By Paddy Kamen

Whether you’re opening your first store or your umpteenth, there’s plenty to consider, starting with WHO will you be serving, WHERE is best to locate, and HOW will your store speak to your clientele.

The real estate mantra, ‘location, location, location’ is an important one, but like many over-simplifications it belies the complexity of the decisions required to open an optical store. It also ignores the fact that location is not even the first step in the decision-making process. Your store can still fail if location is your only concern.

What comes before location? Who you want to serve, according to the experts. Your ideal customer should be reflected in each essential aspect of your store: location, design and product composition.

“Retailers need to be really clear on who their target market is,” says Margaret Osborne, acting chair of the School of Marketing and Advertising at Toronto’s Seneca College. “People without a marketing background don’t realize how important it is to have an in-depth understanding of their ideal customer. A good marketer will write a story about these customers that might be 30 pages long, looking at their values, attitudes and beliefs in addition to their income and education level. Do they want convenience or intimate service? Are they fascinated by precision goods or do they prefer value above all?”

Customer analysis will contribute to the location decision. “If you understand your customer you will know which location will make or break your business,” says Osborne. “If you’re dealing with clients who value convenience then you should be in a high-traffic location with good parking. If pricing is paramount then you’ll need a location with lower rent. The image has to be consistent as well. If you’re looking to do a boutique offering with higher-quality product, your location will have to be consistent with that as well.”

Intrinsic to Osborne’s argument is that you can’t appeal to everyone and the more you try, the more watered down your value proposition becomes. “If you don’t have a formal background in marketing either seek professional advice or educate yourself online,” she says.

Mani Vaghedi, president of Washington, D.C.-based CNS Frame Displays, agrees with Osborne. Vaghedi advises clients informally on setting up their retail stores and clinics. “The business plan is often the problem. I find that many people don’t narrow down their target market, nor do they plan financially for the six to eight months it takes to get a business on its feet. If they spend too much money in the set up they don’t have enough of a cushion. If they spend too little, their store just doesn’t cut it. An optimized business plan developed with the aid of professionals and a marketing plan for the first few years will go a long way to ensuring success. In my experience the biggest mistake retailers make is under-spending for the practice and not doing enough advertising.”

The type of retailers around your location sets the tone and attracts shoppers. Sometimes it pays to be near those who are your competitors, says Osborne. “You know how you often see gas stations grouped together? Economic game theory says you should locate where you competitors are because that’s where people go to look for eyewear. It’s better to be next door rather than a mile away if your competitors already have traffic, and the smart people go where the action is.”

Anchor stores in the area will be key if your preferred customer is seeking convenience above all. If they can grab a ‘Tim’s’ coffee, pick up their garden supplies at Canadian Tire and drop into a Shopper’s Drug Mart to pick up cosmetics before heading to your shop to choose eyeglass frames or contact lens supplies, they’ll be happy campers, indeed. However, the fashion-oriented customer will be attracted to the eyewear store that is near other fashion retailers.

Michael Kehoe owns and operates Fairfield Commercial Real Estate Inc., a Calgary-based brokerage. He works with commercial property owners and retailers seeking locations across western Canada. “Eyewear is very fashionable so a venue with pro-fashion tenants and jewelers clustered together encourages cross-shopping,” he says. “That way, retailers can enjoy the synergy of the traffic generated by their neighbours.”

Being in ‘the shadow’ of a regional shopping centre that is dominated by chain stores can certainly help, adds Kehoe. “If you can be within four-to-five blocks of a shopping centre on a main road with good signage, you will have achieved more affordable rent than you would in the mall, along with high visibility and consumer traffic.”

Things are changing in retail, with large enclosed malls losing some of their shine for the first time since their inception in the mid-1950s.“Shopping centers are moving toward dining and entertainment centres and offering more services in addition to retail,” says Kehoe. “Some of the older models are being focused outwards (de-malled) and turned into convenience and power centres. The Don Mills Centre in Toronto is an example of this, as is Deer Valley in Calgary, which was de-malled three years ago. This elminates the closed pedestrian mall and focuses the stores outward. The operating costs are lower for the property owners and retailers get more exposure to street traffic. This particularly suits those smaller malls in areas where large regional malls dominate. De-malling is a very successful strategy.”

Strip malls can be an excellent location choice for optical retailers, especially with the synergy of complementary tenants. But optometrist Diana Monea, proprietor of three stores (one in Regina and two in Calgary) once found herself in a problematic situation with one of her strip mall locations. “We had professional, health-related neighbours when we moved in, but then one of them left and was replaced by a business that made patient parking impossible for us. This was extremely frustrating and involved long, arduous and expensive negotiations to resolve.”

