8 Nov

4 COMMON FINANCIAL MISTAKES EVERY SMALL BUSINESS OWNER SHOULD AVOID

General

Posted by: Darick Battaglia

Every entrepreneur and business owner will make a few financial mistakes during their journey. Those who aren’t savvy in accounting often overlook the need to brush up on their financial IQ. Truth is, these little financial errors can lead to some serious cash flow problems if you aren’t careful. Here are four financial mistakes you can easily avoid so you can protect your bottom line.

Late payments
Nobody is fond of paying bills. We tend to put them off until the last minute for short-lived peace of mind. This applies to all business owners when it comes to both your account payables and receivables.
When billing your clients, it’s common to give them an extended window of time to make payments so you can foster more sales. While your clients may appreciate the flexibility this can seriously cripple your cash flow. I generally suggest giving your clients no longer than 14 days to pay an invoice. If you’re providing quality goods and services they should have no problem paying you within this time window.
When it comes to paying your own bills, it’s important to follow the same principles above. This is especially the case if you’re operating off borrowed money. Paying an invoice late may result in a few unhappy emails, but when it comes to paying off your debts you need to always be on time. Even one missed payment can severely harm your credit score.
The best way to stay on top of these is to use an online payments solution that offers online invoicing and accounting features. This way all of your bills are organized and can be accessed anywhere at anytime.

Forgetting to have an emergency fund
Every successful entrepreneur will probably tell you that hindsight is 20/20 and foresight is … well you just never know what’s going to happen. Every business will have to pivot and there will always be unexpected hurdles. That being said, it’s absolutely imperative that you have your contingency plan, especially when it comes to finances. I recommend that every business owner has a three-month emergency fund at least.
You should start putting money away into your emergency fund as soon as the cash comes in. No matter the size of your business you should learn the art of bootstrapping and staying lean. The more money you put away, the more you’ll force yourself to get by with what you have. The majority of startups fail due to the lack of or misuse of capital. Having an emergency fund gives you a bit more runway when disaster strikes.

Failing to separate business funds from personal funds
This is one of the most common and dangerous pitfalls in small businesses. Small business owners often put their lives on the line for their business, literally. This is a big no-no. When starting a business it’s important to immediately separate your personal finances from your business finances. If you’re like any other entrepreneur it’s going to take more than one go to be successful. That being said, you definitely don’t want a failed business to tarnish your financial reputation.
Start by opening up a business bank account and apply for a business credit card to keep track of expenses. Make sure you’re only using your business credit card for business expenses and vice a versa. Failing to separate the two can also lead to complications around balancing accounts, filing taxes, measuring profits and even setting clear financial goals. Do yourself a favor and avoid mixing these expenses.

Spending too much time on non-cash-generating activities
It’s a given that you most likely won’t see an ROI on every activity you do when running a business. That being said, it’s important to distinguish which ones have the highest chance of eventually generating some cash flow. When it comes to time tracking and time management, it’s important to pay close attention to your productivity levels.
Everyone has 24 hours in a day, some decide to work smarter than others and that’s why they become successful. Know that time is your most valuable asset and treat it as such. Remember, it’s okay to say no or to turn down meetings that you know provide little to no value for your business. There’s no need to take or be present on every phone call either. Being able to identify what brings true and tangible value to your business is a key to success.
Try your best to follow the 80/20 rule. There are likely three to four activities in your business that generate the most cash. Once you identify these activities, create a habit of spending 80 percent of your time doing these tasks and save the rest of your time for other miscellaneous jobs. If you’re able to get really disciplined around this strategy, it will surely pay off.
It takes years of practice to improve your financial literacy. Although most lessons in finance are learned the hard way, it’s important to learn them nonetheless. Take note of these four common financial mistakes and do your best to avoid them.

Courtesy of Jennifer Okkerse, Director of Operations, Leasing Division – Dominion  Lending Centres

7 Nov

FACT AND FICTION-OUR HOUSE MAGAZINE

General

Posted by: Darick Battaglia

This story appeared in the Fall issue of Our House Magazine

The restored Green Gables property in Prince Edward Island is a blend of Lucy Maud Montgomery’s real childhood home and the one of her fertile imagination. 

Stepping into the house at 8521 Cavendish Road in Cavendish, P.E.I., is like walking back a couple of centuries and into the imagination of Lucy Maud Montgomery. While the famed Canadian author wrote Anne of Green Gables more than 100 years ago at the turn of the 20th Century, her beloved masterpiece lives on in real life at a heritage site in the rural Maritime town.

