Tuesday, December 11, 2007

Making the Independant Distinction

I received some interesting advice recently regarding how the government of Canada can view long-term contracts.

I'm currently being sub-contracted by a consulting firm. This firm basically puts me out on contracts they source under their banner, and I in turn invoice them for my time at my rate. To the end-clients, it appears that I'm just an employee of the company though.

However, going into these sort of arrangements can get dicey depending on how Revenue Canada views it. Instead of you being an independent consultant on a contract, they could say that you're just a term employee with a different pay structure. Items such as business cards with your name on it but with your client's logo on it only help Revenue Canada's case.

So what can you do? Make sure that you show that there's a clear separation between yourself and the organization you're contracting under:

- Create your own website and your own online identity, clearly stating that you are available for contract work and open to being contacted.

- Get your own business cards made up. Don't fret too much about a logo, or color scheme, or anything like that; you can always change that later. The important thing is that you have something to hand out that clearly shows you as an independent entity.

- Get other work. You may have a great sub-contract going on providing great work, but you should still try to get other work and show that you are truly diversifying your client base and not just "terming" it with one company.

- Don't sign anything that limits your outside activities. Most companies will want you to sign some form of "Invention Covenant" or the like, which will state that the consulting company holds rights to anything you create during the course of employement. That statement alone I have no problem with: if you work for them, and you create a framework on their behalf or for their product or whatever, then its theirs. BUT, where it gets dicey is when (and most typically will add this in) they specify that the reach of those rights extend beyond working hours, and include anything done at home or for any other client. This is where you need to draw the line...the company is just protecting their interests and insuring their own trade secrets don't get leaked out, which is understandable...but you need to protect your own organization's interests as well.

- Before signing anything, have it reviewed by your lawyer and possibly also by your accountant. Your lawyer can identify any concerns or issues with the agreement, and your accountant can warn you about any concerns from a taxation point of view (in this case, whether Revenue Canada might have issues with the agreement)

- Retain a lawyer if you don't have one, and get an accountant if you don't have one. ;)


Registering for GST Account

I've finally come to the point where I need to register for a GST account with the government.

I'm somewhat relieved to be finally doing this, as I had alot of different information thrown at me about whether I should do this earlier than later, or whether I should have done it right from the beginning, or just wait until hitting the magic number...but I went with my accountant's advice and waited.

The process is a little misleading, as you don't just sign up for a GST account; rather you register for a business number with the federal government. In turn, this lets you open a variety of accounts with them: payroll, import/export, corporate income tax, etc., ... and a GST/HST account.

For a sole-proprietorship, you need to have some information ready:

Business Structure
This is just whether you're a SP, or incorporated, or a partnership

Legal Name
What your business name is legally. For a SP, its just your given name

Whether you're incorporated or not

Operating Name
This is the name that you use for marketing, advertising, etc. So for example, you might use your name with "Consulting" attached at the end.

Effective Date
This is when you became eligible for charging GST.

Operating/Mailing Addresses
Where to contact you/send you stuff

Reporting Period
Although the government site says you should be aware of this, they never actually ask you about this on the online registration form...and this is actually assigned. The reporting period is how often you have to send in your GST monies

Fiscal Year End
When your fiscal year end is. For most SP's, sticking to the calendar year is the easiest.

Business Activity
What your business does, and what pecentage of services make up your business.

They'll ask for your SIN

There are also a tonne of rules about whether you can apply online, but the site does a good job of explaining those. Once you submit your application, its reviewed and you'll receive a letter with the information about your accounts and your business number (which you use in dealing with the government).

For more information on registering for a business number, check out the link below.


Lawyers are Good Things

No, I'm not in any trouble where I need a lawyer...but I have visited one to get moving on creating my own contract for consulting purposes.

I had a great lunch with another consultant who talked about the importance of creating your own contract and having that available for engagements. After meeting with the lawyer he recommended, I realized how naive I was at the types of things to think about.

The idea of "warranty" for instance. I assumed that you would of course want to "warranty" your software. But then I was challenged on what "warranty" really meant: is it a bug, or a feature that's now requested...and if the latter, then how do you avoid getting into a "well that should have been in the original and its under warranty" argument. The word "warranty" is too grey of a word with software, so the safer road it seems is to say you won't warranty it...which opens the door to you as a consultant to offer value-added services for your clients. "Even though that wasn't in the initial agreement, I'll make the fix for you because you've been such a good client."