Another location type is the main street store, where pedestrian traffic dominates. Sara Moshurchak moved her store, Eyeland, from the tourist mecca of Granville Island to the Gastown neighbourhood of Vancouver last January. She found that after 20 years on Granville Island that there were fewer locals shopping, her client base was stalled, and tourists were becoming more reluctant to make high-end purchases. Gastown is also a draw for tourists, with charming historic buildings on Water Street, but it also has residential buildings and other fashion retailers (hat makers, shoemakers and clothing designers) who have made the area one of Vancouver’s most attractive to those seeking artisanal goods, such as the handmade frames Moshurchak offers.

Moshurchak allows that it was difficult to reach the decision to move, even though she hadn’t been happy in her old location for a while. “Moving location is like starting a new business, and that is scary. But the last year in my old location really pushed me out, with roofing problems that caused business to dip.”

She’s glad she took the leap, despite having sales drop considerably for the first three months in Gastown. “Business is more consistent here, whereas we would alternate between being deluged or dead at the other location. I can now operate with fewer staff, I’m paying less rent and I have a much larger location.”

Working with experienced commercial real estate agents Corbel Commercial was essential to Moshurchak finding the ideal store. “I had never thought of working with agents but two of my friends had used them and they were amazing. They knew the store was going to be available because they were acting for the current tenant who was moving out. They helped me to sort through, understand and negotiate the terms of the lease.”

Marc Saul, vice president of Corbel, says that Gastown commercial property owners are for the most part on the same page when it comes to choosing tenants. “They are distinctive in that they prefer unique, independent retailers you can’t find elsewhere in the city over large national chains and brands. Their goal is to preserve the character of the neighbourhood and avoid retail homogenization. It makes for a more sustainable retail environment in the long run.”

Getting professional help with lease negotiations is critical for retailers. “It’s not every day that a retailer signs a lease but we do it on a daily basis so we understand what landlords will do for the right tenant,” says Saul.

What could go wrong? You may not recognize a clause in the lease that allows the landlord to terminate the agreement if she wants to demolish the building. Or there may be a clause permitting the landlord to renew the lease at her discretion rather than after a fixed term. There may be deficiencies in the building that you wouldn’t recognize due to lack of experience, or you may be required to pay unreasonable rent.

Mani Vaghedi also advises clients to work with an agent. “A bad lease can put you out of business at any time. On the other hand, the landlord is often willing to co-invest with you or even pay 100 per cent of the lease-hold improvements to the right person.”

A good agent might also be able to help you avoid the kind of problems that Monea experienced when the car rental company opened in her strip mall. A covenant on your lease can cover what other stores would be allowed to move in next door. You might get favourable signage placement, new flooring or entrances, or a fresh coat of paint.

IRIS The Visual Group has leased 163 locations across Canada so executive vice president Dr. Daryan Angle knows this aspect of the business very well indeed. “It does help to be a national chain. If landlords don’t know you and feel confident that you will prosper they may not be keen to lease to you. You have to vie for their attention and then negotiate. It’s a delicate dance. But if they know your look and client base they will come to you because they know you will attract other quality tenants.” He advises smaller stores to locate in retail plazas that attract other shoppers and to review the proposed lease very carefully. “After 163 lease negotiations we’ve learned so much about this aspect of the business. Landlords hold a lot of power.”

Space Planning and Design

Once you have the location and the lease in place you are ready to create the right environment for your target client. You would be forgiven for assuming the square footage of the space is whatever the lease or landlord tells you it is. But Brian Wolcovitch, director of design for Modular Design Systems Inc., says that landlords measure space differently than leaseholders. “Your landlord or developer measures space from the centre of the outside wall to the window on the front wall. When we start to design your ‘useable space’ we have to make allowances for wall thickness, not only the outside walls but also the interior walls that haven’t yet been put up. We have to create hallways of a certain width to accommodate wheelchairs, for example.

“A client recently asked me to design an office of just over 1,000 square feet. His wish list included two examination rooms. My client was told that the usable space was 1,004 sq. ft., but the actual interior face of the four walls was 919 square feet. I managed to give him a beautiful design and accomplished everything on his list except the second examination room. The ‘dead space’ in the thickness of the walls eliminated that option. This kind of situation happens a lot.”

The amount of space allocated to your dispensary is an important consideration. Don’t go too small, as many eyecare professionals find that a larger, well-stocked dispensary improves their bottom line. Bedford, N.S.-based optometrist Dr. Toby Mandelman was delighted to find that frame sales increased by 50 per cent when she and her partners moved to a ground floor location and increased the size of their dispensary, under the direction of Wolcovitch. “We just love our new office and get constant compliments from patients. The final result really exceeded my expectations and we couldn’t be happier,” says Mandelman.

Product Assortment and Positioning

Product assortment involves a large financial outlay and Moshurchak advises the independent optician to hold in the reins initially. “I recommend starting small; after all we’re selling frames, not furniture. Eyewear is so appealing and it’s easy to buy too much. One of my friends did that and then he couldn’t afford to order new product because he had too much inventory. I want to keep getting new frames in that keep me excited and so I recommend having enough for the boards, a couple of extra pieces and to keep reordering your best sellers.”