The folks who look after the Green Gables, officially known as the L.M. Montgomery’s Cavendish National Historic Site, want visitors to feel like they’re a part of the novel.

“When they arrive and they step into the barnyard or the house, or when they look at Anne’s room on the second floor, they really feel like they’ve stepped into that story,” says Ocel Dauphinais-Matheson, the visitor experience manager for Parks Canada National Historic Sites for Prince Edward Island. The idea was to recreate the location described by Montgomery in her novel, he explains, even though the actual site was originally a little different back in 1908.

While the Green Gables house and property were the inspiration for Anne of Green Gables, the author added elements that weren’t literally in front of her. For example, the original farmhouse, built back in 1831, actually never had a green roof. It does now. And Montgomery in fact grew up on a property next to the home with her grandmother. The Green Gables property belonged to David Jr. and Margaret Macneill, who were cousins of Montgomery’s grandfather. She came to know her cousins’ farm through her explorations of the surrounding woodlands and places she discovered and named, such as Lover’s Lane and the Haunted Wood.

“That’s why when she [Montgomery] wrote Anne of Green Gables, she used it really as the inspiration for the main setting in her book,” Dauphinais-Matheson told Our House magazine. “That’s the uniqueness of the site: it’s a real place and it really served as an inspiration. The way we present it is really true to the description she makes of the site in her novel.”

And people from all over the world have been coming to the province and site ever since the book was published. Last year, Green Gables welcomed 180,000 visitors between May and the end of October. At its peak in the summer, the property can expect up to 3,000 daily.

Dauphinais-Matheson suggested there are generally two types of people who visit the site: ones who don’t know much about the book but know its historical importance, and those for whom the site is a real pilgrimage. And to understand just how far reaching Montgomery’s novel has traveled, hundreds of thousands of people from abroad have come to the site, including from Japan, France, Australia and the U.S.

However, to keep a home approaching 200 years old in tip-top shape takes a lot of work and hands. There are two people responsible for cleaning the home and the 3,000 or so artifacts therein from top to bottom every day. There is an entire maintenance team responsible for the physical upkeep of the property, which includes any repairs that are authentic to the time period.

“It’s a big job. There are thousands of artifacts in the house. Lots of people come through, so we have a team of people who look after the upkeep and longer-term maintenance of the artifacts and the house itself,” Dauphinais-Matheson says.

But the effort is necessary to maintain such an important Canadian historical site, according to people with Parks Canada. Dauphinais-Matheson suggests Green Gables is important to protect because the site represents the inspiration and imagination the author had in creating one of the most well-read novels of all time.

Courtesy of Jeremy Deutsch, Lead Writer, Dominion Lending Centres

6 Nov

YOU JUST GOT A MORTGAGE. NOW WHAT?

Mortgage Tips

Posted by: Darick Battaglia

Mortgages are a funny thing. On the one hand they allow you to become a home owner without saving up enough money to purchase the home outright, which is a really good thing. On the other hand, even at today’s really low interest rates, as they are amortized over a really long time (most of the time 25 years), they can cost you a lot more money in the long run. With the government tightening mortgage qualification, chances are securing your most recent mortgage wasn’t a painless process.
So now that you finally have a mortgage, and you’re a home owner, the first thing you should do is figure out how to get rid of your mortgage! Here are 4 ways you can do that!

ACCELERATE YOUR PAYMENT FREQUENCY
Making the change from monthly payments to accelerated bi-weekly payments is one of the easiest ways you can make a difference to the bottom line of your mortgage. Most people don’t even notice the difference.
A traditional mortgage splits the amount owing into 12 equal monthly payments. Accelerated biweekly is simply taking a regular monthly payment and dividing it in two, but instead of making 24 payments, you make 26. The extra two payments really accelerate the pay down of your mortgage.

INCREASE YOUR MORTGAGE PAYMENT AMOUNT
Unless you opted for a “no-frills” mortgage, chances are you have the ability to increase your regular mortgage payment by 10-25%. This is a great option if you have some extra cash flow to spend in your budget. This money will go directly towards paying down the principal amount owing on your mortgage, and isn’t a prepayment of interest. The more money you can pay down when you first get your mortgage the better, as it has a compound effect, meaning you will pay less interest over the life of your mortgage.
Also, by voluntarily increasing your mortgage payment, it’s kinda like signing up for a long term forced savings plan where equity builds in your house rather than your bank account.

MAKE A LUMP SUM PAYMENT
Again, unless you have a “no-frills” mortgage, you should be able to make bulk payments to your mortgage. Depending on your lender and your mortgage product, you should be able to put down anywhere from 10-25% of the original mortgage balance. Some lenders are particular about when you can make these payments, however if you haven’t taken advantage of a lump sum payment yet this year, you will be eligible.

