Ep. 87 Craig Reed from Virtus Group

Barb 0:03
And it’s time for Episode 87 of The Secret Life of Entrepreneurs with a very special guest, Craig Reed from Virtus group.

Barb 0:12
Craig is a partner with Virtus group. And they provide advice in terms of accounting, tax, business advisory services for small and medium sized businesses, entrepreneurs across a number of different industries. So today, we’re gonna answer all those burning accounting questions and come on. I know that’s the stuff that keeps you up at night. So let’s go, let’s take a deep dive into the world of a chartered professional accountant, and find out what that world looks like. Craig, welcome.

Craig 0:46
Thanks very much for having me.

Barb 0:49
It’s a pleasure to have you here. So just quickly, tell us a little bit about, you know, Virtus group in your role with the company.

Craig 0:58
Okay, well, Virtus group is an independent accounting firm, but that I just mean that we’re more of a regional firm. So we’ve got offices in Regina, Saskatoon, and a satellite office in St. Vance or Saskatchewan based and that’s where we do most of our work. Our clients of course range from doing business in Canada to across the world. So we have resources we tap into from that, but an independence means we’re not like a national or international firm, that’s part of those things, but we are part of an alliance that helps us access those resources.

Craig 1:22
So we’re at about 125 people between our two main offices are Regina and Saskatoon and and so as you said, at the top, our clients range from a gas station to an egg employment dealer to nonprofit organizations of significant size. So we’re just like the Saskatchewan economy in terms of the client base we represent because it’s everything that we do we egg oil, and gas, all the rest of it.

Craig 1:44
So personally, I deal a lot with I focus on owner managed business, like entrepreneurs, and I deal a lot with restaurants, real estate construction, and professional sort of intellectual sort of doctors, lawyers, marketing advisors, all that sort of stuff. Yeah.

Barb 2:00
So you must see quite a bit of elasticity in that industry. Then when one goes up, the other is going down. You know, is that or do they go kind of up and down at the same time.

Craig 2:09
It’s interesting, like in 2020 egg and pumpkin dealers and egg producers had a really strong year. And so they were a little bit immune from some of the COVID impacts. And so, real estate has its cyclical, it’s always up and down. And particularly Home Builders had a bit of a lull in 19. And then 20, it was like nothing’s happening, and now they’re going good guns again. But then the supply chain issues and construction businesses are also causing its own issues there. So it’s, it’s, as you say, like this Saskatchewan economy is largely driven by oil and gas and agriculture. And so a lot of stuff does trickle out of that. But it can be a little bit counter or a little bit operating in different sorts of sequences and cycles, for sure. Yeah,

Barb 2:49
Yeah. And so just as a firm, do you find that because you’re in a wide variety of industries, that you’re able to level out that client intake and outtake or churn.

Craig 2:59
Yeah, we’re, we’re always healthy things grow. We’re always trying to grow and, and we generally do achieve that through sort of organic growth for the most part. But it is interesting, because through 19, and 20, there was a lot of sort of a slowdown. So our specialty work was slowing down, like advisory, tax planning, that sort of stuff.

Craig 3:18
But the ongoing engagements like that, that you need to come to your account every year to get your financial names textured done that was growing into sort of a pace, so but in 2019, we did sort of have a little bit of a stagnant year like we’re we’re mostly flat just because of the economy a little bit slow. But yeah, we were lucky in that way that we’re sort of diversified. Where we’re not as concentrated are risks. So we don’t have the same ups and downs that other businesses might have in terms of how their business flows.

Barb 3:42
Exactly. So talk to me a little bit about why a small business owner would hire an accountant, and what are the benefits that they would receive?

Craig 3:52
How much time do I have?

Barb 3:54
25 minute clock.

Craig 3:57
Okay. But I would just say that no matter what question you ask an accountant, the answer is generally going to be It depends, right? We always say it depends. We want to get more of the background for it. And that’s what they’re doing a tax question. Can I deduct this, that sort of stuff. But there’s sort of a priority period, I would say, with accounting. So at the base level is sort of are my financial statements correct, and accurate and timely, because they tell us a story about what happened. I love financial games, because they tell me what happened last year.

Barb 4:25
Exactly. It’s history right? Where most business owners are very focused on the future.