The frames you choose should be as exclusive as possible and as unique as you, according to Paul Storace, president of Alternative and Plan “B” Eyewear. “If the brands you choose are the same as the store down the street you lose your unique market advantage. Product selection is your opportunity to give your target customer a clear idea of where you stand in the marketplace. Buy product that is beautiful and interesting to you and your customers will catch the excitement.”

Product assortment and turnover can be managed with planogram software, suggests Osborne. Planograms are illustrative representations of the store’s products and the software will help you position your best sellers in ideal locations and keep track of inventory. Planogramming is taking a page from large retailers like grocers, where the best-selling products are easier to see and to reach. Osborne recommends looking at planogram software from JDA, Shelf Logic or Smart Draw.

“If laid out thoughtfully, your frames will get more inventory turns,” she says. “You can cut down on the initial investment and turn over product more quickly by positioning statement pieces around the high-volume sellers. You may only carry just two Prada frames but if you position them strategically they provide a halo effect to the other products and to the store itself. The other thing I notice that is sometimes overlooked in optical is a very deliberate pricing strategy. Large retailers are extremely careful about what price they put on products. Is it .97 or .95 or $200 or $199? These fine points should not be left to chance and they start with a deep understanding of your customer.”

Ah, ‘understanding the customer’: haven’t we heard that phrase before? As stated at the beginning of this feature, understanding your customer is a perfect place to start, whether you’re now planning on opening your first dispensary, moving your business to a new part of town, or you just want to succeed beyond your wildest dreams. Whichever it is, go for it!

By Brian P. Dunleavy Chain retailers and independent optical shop owners rarely cross the competitive divide and share ideas. However, each group can learn a lot from the other – particularly when it comes to marketing spectacle lenses.

Chain retailers across Canada have achieved great success by developing “house-brand” (or private-label) lens lines that make their spectacle products appealing to consumers – and emphasize design features and benefits in a way that’s easy to understand. These brand names may highlight the thin, lightweight characteristics of high-index or polycarbonate lenses or the visual benefits of freeform lenses; they may extol the virtues of ultraviolet light protection offered by polarized sunlenses or the convenience of photochromic lenses. As a result, consumers shopping at chains that use this technique know what they’re buying.

David Watson, an optician and instructor at the BC College of Optics in Vancouver, remembers running an independent optical shop and fielding questions about chain-store brands. “Clients asked if we carried a particular product and we’d have to explain that we could get the same material, but couldn’t call it by that brand name. It drove us nuts.”

For independents, to use the same branding approach as their chain counterparts is complicated by the fact that they purchase lenses either directly from the manufacturer or through wholesale laboratories. Because independents don’t have the same “buying power” as chains, they don’t have the same opportunity to negotiate the creation of their own private-label brands with vendors.

Still, it’s not impossible. For specialty products – such as prescription wrap sunlenses or tinted lenses designed for specific purposes (shooting/hunting or driving) – independents can work with niche lens manufacturers and/or labs to develop their own brands. They can also work with manufacturers and labs that specialize in commodity (usually imported) lens products that are not branded and can therefore be coupled with other products (coatings and treatments) to create store brands. These products are usually less expensive than brand-name products made by larger manufacturers and they can be sold as part of a tiered pricing strategy to clients seeking more affordable options. Depending on the make-up of their client base, independent optical shops can find success with this approach. Another way independents can “brand” spectacle lenses, again using tiered pricing, is by incorporating the good/better/best model of bundling lenses and treatments together – and attaching a catchy name to these bundles. For example, such an approach for progressive lenses might include a “standard” progressive design with anti-reflective (AR) coating in a conventional plastic material or polycarbonate (the “good” option), a standard progressive with AR in a high-index plastic material (the “better” option), and a freeform progressive with AR in a high-index plastic material (the “best” option). Here, independents are branding the bundles, not the lens products. They can still use the established lens brands – especially if they are recognizable to consumers – to make the bundles more enticing. The learning opportunities between chains and independents don’t go in only one direction, however. While chains may have a branding advantage, independents have an inventory advantage. The products sold in chain locations are often based on decisions made at the corporate office, not determined by the demands or buying habits of the local client base. As a result, a chain location in an affluent area might have too much “commodity” (or low-priced) frame and lens inventory, and vice versa. This is a problem some proactive chain retail executives have been trying to address – and an advantage more independents need to leverage. “Independent stores like the one I managed for over 10 years can order just about anything – as long as they’re willing to start an account,” Watson explains. “I used four labs to order lenses, depending on what product I needed, and we belonged to [a buying group]. But as an optician in a chain store, your hands are tied. You have to convince clients to buy a product you have available.”

By JoAnne Sommers

Canada’s Anti-Spam Law (CASL), which took effect on July 1, has wide-ranging implications for every business that uses email, social media or instant messaging to promote its products or services.