There's also the issue of liability, and although insurance should always be a consideration there's alot that you can do up front in a good agreement to deflect many of those concerns. For instance, specifying up front that any damages due to failing of software is not your responsibility. Now, you might think "Well, that doesn't sound fair...if you're building software shouldn't it work properly?" Of course...but consider this situation:

You write an application that provides some sort of financial calculation. As is always the case with software, its reliability is not tied directly to itself: network reliability, hardware access and reliability, proper maintenance, etc. are all part of the broader scheme...but many of those things are out of your control as the software developer: you can't dictate how often the IT department does routine maintenance on the servers your application will run on for instance.

So let's say that your application is busy running calculations for a mission-critical portion of a business, when the server crashes due to no fault of your software. As a result, the data files that were being used for the calculations become corrupt and unrecoverable. Without the agreement up front regarding liability, the company could come after you trying to make an argument that the software failed and cost the business, even though it wasn't the software that directly caused the issue.

Lots of things to consider around the legal side of things, and obviously the important part of this should be that the customer realizes that they're not getting someone that will shirk their responsibilities and try to sneak away with money for crap work...but taht's where reputation and experience play a larger role. But covering your butt isn't a bad thing; its a smart thing. It's just too bad that you have to paint broad strokes over everyone that they could be unsrupulous.


Tuesday, October 30, 2007

Vehicle Lease for Small Businesses

We're realizing that it might make more sense to get a second vehicle now that my consulting gig is going to take me to various places in the city throughout the year. I began looking into what the benefits were for having a lease and what can be written off.

If you're going to be using a vehicle partially for work and partially for personal use, then you can only claim use for work purposes. However, at this site (http://www.cra-arc.gc.ca/tax/individuals/topics/income-tax/return/completing/deductions/lines206-236/229/motor/menu-e.html) I found an interesting statement:

"Employment use of a motor vehicle
If you use a motor vehicle for both employment and personal use, you can deduct only the percentage of expenses related to earning income. To support the amount you can deduct, keep a record of both the total kilometres you drove and the kilometres you drove to earn employment income. We consider driving back and forth between home and work as personal use." (emphasis mine)

So...let me get this straight: you can use a vehicle you use to "earn employment income", but driving between home and work doesn't fall into that category?! So if you're a consultant, and you're assigned to be on-site to a client, that is technically driving to home and work...isn't it?

I'll need to look at this a little more closely...


Monday, October 22, 2007

The Importance of Treating Customers Well...and Small Business Liability Insurance

I learned recently that there are some insurance providers (like Wawaneesa) that have products designed for the small business owner. Unfortunately it sounds like there's not alot in the base plan that would cover error and ommission insurance, but the referred broker I spoke with didn't expand on what options were available, nor was he someone that I decided I wanted to provide my business to.

In any service based industry, there's one common outlook that we as service providers must remember: our customer more than likely has no idea how to do what we do, and therefore our job is to help educate them as well as provide them with our services.

Answering questions like "What options are available with the policy?" with "Well, whatever you want" doesn't really help me.

I also asked this broker what was covered under liability. "Let's say you walk into my place...and you screw up...you're covered."

Hmm...ok, so as a software developer if I walk in and there's a dispute about what was supposed to be included in the software, is that covered? "No...I'm not on the hook for that."

Well, then obviously using the term "...and you screw up..." isn't quite clear enough is it?

I'm not going to mention the brokers name here, but let's take this as a lesson: educate the people who are coming to you for help, and don't assume that they understand the service or products you provide...they just know that you're someone that has the knowledge and can help them.


Wednesday, August 15, 2007

GST: When do you have to start charging?

I touched base with my accountant and asked him about what the rules were around charging GST as a contractor. The rules (according to the Canadian governments website) state that you only have to pay GST if you make $30K in one calendar quarter, or over 4 consecutive quarters. But I've heard some differing info from people about GST, and that you have to pay back the GST for that initial $30K once you hit that number.

So anyway, the government phone number for info kept giving me a busy signal, so I turned to my accountant for info. He said that basically once you hit 30k you have to register for GST and start charging.

Simple enough!


Saturday, July 7, 2007

Two Weeks Later

Well almost two weeks later. I've now completed my last week at the old place, and have started my first half-week at my first contract (they didn't need me to start until Wednesday at 10AM).

Things are going great so far. The biggest difference I'm noticing is that I'm getting my passion for development back again...getting excited to jump in and work with the code.

An update on the liability question: my placement company does actually cover me for E and O liability insurance, so I'm fully covered no matter what. They've been great in keeping contact with me as well over the last few weeks, and they seem genuinely as excited about the placement as I am.


Monday, June 25, 2007

Back from Holidays

Sorry for the delay in posting. I was on holidays for a few weeks there.

So everything is pretty much a go now. I'm going to be starting my contract on July 3rd, and I just need to sign the paperwork and forward that in.