Craig 4:30
Exactly. And this is why annual financial statements like you’ll engage an accounting firm to do your tax return and maybe get to the bank at the end of the year. It’s somewhat less useful because we’re always in the rearview mirror. And sometimes it takes, say, three months to get the records in and I’ll get the work done. So with accounting information, it’s always sort of this, this, this healthy tension between the timeliness the more timely it is, the more useful it is.

Craig 4:52
But the less accurate it is when you’re sort of like you can think about your own business in your month and you might have everything captured properly, and so on. The reason we want to get a financial statement accurate and timely so we can make decisions for the future.

Craig 5:04
Well, that’s what we really want to focus on with it. So at its base level, sometimes it’s just as simple as a business owner that doesn’t necessarily, they can’t necessarily trust that their bank account. Well, my cash account is low, but my sales are really high. What the heck is going on? Did they have Nestle connecting the dots to my receivables are way out of line, I gotta get that in track.

Craig 5:22
So that’s the first layer that comes with that sort of accounting, making sure my finance statements are telling me what I think they’re telling me and Can I do something with that? Exactly. Then there’s obviously tax compliance, which we all love. Right, Barb? I think nobody loves it.

Barb 5:35
I can’t wait to have that conversation every year, Craig.

Craig 5:39
I appreciate that. I appreciate that. So some of that stuff. aside just

Barb 5:43
A second before you jump in. So teasing aside, yeah, okay. Tax Compliance, like that’s the stuff that good sleep is made of, but, like, talking with you guys, I mean, there has to be a savings element there, right? And so if you’ve done things, right, if you’ve set things up, right, structure wise, it should save me money in the long run. So like, talk to me about that. So if tax is that next element? Okay, how does hiring an accounting firm help me save money on tax then? Right?

Craig 6:13
Well, in general, there’s no magic Voodoo stick that we can use that we don’t have access to some mystical tax deduction sheet that other people don’t have, necessarily. But in general, you’re going to be able to deduct anything you’ve incurred for the purposes of earning income.

Craig 6:27
And so that because there’s a broad range, but where we get involved with the compliance side, it’s more about making sure we’re not incurring penalties or late filing charges, things of that nature. But it’s also about sort of planning opportunities in terms of Should I take wages or dividends, should I there’s certain times where there’s opportunities where if you’re taking large sums of money out, maybe there’s a different way you can do it to have it taxed at instead of a dividend as a capital gain, there’s an the tax rate difference, there could be as much as 16%.

Craig 6:52
So there’s some savings opportunities that are there. In the long run some of the opportunities we had available to us in 2018, they changed some tax rules, that limited income splitting amongst a family, but it’s mostly related to making sure that our fares are structured the right way, so that we can incomes but to the extent that it’s possible, that we can defer taxes as long as possible by housing when the corporate group, while at the same time we have this risk mitigation issue, it’s sort of creditor proofing in case like most businesses have some sort of an element of risk to them, where your assets are at risk if you get sued.

Craig 7:25
And so that’s sometimes that’s why we incorporate, right. And we might use a holding company to have some assets or things of that nature. But general tax savings, sometimes it’s more that we’re preventing you from doing something just outright wrong, or, or having it done taking more income out than you necessarily need to because your general rule of thumb is always to leave as much in your corporate group as possible. Because we’re putting that tax bill off down the road, you can use those dollars to repay debt sooner or or just earn income through investing that sort of thing.

Barb 7:52
So you did touch on, you know, you might take a dividend, you might take employee employee wage, just quickly touch on, on what typically works best for different types of businesses, or how you make that decision, or I guess, advise you don’t make the decision, but advise different clients on what direction to go.

Craig 8:13
Yeah, some clients want me to tell them what to do. And they don’t really want to think that I try to avoid it if I can, but sometimes I step on their foot and I say this is the right answer, but it is my typical canned answer.

Barb 8:24
Board table, then you can reach across.

Craig 8:27
When I nod my head and talk to foot, you say Yes, Mr. Mr. Simpson, but the typical accounting question still comes into play here. It depends, right? So wages, we’re getting RRSP contribution room, we’re paying into CPP and your company has to match that and pay in as well.

Craig 8:43
And then as an owner, you’re generally gonna be EI exempt. So that’s somewhat neutral. But it also helps you with childcare deductions, because you can deduct those against your wage income dividends, you don’t get RRSP contribution room, but you don’t have to pay into CPP on that amount. And it doesn’t help you with childcare. And it can also be harder to say go buy a truck at the finance office because they don’t see a T4 that says I’m an employee.