The legislation applies to messages sent electronically that have a business purpose and covers one-to-one communication as well as mass emails, says Chad Finkelstein, partner, Dale & Lessmann LLP in Toronto. “It applies to all customers, prospective customers, suppliers and vendors with whom you communicate electronically,” he notes.

CASL targets any electronic communication that could be considered to “encourage participation in a commercial activity.” Emails, text messages, instant messages and messages sent through social networks that have a commercial aspect will be considered commercial electronic messages (CEMs), and require express or implied consent, unless they are covered by an exemption.

Express consent means that someone has given their verbal or written approval to receive emails from you. However, the onus is on the sender (i.e. the business owner) to prove they have that consent. Express consent is considered valid if it was obtained before July 1, 2014. After July 1, if you want to continue sending electronic communications to people who have not given you their express consent, you must first contact them by phone or regular mail to obtain it.

Implied consent means you have a personal or family relationship with someone, or an existing business relationship. That means you have conducted some sort of business transaction with the email recipient (i.e. the recipient bought a product or service from you) at some point in the previous two years, says Finkelstein.

“There will be a one-year grace period for existing business relationships so the two-year period is effectively extended to three years,” he notes. “You should maintain a database showing the last time a person bought something from you and, as the two-year window for implied consent closes, ask them to opt-in so you can continue sending them CEMs.”

Implied consent also exists if someone makes their contact information conspicuously available, such as on their website, without stipulating that they don’t want to receive electronic communications.

An exemption exists if someone requests a quote from you or you are communicating factual information about a service or warranty. Registered charities have an exemption for CEMs that are sent to raise money and political parties and candidates are exempt if the message’s primary purpose is to solicit contributions.

Penalties for violating CASL range from $1 million to $10 million; there will only be regulatory enforcement until July 1, 2017, after which spam recipients can sue the sender.

Noting that the statute has a due diligence defense, Joanna Fine, a lawyer in privacy and data management with Toronto-based Osler, Hoskin & Harcourt LLP, says you should do everything possible to establish that you have assessed your email lists and updated your electronic mailing processes. Fine recommends reviewing your existing database to determine how you obtained each email address it contains. Is it for a current patient? Did it come from a business card? If you’re unsure how you got the address seek the person’s express consent.

“It’s a very technical statute and there’s lots of uncertainty about how the provisions will be interpreted,” she says. “Legal advice can help to ensure that your interpretation is correct.”

Preparing for CASL

There are several steps you can take to ensure that your business complies with Canada’s new Anti-Spam Law (CASL), says the Canadian Federation of Independent Business (CFIB). They recommend the following:

• Review your current mailing list. Assess whether you have implied consent from those on it to continue contacting them electronically and whether you can rely on that consent under the new legislation. If you rely on implied consent, create a system to alert you when the implied consent period has lapsed. Otherwise, you will require express consent.
• Develop a records system to keep updated lists of those who have given you consent to send them electronic messages and a list of those who haven’t.
• All electronic messages must include:

• specific information that identifies the sender, such as a mailing address, phone and email information or a website address;
• an unsubscribe option that allows the recipient to stop receiving your emails. Unsubscribed recipients must be removed from your mailing list within 10 business days of their opting out.

o       Employers are responsible for spam sent by their employees. Educate your staff so they know and comply with the new rules.

o       CASL also imposes new standards for electronic messages to comply with Canada’s truth-in-advertising laws. Previously, to assess whether an email was misleading, you had to look at the entire email. With CASL, each of its elements – the subject line, for instance – must be assessed independently.

o       CASL also affects how you contact referrals. You are only allowed to send a single message to a prospective client. It must include the full name of the individual who gave you the referral, and the identification and unsubscribe requirements mentioned above.

There are many other clauses in CASL that could impact your business, says CFIB. For example:

• if your company installs computer software remotely;
• if you have an e-newsletter or use promotional/contest emails;
• if you use email lists from third parties.

For additional information, contact CFIB’s Business Resource Department at 1 888 234-2232. While its counsellors are well informed about the statute, CFIB cannot provide legal advice. To ensure your business is compliant, they recommend you seek advice from your lawyers.

By JoAnne Sommers

A commitment to work toward lowering processing fees for credit cards was the highlight of the 2014 federal budget for Canada’s small business community.

That commitment was the best news contained in the budget, said Dan Kelly, president of the Canadian Federation of Independent Business (CFIB).

“The government has done a lot to address (credit card) problems from a merchant perspective over the last few years; there has been a clean up of bad practices: plans for credit card companies to get into the debit card business were scuttled and they have stopped the mass issuing of premium cards to people who didn’t request them.

“We’re very pleased that the budget states further steps will be taken to reduce credit card processing fees for merchants and the dearth of information for consumers. CFIB has been working hard to push for measures to reduce the $5-7 billion cost of credit card processing and end the ‘arms race’ of ever-higher tiers of high-cost premium cards.”
Kelly said CFIB expects an announcement in the next month or two about plans to help reduce such fees. “There’s been a flurry of activity in recent weeks and they don’t announce such plans unless something is imminent.”