I learned something else about the placement company I'm going through: they have a policy to keep 40 hours of work from your first cheque as a security deposit. This is to cover any loses such as if a contractor was to keep equipment, or some other reason...its basically like a safety deposit on an apartment...just not for an apartment, but for a contract.

I'm also still fuzzy on the whole thing of individual insurance and liability. They do provide insurance, but that's more for if a server rack falls on you. I want to know whether they cover liability for error and ommission type stuff.

This is actually pretty important to have. Let's say that you work somewhere with an unscrupulous manager. Maybe a key feature gets missed from the product you're contracted to work on, but it was never communicated to you to fullfill. The manager blames you for the ommission, and for the product failing to meet its launch date. Now what do you do? Unless you've done a thourough job of CYA, you could be hooped and hit with large legal bills to defend yourself.

So I'm waiting to hear back on that, but I should also be looking for it personally regardless I think...in case I wanted to do side contract work as well that was outside of the boundaries of the placement company.

Edit: Found this online article listing companies that provide E&O Insurance



Monday, June 11, 2007

Reviewing the Startup Checklist

I posted a while back about the "Startup Checklist" that I had, and wanted to revisit it now that hindsight is 20/20.

Register Business and Licensing/Permits
I was able to register my business with the city for licensing and permits without actually registering the business name officially, although its always a good idea to do it in that order. I was fuzzy on which departments did what, so when I went to the city and got my license and permit paid for, they told me it was a different branch of the provincial government (not the city) that dealt with that. So here's how it goes:

Provincial Government
- Check if your name is available
- Register your name once you have confirmation its available

City Government
- Check to see what type of license/permits you require
- Go to the department office to submit the info requested and pay for any license/permit

Lawyers and Accountants
As a sole proprietorship, you don't need a lawyer. I was able to set everything up without needing any information or advice from one. However, if you are going to be handling your own contracts (as in writing up your own contracts), you'll probably want to have one available. I'm going through a head-hunting firm, so they take care of all that stuff for me.

You also, surprisingly, don't need an accountant either...well, not in the same capacity as if you were incorporated maybe. I met with a great accountant who gave me a tonne of free advice, and basically told me that as a sole proprietorship I just need to keep track of receipts and come see them at tax time.

Error/Ommission/Liability Insurance
I don't have to worry about this because the head-hunting company provides the liability coverage, which is great! Apparantly its crazy expensive to get it for yourself.

You obviously need to have good hardware to develop off of. Even if you are going to be provided with a computer at your contract location, you need to be brushing up on your skills at home and playing with the latest and greatest. I'm still toying with what I really need...Lenovo, Mac Book Pro, or just an HP model...not sure...

For software, its REALLY important as an independent that you go to as many community-based events as possible, as the handouts are as good as gold. Over the last few years, I've built up free licenses for Visual Studio 2005, SQL Server 2005 Developer, Office 2007, and some control suites...which all come in handy when you're on your own and on a budget. Otherwise, you're paying quite a bit in startup costs for getting all that through an MSDN subscription or another means.

Health Insurance
I still haven't looked into this too much...I probably should though.


Offer Taken

I put my notice in on Friday, and accepted the offer for the contract...so as of July 3rd, I'll be officially on my own. I have two weeks vacation now, and then one week back at the office, and then I'm done.

It's not a bad break by any means...just an understanding that its time to move on since we're moving in different directions...which sounds alot like a "It's not you, its me" type of thing, but that's what it is.

I have some papers to sign tomorrow afternoon, but otherwise I've now got my own sole proprietorship setup, I have my first contract, and I'm on my way to testing the waters of independence.

More adventures to follow I'm sure.


Thursday, June 7, 2007

Offer Made!

Ok, so that interview that I went to a week ago? They came back with an offer. Not as long of a contract as I wanted it to be, but if I were to take it I'd be making a little more than what I'd make at my current employer for a full year...and I'd have crazy holiday time at the end of the year!

So we'll see...I'm going to think about it tonight for a bit...the technology aspect of it is phenominal...and it'll finally push me out of the rut technically that my current gig has got me in.

More info to follow...


Tuesday, June 5, 2007

Business Registered and To-Do List

I went this morning and officially registered my business with the province. The only painful part of the process was finding the right form online that I had to fill out. They also offered it in PDF form where you can actually type in the fields...but this is buggy: If you hit enter, then it doesn't start a new line...it leaves the box. So I just printed it out and wrote in the details (it wasn't a huge form either). I took it down to the registration office and they said I'd get an official...well, I'm not sure what I'll be getting officially, but it'll be in the mail 6 - 7 business days. ;)

Yesterday I went and registered with the city I'm in. It turns out that I didn't need to pay the Fee-In-Lieu-Of-Business-Tax (although I will in January when they get sent out), so it was just the fee for a home-based business permit that I had to pay for. Home based businesses need to pay the Fee-In-Lieu-Of-Business-Tax because, being that its home based, there is no "commercial" property or office that can be taxed on like a typical business...so it just keeps it fair.