Craig 9:04
In general, whether we take dividends or wages, you’re going to pay about the same total tax corporately and personally just in different amounts. Dividends are paid in the corporation first and then get a lower amount personally. But certain people want RSP rooms, certain people don’t care, and certain people want to avoid CPP and have to pay on both sides. And so I am really accustomed to personal preference. First we want to understand what your goals are, and then we can figure out the tax from there is Yeah, okay.

Barb 9:32
No, that makes sense. I think I interrupted you because you were kind of working your way through the pyramid? Oh, yeah.

Craig 9:38
Well, um, yeah, I like to. And I also want to say that the pyramid is is is a combination of your external accounts, like our firm I play that role, or any level also staff on hand so the larger enterprise gets and the more resources you have, the more you’re able to take some of those accounting priority pyramid stuff into your own house and say you want to pay An external firm for that.

Craig 10:01
And so we get those, we want to get that foundational layer of financial payments, tax compliance, and they’d be the tax sort of planning and prep structuring. It evolves from there into all say, sort of advisory services that are similar to, let’s say that profits are a little bit low.

Craig 10:18
And we want to do a little bit of a plan around how we make our profits? How do we improve our profits, most of that’s going to be on controlling your costs and sort of having a plan around how I get my team organized to reduce waste in certain areas. And that’s not a magical thing that an accountant does, we just have a bit of a financial background.

Craig 10:35
So we know that but always like, as a business owner, look at your biggest line items, because those are where you’re going to find the most opportunity for success and sort of cutting costs or making it more efficient, I’ll say. And I would say like one of the biggest benefits that entrepreneurs get from dealing with an external accountant is that as a business owner, you’re kind of on an island and you know, heavy is the head that wears the crowd sometimes and having someone that confidentially, you can go talk to that seen a bunch of different business owners in different industries and see how they’re dealing with stuff.

Craig 11:03
And just having someone that you can confide in and talk about what you’re struggling with and what your goals are that that is really powerful. And it’s one of the things that I like most about being an accountant is I get to interact with different people. Yeah, I get to help people in a way that some and get to learn so much to like, I’ve learned more from my clients, probably than I’ve provided to them through the years. But it’s really gratifying to have that in place for sure. Yeah.

Barb 11:28
So if a business owner is looking at hiring a firm because for lots of folks, especially when you’re small, you outsource you hire an accountant, or maybe you have a bookkeeper. And maybe you’re incorporated, maybe you’re not but what are the key questions that you think someone has to ask when they’re looking at hiring a firm? Or even hiring a CPA? Like just hiring someone? Yeah,

Craig 11:50
I have to plug CPAs chartered professional accountants because I am one and so and I’m also not allowed to speak ill of any other CPA, it’s like part of our thing. But I equate accounting sometimes to buying garbage bags, you know, sometimes you get what you pay for, right?

Craig 12:06
And, and so if you, if you go by that falls out, and then you go clean up, and you still gotta go buy new garbage bags, right? So the messiest situations I’ve been involved in my career are ones where they didn’t have the resources internally to do their accounting, right.

Craig 12:21
And my own line is counting is only boring if it’s done right. And so most of my life is spent in interesting situations, because it’s not that complicated, but it just takes time and effort sometimes. So it always comes back to it depends what do you need? And you want to ask them certain questions. So you think about what you need, what you might need from the candidate.

Craig 12:40
If it’s just as simple as I need, I need to know if I should incorporate or not, then often that’s just a phone call to someone and they’ll do exploratory, I often do that I just have a half hour conversation, sort of explore the options and give some advice and then they can choose to, to continue or not, but it’s um it’s sort of understanding who the firm is that you’re dealing with, like, how long have they been around? How big are they? What types of services do they offer? And then also, what’s what’s not crucial, but has some uses? Do they have relevant experience in your industry?

Craig 13:10
So, for example, I work with a lot of dentists. So if I’m talking to a new dentist, I know I understand, you know, the high hygiene has been an issue the last while because they have to get the seal off. So you can actually use the drills, because aerosol, all that crap.