Another bright spot is that the filing frequency for several taxes paid by small business has changed. Rather than remitting source deductions like Canada Pension Plan (CPP) and Employment Insurance (EI) bi-weekly or weekly, the government will allow more businesses to remit them monthly, depending on their size. This will help small business by dramatically reducing red tape and paperwork, Kelly said.

The following changes are proposed:

▪       Increase to $25,000 from $15,000 the threshold level of average monthly withholdings at which employers are required to remit up to two times per month.

▪       Increase to $100,000 from $50,000 the threshold level of average monthly withholdings at which employers are required to remit up to four times per month.

The proposed changes will mean that over 50,000 small and medium-sized employers will see their maximum number of required payments for source deductions cut in half, eliminating the requirement for more than 800,000 payments.

Kelly said that CFIB also welcomed plans by Ottawa to push ahead with the Canada Jobs Grant program, despite the fact that no province has yet signed on. The program, a centrepiece of last year’s budget, will see roughly $300 million of $500 million in current federal job-training transfers redirected by the time it’s fully implemented. Ottawa said it had plans to take on the provincial share of the program and launch it April 1 in provinces where a deal isn’t reached soon.

“From a general taxpayer perspective, we’re also pleased that the government is sticking to its plan to eliminate the deficit by 2015,” Kelly said. “Small business owners know that today’s deficits are tomorrow’s taxes, so they’re pleased the government’s commitment to a balanced budget in 2015 remains solid.”
The budget projections, including a cushion of reserve cash, show a deficit of $2.9-billion for 2014-2015 and a $6.4-billion surplus the following year. It would mark the first federal surplus since the 2007-2008 fiscal year.
The government will save more than $1 billion annually by clawing back its share of health benefits for public sector retirees. Retired civil servants will now pay half the cost of their health and dental insurance plans, up from 25 per cent.

“This is a good move that will save taxpayers $7.4 billion over 6 years,” Kelly said, adding that CFIB also welcomes further actions designed to restrain public sector compensation and reform sick leave provisions.

The budget was not entirely a good-news document from a small business perspective, however.

“There are a couple of things we didn’t like,” said Kelly. One is the elimination of the EI hiring tax credit. In the last several years, EI rates have risen a small amount annually. This year, rates were frozen but the government eliminated the hiring tax credit, which had served as an incentive for small business to create jobs.

“CFIB is disappointed about this and we urge government to move quickly to reduce EI premiums as soon as the account is back in balance,” Kelly said.

He also expressed disappointment that the government didn’t lower the small business corporate tax rate from 11 to nine per cent.

“This year, changes go into effect from the 2013 budget that make the dividend tax credit less generous than before. As a result, there will be higher taxes on dividends than in the past. We asked for a lower corporate tax rate to offset that.”

As many small business owners who pay themselves in dividends will be hit hard in 2014 by changes to the dividend tax credit, CFIB is relieved the government is promising further tax reductions for small business once the budget is in balance, Kelly noted.

“With a soft economy, we will be lobbying hard for tax reductions, such as a cut in the small business corporate tax rate, in advance of the 2015 budget.”

By JoAnne Sommers

For most small business owners, running a business is an all-consuming undertaking. There are so many things to take care of – from attracting new customers to managing day-to-day operations – that it’s easy to neglect business planning.

Even so, it’s essential for small business owners to prioritize business planning matters for periodic review. A meeting to brainstorm with your professional advisors – accountant, lawyer and money manager – can provide a lot of insight, says Adrian Mastracci, portfolio manager and financial advisor at KCM Wealth Management in Vancouver. “Contemplating business matters is best done as a unit,” he says. “Review all of the implications and design a total approach to addressing your priorities.”

Here is a look at some of the leading planning priorities for Canadian small business owners:

• Business Structure 

It may be time to give your business structure a tweak or even a makeover, says Mastracci. The current structure may consist of a sole proprietorship, partnership, incorporated company, or it may be a more complex set of holding companies.

Choosing the right legal structure for your business can save you money at tax time, make it easier (and cheaper) to pay yourself, help you avoid potential personal legal liability, and allow you to sell your business or pass it on to your heirs, according to RBC Royal Bank.

Your first step is to evaluate the valid business reasons for the current structure. Then think about whether you could benefit by modifying part or all of the structure.

• Owner Remuneration 

Take a look at the composition of your current owner remuneration mix to make sure it’s serving you well, advises Mastracci.

“Most business owners take a combination of salary, bonus and management fees, which is deductible by the business but taxable in the hands of the recipient,” he says. “Determine who is getting paid and how much.”

Some members of your family may be able to receive dividends while paying little income tax, he adds. Do a tax projection to determine whether a shareholder would pay less tax by taking a dividend as opposed to salary remuneration.