REVIEW YOUR OPTIONS REGULARLY
As your mortgage payments are withdrawn from your account regularly, it’s easy to simply put your mortgage payments on auto-pilot, especially if you have opted for a 5 year fixed term. Regardless of the terms of your mortgage, it’s a good idea to give your mortgage an annual review. There may be opportunities to refinance and lower your interest rate, or maybe not, but the point of reviewing your mortgage annually, is that you are conscious about making decisions regarding your mortgage.

If you have any questions about your mortgage, how to get a mortgage, or how to get rid of the mortgage you have, please don’t hesitate to contact my anytime.

Courtesy of Michael Hallett, AMP – DLC Producers West Financial

3 Nov

THE CAPITAL STACK. WHAT YOU NEED TO KNOW

Mortgage Tips

Posted by: Darick Battaglia

Financing is key to successful real estate investing. You’ve aligned your financing with your real estate investment strategy, and are comfortable that you can execute your plan. As a result, you may have a conventional mortgage, and secondary debt as well. The term Capital Stack is used to describe the various levels or layers of financing that go into purchasing or improving a real estate project.

Why is this an important concept to understand? A successful real estate program on a specific development will result in all participants getting paid. Not all financing sources however, have the same priority. Understanding the Capital Stack insures that you understand the relative risk associated with each level of financing participation. And ultimately, whether the proposed real estate investment plan will yield the intended rate of return.

What you Need to Know

There are typically 4 levels of capital, however there is really no limit, in theory, to how many layers or classes of financing a capital stack may contain. 

The important concepts to keep in mind are that:

Risk increases as you move higher in the capital stack

Each source of capital has seniority over the capital source above it, in the capital stack

Each source of capital is subordinate to the capital source below it, in the capital stack

Since risk increases as you move higher in the capital stack, it follows that returns generally do as well, with the Junior, or Mezzanine lender typically earning a higher rate of return than the Senior debt holder.

What are the Implications?

The important concept here is that in the event of the sale or refinancing of the property, the capital stack participants at the bottom get compensated first, and once fully paid, and to the extent that there are excess funds, subsequent participants (i.e. up the capital stack) will be compensated as well.

If a real estate development plan is strategically implemented, and the business plan is properly executed, all participants will be paid. The relative position in the capital stack will however reflect risk, and the potential for compensation will be commensurate. If there are losses upon a property sale or refinancing, losses are incurred from the top down.

There is no right and wrong position in the capital stack. Savvy real estate investors may either participate as financiers, or receive the benefit of various levels of capital in their own projects. Understanding the concept of the Capital Stack allows for a better understanding of risk, and the ability to generate higher real estate investment returns.

Courtesy of Allan Jensen, AMP – DLC The Mortgage Source

2 Nov

THE NEW NORMAL

Mortgage Tips

Posted by: Darick Battaglia

’Tis the season… this was no surprise here! The latest round of mortgage guidelines has been announced by OSFI, or Office of the Superintendent of Financial Institutions. As of January 1, 2018, all conventional or uninsured mortgages will have to qualify at the Bank of Canada 5-year fixed rate or the contractual rate + 2%, whatever is greater.
What does this mean? Nothing for anyone wanting to renew or buy real estate with less than 20% down.
But anyone wanting to access their equity might just have to consider a slightly lower amount. And those wanting to purchase real estate with 20%+ down may need to adjust their expectations or relocate their search area.
Regardless of your scenario, there will still be options to exercise.
Next question on many people’s minds is how this will affect prices. Based historical data, I predict that there will be very little decrease in prices. Most people thought the ‘bubble’ was going to explode. Most comments were, “It just has to, how can prices continue to increase?” Well guess what… prices have continued to increase. Some market segments will experience a slight softening, but nothing drastic.
Here is a list of changes issued by OSFI since 2006. Did any of them bring prices down?