So now that my name is reserved and will be attached to my registered business, and now that I'm setup with the city...um...I guess I'm open for business? The process was way easier than what I thought it would be...I guess now I just collect receipts for items for the business and start making money, and the real work comes at tax time.

Some things that are still outstanding that I need to plan and address:

Sick Fund
When you're sick as a contractor, you don't get paid. It's a good idea to ensure that you have some money set aside to cover for the days that you're unavailable for work.

Personal Health and Disability Insurance
Although I'll be paying into EI and CPP, I'm pretty sure that EI will only kick in if I dissolve the business (although I should look into that). But either way, its a good idea to get personal health insurance to cover any disability or health issues that come up.

House Insurance Changes
I'm not sure if there are any, but since I now have a home-based business registered it "may" have some affect on my home insurance...

Still no word from the head-hunter about the contract or interview...I'm hoping to hear something back by today though.


Saturday, June 2, 2007

Biz Name Registered and Interview Status

So my business name was reserved within a few hours...very fast! They actuall offered an "expedited" service where you pay double to guarantee that it'll be ready the same day...glad I didn't opt for that! ;)

No offer yet from the interview I had the other day. The deal breaker on that one will be rate and time...I really want it to be a 6 month engagement instead of a lesser one, but we'll see what shakes. Apparantly I really impressed them, and on first impressions the guys seemed really great. Hopefully I hear back on Monday or Tuesday.


Friday, June 1, 2007

Business Name Registered...Hopefully

I registered my business name this morning. I technicially didn't have to, as local laws state that if you have a business that uses your name (i.e. Canuck Consultant Consulting...if my parents were big acid trippers and actually named me that), you don't have to register it...but its a good idea just so that there's no confusion if someone else tries to run a business with the same name.

Process was easy and cheap: $40 and an online form. Of course, this just reserves the name. There's still another form and fee for actually registering the business.

Then there's the forms and fees for getting a business license.

So a few hurdles to jump through before I can start writing stuff off.


Thursday, May 31, 2007

More Advice

Had lunch with a buddy who owns his own sole-proprietorship gig...its more of an on-the-side thing though (he has a normal 9-5). He was saying that his lawyer told him that even with an incorporation, people can still sue you personally because its your personal services that you're selling, not a manufactured product.

He also said that apparantly liability insurance is REALLY expensive for self-existing businesses...so I'll have to look around a bit more at what other contractors do to reduce their risk.

So it's sounding like going to sole-proprietor route is the way to go...need to look a bit more into it though...hmmmm, more to think about...


Accountant Meeting

Met with an accountant this morning and it went beyond my expectations. Great advice and some extra things to think about.

I explained what I was looking to do, and he said that going the incorporation route didn't make sense unless you were making more than you were spending. Otherwise, it's just as easy to roll into a sole-proprietorship and max out on RRSP's come tax time. You can still get liability insurance as a sole proprietorship, which you'd probably want with an Inc anyway, so although there is extra protection it might be overkill.

So really...I don't "need" an accountant just yet other than bringing my taxes in for them to look over and do. This particular firm does alot of technology based companies, as well as contractors, which is excellent since they understand more about what I'm trying to do.

So we'll see...more to think about for sure...


Wednesday, May 30, 2007

Sole Proprietorship or Incorporation?

I've been courting friends asking for their thoughts on whether to go Sole Proprietor or Incorporation for my new little venture.

Incorporation of course is where you have a legal separation between yourself and your business. The supposed benefit is that you have a "tax shelter" type of setup: you work for your money, but you pay way less taxes personally. You then, as the business owner, use the money in the company to invest in things (mutual funds, stocks, etc.) to get your money working for you without the personal income tax hit. The downside apparantly (from what I'm learning) is that you don't have direct access to that cash. You can't just say as an owner "oh, I want to withdraw x number of dollars from my company". It's not like that...you may be the main director or shareholder or however the term is, but you don't have cart-blanche to raid the company coffers...governments have issues with that. Also, even though there's a seperation between yourself and your company, you still need (or should) invest in Error and Ommission insurance to CYA.