Also keep in mind that in order to create the maximum 2015 registered retirement savings plan (RRSP) contribution room of $24,930, you will require « earned income » of close to $138,500 in 2014. And don’t forget that « net rental income » qualifies as earned income. Rental losses, however, reduce earned income.

• Business Continuance

When you’re in the midst of your normal business activities, it’s easy to forget about the question of how to ensure the continued operation of your business if something happens to you: specifically, who will take the reins if you become disabled, ill or deceased?

Mastracci recommends that you arrange for someone who can step in and fill your shoes temporarily and, perhaps, for the longer term, if necessary. If you’re fortunate, there may be a family member or someone already in the organization who can fill this role.

Once you identify your replacement, make sure to let the other senior people in the organization know who you’ve chosen for this purpose.

• Family Trusts

Many business owners have set up various family trusts over the years. Some of the rules governing them have changed and some trusts are now approaching their 21-year life. At that point, a trust’s property is deemed to be sold so it is possible that tax will be incurred on any capital gains.

Trusts can be advantageous when adult children are the beneficiaries. While minors are prohibited from receiving income from a trust, there is no prohibition against an adult child doing so. Thus a trust can be a good vehicle for passing some of the value of the business on to your adult children.

This is a good opportunity to revisit your family’s planning needs and the cost versus benefit of your current trust structure. If you have a family trust, ensure that the documentation and trust arrangements are up to date. This is especially important if the trust was created in another province where you no longer reside.

This is also a good time for those who don’t have a family trust to assess whether it makes sense to establish one.

•  Lifetime Capital Gain Exemption 

A lifetime capital gains exemption of up to $800,000 per spouse is available in 2014, up from $750,000 in 2013. It exempts gains from the sale of qualifying small businesses, farm property and fishing assets. You should review the eligibility steps for the special gain if you own such assets. Full exemption means a tax savings of almost $163,000 per spouse in many provinces.

Addressing these business issues will help to pave a smoother path to achieving your financial goals, says Mastracci, adding, “Always ensure that you and your professional advisors are on the same page.”

By JoAnne Sommers

(This is the second in a two-part series dealing with fraud in the small business workplace.)

No employer wants to think employees might be untrustworthy. Yet statistics show that employee fraud is a fairly common problem, particularly among smaller businesses.

The Certified General Accountants Association of Canada (CGA-Canada) estimates that $3.2 billion is lost to small and medium-sized (SMEs) Canadian enterprises annually from occupational fraud, defined as fraud committed by employees, managers and owners, where the victim is the organization itself. The figure comes from a 2011 CGA-Canada survey, which found that 26 per cent of SMEs surveyed (290,000 companies) reported experiencing occupational fraud in 2010.

The report cited misappropriation of inventory or assets, misappropriation of cash and misrepresentation of employment credentials as some of the most common types of occupational fraud.

Beyond the financial losses incurred as a result of occupational fraud, there is a significant non-financial cost to the companies involved. Nearly two-thirds of survey respondents said it had impacted staff morale and one-quarter said it affected the company’s reputation. Other negative consequences included the impact on the company’s ability to attract and retain employees and its ability to develop its business.

Small and medium-sized enterprises are more vulnerable to fraud than other types of businesses because they often have limited ability to allocate financial and human resources to fraud prevention and detection, says the report. As well, companies with fewer employees tend to have less segregation of duties and fewer internal accounting and auditing controls, according to Sage 50, a supplier of accounting and business management software to start-up, small, and midsized businesses.

Despite these challenges, it is possible for small businesses to protect themselves by making employee fraud prevention a priority. Here are some steps you can take:

• Know Your Employees

To reduce the risk of employee fraud, it’s important to hire good people. Check the references of prospective employees, along with their employment and educational history for any previous incidents of fraud or illegal activity.

This is particularly important when hiring for positions involving inventory and money. In such cases, BMO Bank of Montreal says you should also scrutinize date and time gaps in candidates’ resumes. Obtain written permission before conducting a deeper background check – such as a criminal record investigation or credit check – which can be done by a third-party firm.

• Educate Your Employees

Employees serve as the eyes and ears of a company, says Sage 50, and by ensuring that staff members are knowledgeable about basic fraud prevention techniques, you’ll establish a first line of anti-fraud defence.

Educate your staff on basic security measures, such as how to recognize potential threats and why it’s important to take precautions. Enforce the training by instituting policies that guide employees on the proper use and handling of confidential information, including financial data, personnel and customer information.

• Segregate Key Responsibilities

In a smaller business, employees often wear several hats, which can make the company more vulnerable to fraud. When possible, segregate financial responsibilities for budgeting, purchasing and payment approvals, says Mohit Veoli, assistant vice president, Fraud Management, TD Canada Trust.

Ensure that one employee isn’t both writing cheques and reconciling bank statements or initiating purchase orders and approving the payment, says Barkin Sayiner, commercial banking area manager, BMO Bank of Montreal. “If you don’t have enough staff to divide these key roles, consider requiring a second approval – from a supervisor or manager – to check that these financial actions are valid.”