2006
Maximum amortization 40 years
100% financing, 0% down payment

2008
Maximum amortization 35 years
Maximum 95% financing, minimum 5% down payment required

2011
Maximum amortization 30 years
Refinance maximum 85% of the market value

2012
Maximum amortization 25 years
Refinance maximum 80% of the market value
If mortgage insurance is required, then the maximum purchase price of the owner-occupied home is $1,000,000

2015
Minimum down payment – 5% of the first $500,000 and 10% on the portion remaining

2016
Qualification rate increases to Bank of Canada benchmark rate for all insurable files (less than 20% down)

2017
Conventional (20% down or greater) stress test increases to contract rate plus 200 basis points (2%) or the Bank of Canada benchmark rate, whatever is greater

2018
What will happen in 2018?

There is no need to slam your fist on the panic button. This is simply the new normal for mortgage finance consumers. The sun will still rise in the east and set in the west. The earth will continue to rotate in a counterclockwise direction. People will still buy and sell real estate. Those consumers with available equity will still have access to it and borrowers will still renew existing mortgages. If you are receiving or buying into “the world is ending” type information, please look away… it’s wrong and misleading.
Nothing changes.
If you are worried about things you cannot control, stop it! If you are going to put any energy into something, I would recommend building a bulletproof personal borrowing profile. More than ever it’s vitally important to have AAA credit, minimal-to-zero consumer debt and strong reliable income and savings. If you start with that, I can assure you everything will be OK!
If you have any plans to become an active mortgage consumer, start looking at your options now as some lenders will adopt the new rules before January 1, 2018.

Courtesy of Michael Hallett, AMP – DLC Producers West Financial

1 Nov

HOW TO GET A MORTGAGE AFTER BANKRUPTCY

Mortgage Tips

Posted by: Darick Battaglia

Bankruptcy is always the last resort-and it’s never easy or comfortable. However, sometimes it is the only option to turn to when life throws you something unexpected. The lasting impression it can have on one’s financial profile though can be overwhelming.

If you have bankruptcy in your past, don’t fear-we have 6 steps to take to help get you back on track and qualifying for your mortgage!

Step 1: Get official discharge quickly.
The quicker you are discharged from your bankruptcy, the quicker you can start rebuilding your credit. This starts with finding a good bankruptcy trustee. You can contact the BBB or Chamber of Commerce to find out recommendations, but we can also provide you with connections to complete your discharge in the shortest time possible.

Step 2: Review your most recent credit score.
You will need to pull from Equifax and TransUnion Canada. They are the two governing credit bureau organizations that manage credit reports in Canada. Look over both reports carefully and make sure there are no surprises and that your debts have been paid off completely. As a general guideline, getting a credit report yearly is a good rule of thumb. You’re managing your credit-if you see a mistake on the report it is up to you to follow the steps to get the mistake corrected.
If you find a mistake, you do have the right to dispute or explain ‘situations or mistakes’ to your bureau. Contact the credit reporting agency immediately and ask about their dispute resolution process. If you still do not agree with an item following the agency’s investigation, visit this link for TransUnion or this link for Equifax to find out how you can add an explanation statement to your report.

Step 3: Re-establish your credit
Mortgages are much easier to get with good credit. You will want to start to rebuild your credit as soon as you possibly can. To do this you will want to open up 2 tradelines (credit cards) through a secured institution such as Capital One, Home Trust, Peoples Trust, etc. They start with putting as little as $500 down with your credit being based on your deposit. Next, follow the 2-2-2 rule. This means you will want to keep those 2 lines of credit with a max limit of $2000 for 2 years. Keeping in mind that you must pay your bill on time each month (even if it is just the minimum payments).

Step 4: Pay any outstanding taxes to revenue Canada
This is probably one of the most important things to remember when you are getting a mortgage! If your taxes are unpaid then there is nothing we can do to help! You won’t qualify for any mortgage until any owing debts to Revenue Canada are paid off.

Step 5: Start Saving!
With all of the mortgage regulations in place now it is important to understand how much you will need to save to put down on a home. This will vary from person to person and situation to situation. Your personal history, credit score, etc. will have an effect on this as well. There are literally 100’s of ways that you can start saving money. Remember, every little bit helps!

Step 6: Put budgeted savings into an RRSP for the down payment
One of the easiest ways to make money on your savings, is to keep them in an RRSP fund. If you are a first-time home buyer in Canada you can borrow up to $25,000 from your RRSP’s to use towards the down payment on your new home. The beautiful thing about keeping it in an RRSP fund is the larger tax refund you will receive—for every $1,000-dollar contribution you will get $400 back! Now that’s smart saving!

In addition to these 6 steps, we recommend that you keep all bankruptcy documents on hand. Even though your bankruptcy has been discharged, the lender which you are applying for a mortgage with may ask you to provide a copy of the statement of discharge, along with copies of the bankruptcy papers. Keep them safe and on hand as this is a key piece of information to help you get a mortgage faster and easier.

Declaring bankruptcy is one of the life events that no one wants to face. But if that is part of your history, I can walk you through the mortgage process and go above and beyond to make sure that you acquire the mortgage you are looking for!

Courtesy of Geoff Lee, AMP – DLC GLM Mortgage Group