Sole Proprietorship is where you are the business...you reap all the profits from the business. The switch with this is that you then have to do something with that money so that you're not paying crazy taxes if you hit big contracts throughout the year. This means, from what one buddy has told me, that you invest into RRSPs with the extra cash, which reduces the tax hit. There's also the risk of liability: if you get sued, then you and all your possessions (including your house, your car, whatever) is fair game. Now apparantly that holds true for Incorporations as well, but with maybe different rules or more limiations? Not sure...need to look into it more.

I should know more after tomorrow...more to come...


Tuesday, May 29, 2007

First Interview This Week!

I've got an interview lined up this week for a contract gig. I'm somewhat excited, but at the same time there are some longer contracts that are floating around out there too...but still, for the hourly rate they're offering and it being technology that's right up my alley, I wouldn't mind the shorter term.

I'm also wondering what I should do for a name for the business. Most people I know who are into independent consulting just use their name with a ".com" at the end, or something like that.
i.e. Joe Schmoe Consulting, or JoeSchmoe.com Consulting. My name is...difficult...to do something like that.

I was thinking about coming up with a Donald-Trump-Apprentice type name. Something like

Y'know, some one word thing that sounds as cheesey as Trump's gold plated toilet bowl.


Monday, May 28, 2007


Startup Checklist
There are a few major things that need to be dealt with in setting up your private consulting business:

Register a Business
You have to register your business to get any of the balls rolling. I'm thinking that this has to happen first because you won't know if your business name is available until a name search is provided. And having a name is important because you'll need it to get...

Business License
In my city, I have to get a business license as well as a permit to run a home-based businesses. This is so that it stays fair between those that actually pay business tax because they have a dedicated business storefront/office and those of us that want to relax at home while writing everything off. Part of the application asks for your business name though, which is why I'm assuming you need it. But oddly enough, that means that really your first stop happens after you...

Hire a Lawyer
Lawyers are necessary for setting up a business, and don't try and talk your cheap little ass out of that statement. Lawyers can provide services and knowledge that we as code-monkeys just don't know, and they can probably expedite the process faster than we would on our own. The lawyer I'm going to be going with does a full incorporation service, including the business lookup. Once you have all that then you still need to ...

Hire an Accountant
I'm not even going to think about Quickbooks...I have no clue how to pay myself, how the tax structures are set up, etc. That's where these guys come in.

Startup Costs
Other things to think about for developers are startup costs. "Startup costs, how can there be startup costs? It's just me coding!" Yes, but have you considered...

Because your work will probably want theirs back when you leave.

Software (i.e. MSDN Subscription)
Because your work wants those disks back with their laptop.

Error and Ommission Insurance
Some head-hunting agencies will cover this, or will offer a program where you can opt in...but its always good to ask and its always good to CYA no matter what.

Health Insurance
Might not be as big a deal for some, but at the same time remember that you're doing this on your own...you have to create your own safety nets. So if you aren't married to someone that has fantastic benefits, you need to consider getting some for yourself...even if you are an army of one.

Now I'm sure that most of these things can be written off as a business expense on behalf of your company...but have you thought about how you'll fund your company as well? Where will the initial money come from? Will you get a company credit card, and if so where will the initial payments come from if you don't get a contract right away? All things to consider...


Moving On...

"I tried to be perfect, It just wasn’t worth it...nothing could ever be so wrong...
I’d say all the words that I know just to see if it would show... that I'm trying to let you know...
That I’m better off on my own"

- Sum 41, Pieces

I woke up one day and said "Screw it...I'm going independent". And that in a nutshell brings us to this blog. But let's add some context around this...

I'm a software developer living in Canada. I've been in the industry since 2000-ish, and work in a provincial capital. I've worked a number of gigs over those years, and each one has had some aspect of WTF attached to it...some good experience and alot of bad experience...the old "wow, now I know what NOT to do..." type of situations.

I've been with my current company for a while now, and its not a bad one. But its also not perfect...and looking ahead, I'm realizing that I'm just not happy. There's no real growth potential for me here...they say there is, but not in what I'm really passionate about. So what do I do? Do I just jump ship to another company where I know there will be the same issues that I'll have to deal with all over again, and with zero seniority? Why bother...better the devil you know...

No, instead I'm going to be embarking on a new adventure: creating my own company and working as an independant consultant...a gun for hire...a bounty hunter...a developer in control of their own destiny.

One thing I've found is that there's very little out there that talks about what you need to do for setting up an independant consulting business and what's all involved. That's where my blog comes in: I'll be posting about all the various events that occur on the road to enlightenment (or ultimate doom...there's always risk).

So come along for the ride, and hopefully I'll be able to share information that will helpothers out there who want to start on their own path to freedom and independence.