• Limit Employee Access to Bank Account Data

Ensure that you have rigorous internal processes to manage functions like payroll accounts and bank transfers. All it takes is your account number and bank transit information to initiate fraudulent bank transfers from unauthorized sources.

• Review Financials

Regular reviews of bank statements, accounts receivable and payable, invoices, purchase orders and payments can eliminate many types of fraud.

• Track Inventory

Can you account for all of your company’s computers, including laptops and tablets? Does all your sales stock end up in the hands of paying customers? To ensure you can answer, “yes,” to these questions, establish a written inventory policy and make sure all employees receive a copy. The policy should outline procedures for ordering and keeping track of stock and equipment at every stage. Also, take inventory regularly and rotate the responsibility for it.

• Limit Administrative Access

Make sure that all sensitive business information is password-protected, and assign access to company business data, website and email accounts to different individuals, if possible. Change passwords regularly and monitor when business files – especially financial material – are being worked on. If there is a pattern of someone logging in after hours, that could be a red flag.

• Develop a Fraud Policy

By developing a code of ethics for your company and communicating it to all employees you signal not only that you take these activities seriously but also that there will be consequences. “If employees understand the negative consequences of fraud they may think twice,” says Sayiner.

• Take action When Fraud is Discovered

Having a fraud policy is useless if you are unwilling to enforce it. Treat all employees equally regardless of tenure, says Veoli.  “It should be about the process, not the individual.”

By JoAnne Sommers

How are you protecting your business against fraud? If you haven’t addressed the issue yet, consider the following:

Credit card fraud in Canada amounted to $440 million in 2012, according to the Canadian Bankers Association.

Internet scams, which were almost unheard of a decade ago, now account for many millions of dollars in fraud annually. Ottawa estimates that these types of incidents have increased 77 per cent since 2005.

Other sources of fraud are the result of poor security across a business, such as inadequate network and computer security and a lack of background checks when hiring employees.

Fraud hurts more than your bottom line – it affects customer confidence and reflects poorly on your business as well as your personal reputation. And because many business owners are embarrassed to admit they’ve been scammed, much of it goes unreported, says Daniel Williams, senior call taker supervisor with the Government of Canada’s Anti-Fraud Centre in North Bay, ON.

Despite the increasing incidence of fraud, it’s important to be aware that there are ways to protect yourself against it, says Mohit Veoli, associate vice president, Fraud Management, TD Canada Trust. Here are some of them:

• Protect Credit Cards and Bank Accounts 

One of the most frequent sources of fraud is credit card abuse – largely because few business owners take the time to carefully review their bills or they mingle business and personal accounts.

Start by separating your personal banking and credit cards from your business accounts. This will also make it easier to track your business expenses and report deductions on your tax return.

Next, make sure you use your card wisely. Don’t hand over credit cards or card numbers to employees or companies with which you aren’t familiar. Change to online bill payments or make sure to store paper bills securely.

The fastest growing fraud is “card not present fraud” for online purchases, says Veoli. “Fraudsters will purchase things online using stolen or lost credit cards because they usually don’t require a PIN number.”

To combat this type of fraud, Visa Canada has created Verified by Visa and MasterCard has instituted SecureCode, he notes. “These programs provide another layer of security by requiring anyone who buys something online through your website to use a password before purchasing. This helps customers to feel secure and provides better protection for merchants.”

• Guard Against Cheque Fraud 

While cheque fraud is declining – thanks to the overall decreased use of cheques – it still accounts for the majority of payments fraud in North America. When accepting cheques, make sure the source is legitimate: check the date, signature, amount and look for any alterations.

Try to use electronic online or credit card payment options rather than cheques and issue individual payments for each expense so everything can be tracked back to specific invoices.

Restrict access to company cheques to those who need it, says Veoli. And put cancelled cheques on a DVD, which is stored carefully. Paper can easily be misplaced and fall into the wrong hands.

• Check Your Bank Accounts 

Get into the habit of reconciling your bank accounts daily and if you see something suspicious, notify the bank immediately. Your chances of recovering the funds are much greater that way.

• Prevent Hacking 

Talk to your financial institution about how to protect your online accounts from hackers and phishing scams. This includes understanding what your institution will and won’t ask for by email, such as password and account information.

Limit access to your bank account data. Install, use and regularly update anti-virus and anti-spyware software and email filters on all of your business computers and encrypt sensitive data, including emails.

Backing-up is a must and will make it much easier to continue working in case of a cyber attack.

Firewalls are another essential for small businesses, especially if customer data and other sensitive information are linked to the Internet.

• Have a Password Policy 

Another way to protect your IT systems is to institute a password policy. Make sure passwords are changed regularly – every 60 to 90 days is good rule.

Ensure that passwords are complex (i.e. they should contain one upper case letter, one number and be a minimum of eight characters) and use different passwords for different online and system accounts.

