will be so many opinions and I personally felt so much pressure to incorporate my business honestly before I was quite ready and here's the thing I'm going to tell you right now I took five and a half years of the sole proprietor for five and a half years before I Incorporated and I do not regret it thing because I feel like one of the worst things you can do is incorporate before you are ready even though there are a ton of amazing benefits of being Incorporated it makes things so much more complicated there are quite a few costs involved and it just does not make sense for most people who are just starting out um so I'm gonna share what are some of the big benefits and just some things to be aware of So You by the end of this video will have a clear idea whether it makes sense or not I would also tell you though if you're still not sure and quite honestly it is a big decision please please please talk to an accountant so anyways we have a lot to talk about in this video so let's get to it okay so if you're new or if you just need to refresher on who the heck I am and why I'm talking to you about small business is because I run my own small business I started this small business now called more money media Inc it's a financial education company back in 2017. now before that I was also running the business but it was my side hustle and did it on the weekends the night whenever I had free time and I had a day job but in January 2017 I left that job and then uh yeah figured out how to make a full-time business and then five and a half years later it finally made sense for me to incorporate this I will say though I kind of miss in parts of being a sole proprietor there's a lot of great things about being a sole proprietor it just is more simple it's cheaper and honestly makes the most sense for most people especially if you're a freelancer or you have a very simple business but but you may be at a stage in your business where it doesn't make sense anymore for you to be a sole proprietor so let's get into some of the good stuff let's talk about what are some of the big benefits of being a corporation all right so the biggest benefit and this is the one I hear over and over again from people is why they want to incorporate is liability protection now I think honestly a lot of people misunderstand how liability protection works with your corporation it doesn't mean that you no longer need to get business insurance or liability insurance you absolutely do but it sure does provide you more protection in terms of your personal assets and your personal finances so when it comes to being a sole proprietor your personal finances and your business finances they're all one and the same I'm going to talk about taxes in a little bit so I won't really go into it right now but everything is all one when you're a corporation your business becomes its own separate legal entity and why that can be a good thing in terms of liability is if someone wants to sue you such as a customer employee landlord vendor and you're a sole proprietor they can go after your personal assets if you're a corporation well they're going to sue your business the corporation they're not going to go after you personally because you personally didn't do anything your corporation is what they want to go after after and so they can't go after your personal assets they can however still go after any assets any money inside your corporation so again not eliminating liability but it does serve as that extra protection for you they can't take your house or you know sue you for personally millions of dollars but they can go after your corporation but like I said and just to reiterate so important to get business insurance next if you have plans down the road to you know grow your business and maybe one day sell that business for a profit it is a lot easier to do if you're Incorporated not only that if you are going to sell your corporation you could take advantage of the lifetime capital gains exemption this exemption could reduce or completely eliminate any capital gains tax that you would have to pay if you were to sell your business this could literally be saving you hundreds of thousands of dollars next well if you want to pass on your business to say your children or somebody else the great thing about about being a corporation is because it's its own legal entity it will continue to survive after you've died when you're a sole proprietor when you die your business is done as well next name protection so I think so many people don't realize this but it's actually really important especially if the name of your business is essential to your business so when you incorporate your business you receive name protection for your business in the jurisdiction that you incorporate I'm not going to go too much into that but when you incorporate you can either do it provincially or federally so if you incorporate in the province of Ontario that means that no one can register their business using the same business name that you do in Ontario and if you do it federally then you are protected across the whole country now you may be thinking well I'm a sole proprietor and I registered my business doesn't that provide me with some name protection as well well it does it can prevent other sole Proprietors from registering their business with your business name but if someone wants to incorporate their business with your business name name they may still get approved which means not as much name protection as you thought the only other thing that you could do if you don't want to incorporate you want to stay a sole proprietor and you do want that name protection is to trademark your business name next credibility I know it may sound kind of crazy because hey who cares what your business structure is whether you're a sole proprietor or incorporation your business has credibility based on what the business is and you being the business owner but uh I've personally felt once I Incorporated my business a lot of people took me way more seriously so part of my business is working with really big Brands and clients and well it honestly has been a great negotiation tactic using the fact that I run my own Corporation I have this name protection I have more liability protection all this kind of stuff for me to actually negotiate for some higher rates so honestly you may not really think about it but it actually is pretty valuable you do get some extra credibility if you do incorporate your business next you only they have to incorporate your business once now obviously it actually is kind of costly to incorporate your business depending on what route you go but when you're a sole proprietor you have to renew your business registration every five years and there is a cost to that next it may be easier for you to secure um you know credit or getting a loan from A bank if you are Incorporated and typically banks will offer lower interest rates to corporations compared to sole Proprietors so depending on what your business is and if you do need to get some credit this may