Managing money when you're a small business owner
Written by Robin Taub

Monday, February 12th, 2018

When I left my job on the trading floor at Citibank Canada for an unknown future as an independent consultant, I knew exactly what I was leaving behind: a steady paycheque, employee benefits like free banking, health insurance, a subsidized cafeteria and an annual bonus. Why, you might ask, would I do something like that? Like most entrepreneurs, I did it for the freedom, flexibility and challenge of being my own boss.

Cash flow

Being an entrepreneur means wearing many hats. You often find yourself in charge of sales and marketing, administration, and of course, delivering the actual product or service. Cash flow — what's coming in and what's going out — is the lifeblood of any business. But it can be particularly unpredictable and challenging for a small business that has limited access to other sources of financing. Jenifer Bartman, a business advisor and small business owner herself, counsels entrepreneurs to be diligent and manage their cash flow frequently, at least weekly and maybe even daily, to ensure there are sufficient funds to keep the business running.

Accounts receivable

Unless your sales are cash only, you're likely giving your customers credit. Consider asking for terms of 30 days or less so the cash comes in quickly. And you'll want to stay on top of your accounts receivable — in other words, what your clients or customers owe you. Tools like accounting software will not only help you record business transactions like revenues, expenses and collections, but also produce reports, like cash flow statements and aged accounts receivable. An accounts receivable aging will tell you how long an invoice has been outstanding, so you can manage your collection efforts.


When clients are slow to pay, cash will be tight. Entrepreneurs often turn to readily available (yet expensive, with interest rates of at least 20% annually) sources of credit. “We wind up using our personal credit cards, either because our business doesn't qualify for a credit card or when it does, the credit limit is too low," says Jonathan Farber, a small business owner in Toronto. Another option is to take out a less costly home equity line of credit to provide short-term financing until more cash comes in, or until you can secure an operating line of credit.

Accounts payable

Try to manage your accounts payable and the cash going out, including amounts owing to suppliers and to the Government for income tax instalments.

Tax instalments

Unlike employees who have taxes withheld directly from their paycheques, if you're self-employed, you're responsible for remitting your own income tax to the Canada Revenue Agency (CRA). You have to pay in instalments if your net tax owing is more than $3,000 in the current year and either of the two previous years (the amount is different for people who live in Quebec). Instalments are due quarterly on March 15, June 15, September 15 and December 15. The CRA will send you an instalment reminder that will explain your options for the amount of each instalment.

In your first year of self-employment, you may not have to make instalment payments. But if your business is profitable, it's a good idea to set aside a portion of your earnings using an automatic transfer each month, to cover your tax liability, due the following April. Otherwise you may find yourself with a large tax bill and no funds to pay it.

Although some would argue that there's no such thing as job security, being self-employed often entails more risk. A great year last year doesn't guarantee the same or better results this year, or next. But one can always try — and plan ahead.

Citibank is a trademark of Citigroup, Inc.

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