Craig 13:22
So there’s things that someone that works in your industry will just know right off the bat. So it’s always useful to have that. But it’s not it’s not a deal breaker, but useful. So most, most entrepreneurs that they deal with, when they’re starting out, they’re doing the books themselves, they’re doing the the accounting themselves, so that they can save on cost, because you’re starting out and it’s just it’s expensive to hire an external bookkeeper, our role can have that encompassed in it.

Craig 13:46
But most of the time, what I do personally is more on just annual financial statements than that. So fees are always a thing, like, that’s why I brought up the garbage bank thing, because, but it is important to understand what the fee level is, and how you will be billed for all of those sorts of things. And probably you’d be you’d be well served to interview a couple accounting firms and not just go with the first one, you know, unless you’ve been referred to them by someone you trust.

Barb 14:09
Right? So in most cases, you know, if I was to approach you to do business, do I end up with a primary contact? And is that what’s common? You know, if I went to some of the national firms, you’re going to have a main contact? And I’m guessing in a national firm, you’d especially see some churn because there tends to be some pretty high turnover.

Craig 14:31
I can’t comment No, you can’t. I can’t um, and certainly every accounting firm is experiencing retention issues right now across North America. It’s a bit of a problem we sort of pride ourselves on having a better ability to have that retention because Same thing with my banker, I’ve had seven different bankers on my account for the last two years.

Craig 14:54
And so every time I turn around, there’s a new person showing up in my online banking but that retention The reason it’s important is because that person understands your business. And knowledge of my business is really crucial in us being able to deliver good service. So in general, with our firm, at least you’d have a partner on the file and a manager.

Craig 15:10
And then I’d like to joke that it’s a bit of a pyramid scheme, because we’re structured in a bit of a pyramid format. I liked it more when I was a manager before I became a partner. I still kind of enjoy it, because it’s a little bit of fun. But then I remember that one. Yeah, remember that one? Yes. It’s not like, I won’t, I won’t besmirch pyramid schemes on here necessarily, but so like behind the scenes will generally have a younger person that’s just that’s they’re working towards their designation that will do most of the like the heavy lifting work manager sort of guides them and helps them do the right thing, and then review their file to make sure it’s correct.

Craig 15:41
The partner is going to have sort of that last level look to make sure I called the carbon filtration process to make sure everything sort of done accurately and correctly. And that’s also where the level of sort of planning structuring advisory comes in. And then we would generally but generally, we would like to have two people sr, on each file. So that says, I’m on vacation, you can call Rene, in our example, right? And have a conversation, get someone on the horn.

Craig 16:05
Every firm will be different, though. So it is that’s a good question to ask, as you highlight like, how does that how do I how do I work with a sole proprietor, you’ll get a very personalized experience with that one person. And so that has, everything has its pluses? And it’s minuses, right?

Barb 16:18
That’s absolutely, yep. And you know, I think one of the things that’s important because you referenced it already is building relationships. So when you’ve got somebody, you can pick up the phone and call, you’ve got somebody you can send an email to, it just, it just moves things along that much more quickly.

Barb 16:35
And I don’t think it matters what industry you’re in, you can be an accountant, you can be a car salesman, but when you have a relationship with someone, and they actually understand your needs and your situation, ideally, it’s gonna have a much better outcome, right?

Craig 16:51
Well, for sure. 100%.

Barb 16:52
So when you’re starting those relationships with someone, do they usually start early in the business life? Do you guys tend to find that you’re talking to clients when when they are more mature, and now they need to, you know, get a little bit more serious about business, or when does that relationship typically start for you guys,

Craig 17:12
For our firm, we would tend to be a little higher price point than then a sole proprietor or two partner firm, we have 17 partners between our two offices right now. So we’re a little bit larger.

Craig 17:25
And so of course, we have a broader range of services. And then our price points also, obviously a little bit higher. So we tend to spend less time working with brand new business owners and ours is more when you’re higher up the priority period, you just need a little bit.

Craig 17:39
So you need evaluation engagement, well, my accountant doesn’t do that, then they might come to us and meet and that maybe has an entryway or they need to reorganize the corporate structure or, or that sort of thing. That’s where we get more involved. So but I have in my career helped anyone from someone that is considering starting a business or buying a business at age 23. Very young, which kudos to them, because there’s no harder job than being an entrepreneur to someone that’s already sold their business and has millions of dollars in their holding company that’s just sort of trying to maximize their planning and doing things like trust and estate planning at that point. So it kind of covers a full gamut. Our firm particularly is a little bit more towards mature businesses then say incubator style kind of things. Yeah.