• Use a Dedicated Computer for Banking

Use a dedicated computer for all your online financial transactions and, ideally, ensure it’s one that isn’t used for other online activity, such as social media, email and web surfing. That makes it much harder for outsiders to gain access to sensitive information.

• Always Report Fraud 

If you experience fraud immediately report it to the local police, the Canadian Anti-Fraud Centre (http://www.antifraudcentre-centreantifraude.ca/english/home.html) and your financial institution.

“Businesses don’t want to look vulnerable and, because fraudsters cover their tracks in advance, it’s often difficult to go after them. But the more information we get, the more we can make life difficult for them. And any money you can recover from the bad guys makes it less attractive to them,” advises Williams.

(This is the first of a two-part series about fraud. In the next issue: How to Control Employee Fraud)

By JoAnne Sommers

Canada’s small business community is applauding the announcement of tougher rules of conduct for credit card processing companies, including Moneris Solutions and Chase Paymentech.

In February, the Financial Consumer Agency of Canada (FCAC) issued a guidance document stating that it had observed three issues within the payment card industry that it believed were not in line with key principles set out in the Code of Conduct for the Credit and Debit Card Industry in Canada.

The issues were: 

Inappropriate sales and business practices

These included unilaterally changing or modifying agreements without providing advance notice; advertising and promising rates and fees that participants were not able to honour; and misrepresenting contractual terms. 

Disclosure to merchants in multiple provider agreements

In its report, the FCAC said merchants often find multiple service provider agreements hard to understand, in part because of the many different but interconnected payment services they require. “As a result, it is often difficult for merchants to make reasonable and informed decisions about the services they choose to receive, what their rights and obligations are and whom to contact in the event that something goes wrong,” the guidance statement said. 

Multiple contract cancellation penalties, costs or fee

The FCAC said its investigation found that some merchants signed agreements which they later discovered were linked to additional contracts for related services that contained different cancellation clauses and related penalties, fees or costs. While the merchant was able to cancel the agreement without penalty, he or she often faced additional costs or penalties to terminate related service contracts. In some cases, these penalties were enough to deter a merchant from invoking his or her right to cancel all contracts without penalty.

The FCAC outlined a summary form for payment companies that would disclose key information from the agreement they make with merchants. It is giving the payments industry until November 12, 2013 to put the appropriate measures in place to better protect merchants.

Payment transaction processor Interac has said it will adopt the increased disclosure practices.

In early 2012, the Canadian Federation of Independent Business (CFIB) raised concerns that some sales agents for the credit card industry were “working to trap small merchants in terrible credit card processing deals, often using separate lease agreements to increase fees to exorbitant levels.”

“FCAC has issued some draft guidelines that CFIB believes would go a long way to stop some of the unfair business practices that were creeping into the system,” says CFIB President and CEO Dan Kelly.

« We commend the FCAC and other industry players for siding with small merchants by clarifying acceptable business practices in the Canadian payments industry. The Code is doing what it was intended to do – protecting consumers and merchants. »

The business community is still awaiting an announcement in the Canadian Competition Bureau’s case against Visa and MasterCard, which alleges that some of their practices are anti-competitive: specifically requirements that merchants accept all types of cards regardless of cost, as well as a prohibition on surcharging.

Retailers have lobbied for permission to add a surcharge on purchases, so customers would be more aware of the costs. However, the contracts offered by major credit card companies prohibit such surcharges. They also forbid retailers from choosing a company’s low-fee credit cards while refusing its so-called premium cards.

The Competition Bureau’s case was filed in 2010 and a ruling by the Bureau is expected soon.

“CFIB’s support for surcharging in Canada was given a major boost when Visa and MasterCard settled out of court with U.S. merchants to allow surcharging in early 2013,” Kelly says. « We are expecting a ruling on this issue any day now and will be crossing our fingers. »

In a related development, Senate Public Bill S215 – An Act to Amend the Credit Card Payments Act – was sent to the Senate Banking Committee on May 7. It is awaiting further discussion this fall. The Bill would set limits on the fees that Visa and MasterCard can charge merchants for accepting their credit cards.

MasterCard Canada announced in January that it will increase merchants’ transaction fees on credit card payments this summer. That followed a 2012 announcement by Visa Canada that it was raising rates, which took effect in April.

Canadian merchants pay some of the world’s highest fees for the privilege of accepting credit cards. In May 2012, Kent Thomson, the lead counsel for the Canadian Competition Bureau, told the tribunal hearing the case against Visa and MasterCard that they add up to $5 billion annually.

Thomson described Canada’s credit card system as a « perverse » place where shoppers who pay with cash or debit subsidize purchases made with credit cards because merchants pay high fees for accepting credit cards and those costs are passed on to all consumers.

CFIB says that, depending on the card used, credit card transactions add 2 to 3 per cent to the cost of a transaction, of which 80 to 90 per cent goes to the bank that issues the card.