actually save you some money and lastly we've got tax savings I feel like that and liability protection are the two main um you know things or advantages that I hear people kind of talk about when they're like oh I'm thinking of incorporating and yes depending on your business you could save substantial money if you incorporate your business but let me kind of explain how that actually works so when you're a sole proprietor like I kind of mentioned earlier your personal finance is your business finances they're all co-mingled into one and so what that means is your business Revenue minus your business expenses whatever's left over that all gets taxed at your personal marginal tax rate now if you're in a low tax bracket and many of you and I certainly was when I first started my business it may not be that big of a deal but if your business starts growing and earning more income and pushes you into a higher tax bracket that could mean that you're gonna be paying quite a bit in tax now I don't generally like to say too many rules of thumb and stuff like that because people just run with it and think that is like the thing that they should do again it's just like a kind of baseline or something to start with but in general the rule of thumb that I've been seeing a lot and it does kind of make sense if your business is earning uh over six figures or six figures and up then it may make sense for you to incorporate your business but I would say caveat especially if you don't need all of the money in your business for example if you're earning a hundred thousand dollars but then you're spending quite a bit in business expenses and whatever is left over you have to uh save for taxes and then your living costs and there's nothing extra then it doesn't actually really make sense for you to incorporate because you're not really going to be saving any extra money if you're draining everything out of that Corporation you can't leave any of that money inside the corporation but if you're earning you know a good amount of business Revenue your business expenses are pretty low uh you got your taxes all good and there's excess money that you actually don't need to spend personally you can leave within the business then it may make more sense to actually incorporate your business keep it in there because whatever money is left in that Corporation is going to be taxed at the corporate tax rate not your personal tax rate and that is a much lower tax rate and then all you'd have to do then is pay yourself a salary or dividends or a combination of both so with that let me explain why I waited so long to incorporate and this may make sense and maybe give you a good idea of what maybe makes sense for you so my business has been earning six figures and up for the past four years the first year um I think it was about 73 000 is what I earned and then after that it was a hundred thousand dollars and it kept on growing ever since that being said in those first few years of my business I had uh you know pretty substantial business expenses and also I had quite a bit of rrsp room so whatever I could I would throw it into my rosp and then I would use the tax deductions that I would get from contributing to my rrsp to offset my tax bill so for me for years until I was able to max out my rrsp and no longer had any more room to contribute so I can lower my tax bill it really didn't make sense for me to incorporate I was able to get into a much lower tax bracket and then pay not that much tax mainly because of my RSP contributions but then in 2021 I was able to max out my rrsp pretty you know soon into that year and realized okay I need some more Tax Strategies so I can not pay as much tax I don't want everything I earn to be taxed my marginal tax rate and also I was projecting to earn kind of the most I'd ever earned in my business that year so I was trying to find some ways to to uh you know pay myself a little bit and keep most of it in the business so I can continue to grow and also keep my personal tax rate quite low let me share now some of the reasons why it may not make any sense for you to incorporate your business if your business is very simple uh very low risk so there's a very low likelihood that you'll ever be sued and uh you know you aren't earning a substantial amount of business Revenue you're keeping it pretty modest it does not make sense to incorporate it is just going to cost you quite a bit of money which would then obviously eat into your profits so if you're again starting out or you've got just a very simple kind of low uh you know income generating business I would say sole proprietorship probably would make the most sense for you I would wait uh until it does make sense to incorporate another reason is if you are unsure if your business is going to succeed so one thing I don't know if I've shared before um but in addition to having a sole proprietorship there was one year I think was in 2018 that me and a friend of mine actually started a business together it was a partnership which is a very similar business structure to a sole proprietor but with two people um and it flopped um it was fun we had a good time but we did not earn any money I'm so glad that we just kept it as a partnership and didn't think oh we're gonna you know make so much money let's incorporate right away because well it folded a year later so if you are just not sure if this is going to succeed you just want to take your baby steps keep it as a sole proprietorship okay so with that that's hopefully plenty of information for you to think about ruminate to see if this is the right decision for you but again if you're not sure always highly recommend you seek advice from a professional like a business accountant I'm gonna leave some kind of um suggestions for people that I've actually worked with in case you want to check them out I also have a bunch of recommendations for um you know Financial professionals or business accountants and and people that may help you on my website on my favorite things uh page so make sure to check that out also if you are just starting out in your sole proprietor and you don't use any accounting software you want to get things organized for a long time especially when I was a side Hustler I just use a spreadsheet and so I have a bunch of budget spreadsheets specifically for people who just have a side hustle on top of their day job or who are self-employed and just want to do something very simple and basic with a spreadsheet so make sure to check out my shop page for all of my different budget spreadsheets so that is it for me I'm sure that is plenty of information for you um so thank you so much for watching make sure to like this video if you liked it and subscribe if you're not already subscribed and of course please let me know what you think in the comments or if you have any follow-up questions that you want please let me know in the comments I would really uh appreciate and honestly I pretty much answer every single comment I get so yeah thanks again for watching and I will see you in my next video