Barb 18:21
Right. Exactly. Okay. No, that makes perfect sense to me. So you referenced the changes that happened to I guess, is it tax law here back in 2018? Or is it just that well, what is it actually that changed?

Craig 18:34
Well, the legislation changed. And so financing, and the government actually changed legislation, and CRA enforces it. And so sometimes CRA tries to, we’ll call it, put their own spin on it and decide what the law means.

Craig 18:46
And we sometimes take issue with that, of course, but in 2018, prior to that, we use things like family trusts, we could split income amongst a family. And the rules were perfectly legitimate to allow that. And so in a husband and wife situation, the wife is the main business person, you could split in could be the husband.

Craig 19:02
And the reason you split income as the tax brackets, higher amounts of higher house, so we get equal, we’re paying less taxes a family, and any team they limited that so that’s mostly off the table now until the main business owner is 65. And then it’s back on the table. So it still is important for spouses to be involved in their own shares of the business together. But it’s a longer term benefit than it is an immediate benefit.

Barb 19:26
Okay. So can you and I don’t even know if this was ever possible? like can you give shares to family members? Or do they have to be adults? No.

Craig 19:35
Well, it’s actually an interesting thing, though. Whenever you’re transacting with family members, the related parties are how it’s termed in the Tax Act. You have to transact at fair market value. So you can’t give what you let’s say you didn’t want to get the money from them. You could give them the shares. If your shares are worth a million dollars you can give them to your child or your husband, but you will pay tax on that transaction on that million dollars and you’re not getting any cash for it. So you have to be a little bit careful. Right?

Craig 20:00
And actually transacting within a family business and succession of a family business is like the most gratifying thing I’ve ever encountered in my career like dealing with like the founder of tourism, the kids, but that used to be much less tax advantageous.

Craig 20:13
And there’s recently this bill C208 came out like he received Royal Assent over the summer, that it basically gives you the same tax advantages in terms of transitioning your business to your kid that you get by selling into an arm’s length party.

Craig 20:26
Because they wanted to limit it way back when I think just because they assume that we’re going to be crooked and not transacted fair value with their family members, which, in some cases, perhaps that assumption, yeah, it’s probably the general. Yep. But it’s leveling the playing field so that it’s easier to sell your business to your child and get capital gains exemption and share sale, and then you can still buy the shares to a holding company. So they’re going to amend those rules. And hopefully, they’re planning to do it November 1. So it’s kind of timely, but it’s opening up more options in terms of transitioning a business within a family. So these tax rules are constantly changing. So we have to always kind of keep abreast of them. For sure. A fun part of our job is learning and staying on topic.

Barb 21:05
Well, and and I think to me, that’s where there’s a value in hiring an accountant, because you’re going to keep up all in on all of that stuff. Just like I keep up on Google. Right now, I don’t expect you to understand Google, and I’m certain that you wouldn’t expect me to understand accounting, a really quick personal story. I always enjoy math. Oh, I was good at math. I got my A’s, right. Then I took accounting and University and I was like, What do you mean, one in one or two anymore? Like, what are you talking about? About? No. And of my dreams of No, I never had dreams of accounting Don’t lie. Never.

Craig 21:41
It’s actually a profession Barb? I don’t know.

Barb 21:46
Do you know that when I was working on my Masters, we had to do corporate finance that I enjoyed, because I could make sense of it. But balance sheets, incomes, like burn, get it? Now, interestingly, our son is just hitting his teen years, he’s 12, turning 19 next month and is quite good at math. And over the summer, you know, he would hear us having business conversations out at the lake and at home and things like that.

Barb 22:19
And like he started to ask some really good questions. He’s understanding, you know, interest in finance and saving versus loans. And, you know, like, he’s really starting to, to make some sense of these concepts. Last, we thought, Oh, my God at 12, I wouldn’t have a clue. Like, let me do my math homework for my textbook. So I’m like, huh? And he does like he likes his math. So maybe you want to talk to him there maybe? Well, for you,

Craig 22:48
I got into a county because I was good at math. And I didn’t want to be a lawyer. It seemed boring to me. Sorry, lawyers. And I didn’t think being a doctor was great, because it’s like blood and everything. And then there was a dad on my brother’s hockey team that was a CA, a chartered accountant. And he seemed to be the wealthiest dad. I’m like, well, this seems like a good option. That’s how I got into accounting actually way back when Yeah.

