A bunch of Wavers were sitting around talking about year end the other day, and how stressful it can be for small business owners. Since a lot of Wavers have side businesses and freelance gigs, it’s no surprise that some great stories came out of that conversation.
Ghazaleh Etezal, a Design Manager at Wave, told us about her first experience diving into entrepreneurship, and the tax mistake that left her with literally nothing in her bank account, overnight.
Taking the plunge
Max: So Ghazaleh, can you give us some background into what made you want to start your own business. What did it look like in the very beginning?
I quit my job in July 2014 with the goal to start my own business helping people find and list short-term spaces. The idea came from my previous project of activating a vacant storefront and I was very confident about how I could make it work, using a simple outsourced website I had made from my designs. After a few months, I scrapped the idea due to how costly the site was getting with all the bug fixes I had to pay for.
At this point, I decided to shift gears a bit and actually do some work on the ground. I organized a holiday market in a vacant lot in downtown Toronto—an insane thing to do. Partly because I didn’t have any money to do it. But I hustled and made an e-commerce website to attract vendors to buy tickets and participate in the market.
My primary focus was trying to fill this month-long market with vendors so I could pay for the cost of rent, asphalt, insurance and the whole production outside in the freezing cold. It turned out to be a major success—there were thousands of people who attended every day, over 100 vendors participated, and it ran quite smoothly for the most part. I even made it on TV!
Success! Or so I thought…
M: That sounds like it was quite the challenge. I bet you felt good about what you’d accomplished.
Well, yes and no. My first mistake was fooling myself with what I thought was success. My focus at the time wasn’t to make a profit, it was to sell the market to vendors and do a great job of seeing my idea come to life. In terms of setting my business up properly, I thought I had taken care of everything I needed to do by this point: I registered as a corporation, I opened a business bank account and I also opened an account with the revenue agency to collect taxes.
With all these things done, I didn’t think I needed to give any more attention to accounting, especially since I was drained every day with the responsibilities of completing my projects. Unfortunately, I also didn’t think of using software to track my income and expenses so I could get an idea of how much money I was making or losing. I was so focused on trying to get some serious things done within a short time limit that I wasn’t thinking about the long term.
The tax agents come a-knocking
So February comes around and I get an email from the government about filing my taxes. Here was my next mistake: I didn’t discuss anything with an accountant or advisor. Out of panic, I logged into my tax account and entered how much provincial tax I had collected (around $11,000 CAD) without any idea what would happen next.
M: So you must’ve thought it was just a normal procedure and didn’t bother to look into it.
Exactly. I was so busy with my new business that I wanted to put all my energy into that. Another vacant space opportunity presented itself right after the holiday market so figuring out my income taxes wasn’t my priority. I was pumped to keep moving because I was confident and had gotten so much attention for my work. But I continued to fool myself.
I don’t recall getting letters to submit my income tax—or maybe I did and completely ignored them, but I did start get notices for owing the government around $11,000. This is when I realized that something might be wrong and that I should probably get an accountant. It just didn’t make sense to me that I owed any taxes at all because I actually ended up losing money that year.
M: Did you have any understanding of accounting or tracking your finances before all this?
I used to do my own personal taxes online, so in the back of my mind I thought I’d be able to do the same for my business. Little did I know how complicated corporate income tax is and that I needed to pay (quite a lot) for an accountant to do it.
Getting an accountant: round 1
So I kept putting it off until settling for a cheaper alternative. That was my next mistake: I decided to ask my parents’ accountant for help. He treated it like a favour and charged me way less compared to what others had quoted me.
He ended up filing my income tax, but didn’t address the problem of owing the government money. So even though I thought my paperwork was done, I continued to get letters from the government while I was in the middle of running another project. This time I was running a collective store for a few months and it was taking up even more of my energy.
I began to realize my accountant wasn’t giving my file the attention it needed when it came to my taxes. Having messy books didn’t help either, and I should have known that understanding the problems and mistakes I had made were essential to filing my taxes properly.
I had also (for whatever reason) set myself up to remit my provincial taxes on a quarterly basis. I ended up missing these filing deadlines and getting a penalty each quarter without fully understanding why. What’s even worse was the tax agents wouldn’t let me fix anything related to the $11,000 mistake until I resolved my quarterly payments!
Poof! My money disappears
At this point I was worried and extremely lost in all the complex details of my business finances. My accountant kept assuring me that I was going to be okay every time I would email him the letters I’d get from the government in the mail.
Until one day in 2016, all the money in my bank account was gone. I had to borrow money from my parents and put in more of my savings so I could operate the store I had at the time.
M: Oh no! What an awful situation to be in, not knowing what’s going on and then to have it suddenly affect you in such a big way.
It was a very scary and stressful time. You know you have an accountant who doesn’t care when their response to the government taking $11,000 was, “Why did you have that much money in your account?”.
Getting another accountant: round 2
So I realized I needed to switch gears. The first thing I absolutely had to do was find a trustworthy accountant to work with, someone who actually cared and called me regularly to make sure that I was on the right track. This process took longer than expected because I wanted to make sure I found the right person for the job.
When I finally did, he asked the right questions to help me track down all my income and expenses, fix my mistakes and finally file all the required taxes. After it was all said and done, it took over a year to finally get my money back.
I am the only one to blame for these mistakes. At the time I felt stupid for not having a game plan for my business model and focusing too much on my end goal of customer research and product design. Even though I was good at running my business day to day, I didn’t pay enough attention to how much work my finances required over time. But I was proud to learn from these mistakes.
M: Well said, Ghazaleh! Thanks so much for sharing your story with us.
Lessons learned along the way
Thanks for giving me the opportunity to do so! I hope my failure and how I bounced back will become a lesson for other risk-takers who don’t have any knowledge of accounting and filing taxes.
Make sure you pay attention to your books on a regular basis and stay organized—every single transaction in your bank account needs to be accounted for. Don’t try to file your taxes on your own. Get business advice from someone with a background in finance, or work with an accountant as soon as you start getting a lot of traction with your business, not when it’s time to do your taxes.
And most importantly, don’t rush financial and tax-related decisions just because you want to focus on your work. Be alert and don’t fool yourself.
The information and tips we’re sharing in this article are meant to be a starting point for your year-end tax prep, so you can be informed and feel confident when working with your accountant. Be sure to check with a tax expert in your country or region for any specific advice you need, as each business (and tax district) is different. As our lawyers would say: “This article is for informational purposes only. It should not be considered legal or financial advice.”