Barb 23:09
Oh, isn’t that interesting? Craig, we only have a couple of minutes left. So if folks who are in the audience or listen to the show later are interested in reaching out, how would they find you? And what can they expect in that first reach out?

Craig 23:23
Well, obviously we have a website Virtus, group.ca, and everything on but the firm is on there. And every accounting firm has basically the same website, so don’t get too excited on that front.

Craig 23:34
And my email address is on the website and all that contact information is there. In general, when we’re meeting with a new client, we have a sort of maybe an hour long meeting to determine if it’s a good fit. So it’s got to be a good fit for the client and a good fit for our firm, because certain types of things.

Craig 23:48
Depending on when the work falls, all those sorts of things it’s got to be, we’ve got to create a win win situation, that sort of stuff. So in general, it’s going to be a phone call, or an in person meeting, depending on all these COVID rules, just to see if it’s a good fit and what what they’re looking for and what we can offer and and sometimes it’s like if you go into the restaurant, you didn’t even know that was a thing.

Craig 24:07
And you want it on the menu like that, that is that that can happen. But most of the time, a business owner will have a certain idea of what they need. And so it’s a nice thing to sort of talk that through. But in general, when you’re talking to accountants, we always like to get a little bit more notice to be more proactive. Because when something’s already happened, it’s a little too late to plan appropriately. Instructor with the assault. Right?

Barb 24:26
Exactly. Yeah. You can’t fix it now that it’s done. Yeah.

Craig 24:30
Certain times you can but most of the time, you can’t. That’s right. Okay.

Barb 24:32
Fair. See, you can go back in time and fix things. Excellent.

Craig 24:37
Well, yeah, not back in anyway. Oh, we’ll leave it at that. We’ll tease that person. Maybe maybe I have regrets. Yeah,

Barb 24:44
Exactly. Craig, is there anything else that you’d like to share with folks?

Craig 24:48
Oh, I don’t know. I guess I just, you know, in my career, I’ve been in business for 20 years and sort of, I’ve learned a lot from say Doug MacKillop in our office and others that have mentored me through the years. It’s been so gratifying and The things that I really enjoy are working with business owners and working with our people up and coming that are better than I was at their age, for example, like Renee, in the example, Barb works with you, obviously she gets stuff done a lot better than I did. So I just want to make a plug for any young accountants out there that are considering getting in the business, oh, boy, it’s a good business. And it offers a lot of great rewards. It’s like a lot of things you get out of what you put into it. But it’s so gratifying to work with entrepreneurs, because they are doing so much good stuff. And it’s so interesting all the time. That’s how I would frame it.

Barb 25:31
So yes you know, I think that’s a really good way to phrase it being in that entrepreneurial environment. Like it’s just really interesting all the time, because things are changing, right?

Craig 25:42
There’s an energy to it, that I have way more respect for entrepreneurs now, after 20 years than I did. as a 25 year old accounting student. I just didn’t. I didn’t quite get it until you’re sort of running your own business that you understand some of the issues and the importance of it.

Barb 25:57
Yeah, exactly. Awesome. All right. Well, we are at a time so Craig, thank you for being here. This was very insightful. And you know, I certainly encourage anyone who does catch the podcast at a later date, to reach out to Craig, if your business is at that point.

Barb 26:13
One of the things that I can say personally that I have found to be most valuable in working with an accounting firm is just the advice and the someone at the end of the email. So when I’m stuck, when we’re not sure what direction to go, or what something means that we get from CRA, just being able to send an email and say, hey, what in the heck is this? Yes. Excellent.

Barb 26:41
All right. If you would like to be a guest on the show, you can email me at Barb@abovethefold.live, or reach out on our Facebook and Instagram page above the fold. ca. And you can even submit questions during our live show, which I’ve been watching on the right hand side of my screen, Craig as we were chatting, and you did get a couple of hearts so you never know.

Barb 27:06
I am your host, Barb McGrath, local business owner and Google girl. Remember, you work hard for your success. Don’t keep it a secret. Bye for now.