If you’re not familiar with the Churchill Falls issue, here’s the Coles Notes version:

• The Churchill Falls project was started in Newfoundland in 1967 and had potential to be the biggest hydroelectric project in North America.
• Completed in 1971, the dam has the second largest capacity of hydroelectric dam in North American and has the potential to be the biggest with upgrades.
• Newfoundland geographically isolated from the rest of Canada and the US by Quebec.
• Normally, Provinces allow each other to transport electricity across each others borders for sale in other markets in what’s called a “wheeling agreement”
• Wheeling agreements typically allow the Province that is letting the power be transferred along its lines first rights to the power at a fair market price only so far as domestic supply doesn’t meet demand.
• The financial model for Churchill Falls depended on being able to sell power to the US market where better prices could be negotiated.
• After the project was completed, Hydro Quebec began to play games with the wheeling agreements by selling vast amounts of their domestic power to the US market at a healthy markup and then in turn claiming that they had a domestic shortage, giving them the rights to nearly all of Churchill Falls’ output at a much lower price.

This, in effect, is what ruined the potential of Churchill Falls for Newfoundlanders. The project ran into financial trouble early on because it couldn’t sell power to the US (because of Quebec’s maneuvering) and guess who swooped in to bail out the project for majority ownership? Hydro Quebec. The 50 year agreement gave Hydro Quebec exclusive access to all the power Churchill Falls produced at a price even lower than what they would have paid through the wheeling agreement.

That’s what the Premier of Newfoundland is referring to when he says that Hydro Quebec took out $22 billion and left $1 billion for Newfoundland. The $22 billion is likely the amount of profit that Hydro Quebec has generated since 1971 by selling Newfoundland power on the open market while claiming a domestic shortage. This is money that by all rights, should have gone into Newfoundland’s economy.

This is why New Brunswick Power should be wary – Hydro Quebec (and by extension the Quebec government) are like sleazy loan sharks. They give the appearance of helping out their impoverished neighbours when in fact, they are setting these “friends” up for failure. Those who do not learn from history are doomed to repeat it.

I knew that there was going to be a problem yesterday morning when I got close to the office because all of the traffic lights near my building were out. A quick glance around confirmed my fears – the whole neighbourhood was blacked out. I entered the building anyhow and my building manager had implemented his blackout plan – glow sticks in all the stairwells. We had no emergency lighting.

I had a significant amount of work to do and I was concerned that the whole day was going to be a wash. Thankfully, I had my laptop, heavy duty external battery [read my review here]. I didn’t have internet access because that requires electricity but I could send and receive e-mails from my BlackBerry. In a pinch, I could use my BlackBerry as a wireless modem (and risk going over my data limit on my cellular account).

The power came back on by 2:30pm but I learned a valuable lesson – no matter how comfortable I get in my new office, I need to keep being a road warrior to a certain degree. I suggest that anyone who does consulting for a living should have a good “go bag” that allows them to work from a coffee shop, their car or their own office in case the power goes out.

A recent article in Business Week [READ] talked about how Israel has garnered a lot of international attention for its environmentally sustainable technologies. They have entrepreneurs there who have found ways to squeeze every joule of energy out of the sun, the environment and the non-renewable resources that they use. Why? Because there is a siege mentality there that has driven them since the country was founded. I don’t believe that they conserve and get innovative with clean tech in Israel because they care all that much about the environment. I believe they do so because they must.

We are in a priviledged position here in Canada because there are not wolves at the gates trying to take our land and our lives. When we make decisions to be more environmentally conscious here its because we feel morally obligated to do so. In Canada, if you choose to drive a gas-guzzling SUV and drink bottled water and run your furnace with the windows open, there are few penalties. Some disapproving looks from your neighbours, perhaps and some financial hits but at the end of the day, if you want to be a jerk and do these things, you can.

In Israel, if people did these things, the country would be falling apart. They barely have enough resources to go around as it is. As a results, greywater systems, solar collector technology and other innovative solutions to mitigate scarce resources are flourishing there. In this way, Israel is showing us what it takes to achieve mass change in consumption and behaviour – the ever looming threat of ruin if you do not do it.

Sure, climate scientists have been saying for over a decade that doom is knocking at our back door but it’s too abstract for most people. I firmly believe that the only way people will behave resposibly with their energy consumption is if it hurts to not do so. The only way to hurt people here in Canada is by hitting them in the wallet. Look what happened when fuel prices went through the roof last year! People were using transit more, they were buying more fuel efficient cars, they were finding ways to save energy. As soon as gas prices went back down a bit, people are right back to their old, bad habits.

Last year, I wrote a lengthy piece of the BC Government’s Gas Tax [READ]. The gist of it is that I didn’t think the gas tax was high enough. It didn’t affect my finances in a noticeable way and as a result, I didn’t end up driving less. Maybe sin taxes on wasteful energy use is the best solution. I don’t know. What I do know is that Israel has found a way to effectively do more with less and while their main goal probably isn’t to save the environment, they’re doing it anyway.

Our Office

Back in late June, I posted that we had found A Space of Our Own [LINK]. Shortly after making this announcement, I found out from the City of Vancouver that the lovely space we had found wasn’t zoned for office use. This was very disheartening because I really loved that space. Earlier this month, we thought we’d found another interesting space in Burnaby near Metrotown. That also turned out to be zoned improperly for our purposes.

I was starting to lose hope when I found a lovely space near Chinatown in Vancouver. It’s small but it’s in a beautiful heritage building and it’s walking distance from most things in downtown. We start moving in next week and I’m excited!

The Team

Friuch Consulting has welcomed a whole host of new team members in the last few months including two Angus Reid refugees – Eric Brooke (who will be starting on September 8, 2009) and Caroline Hickton. Sean Peters and Melissa Chungfat, who have been with the firm for a while now, continue to work with us and we’ve added some new associates who will be working with us on a project-by-project basis: Brandy Delves (Brandy Delves Consulting), Ray Walia (Apptastic) and Kirk Hutton.

We’re ramping up to take on a bunch of new projects in the Fall and we’ll be sure to throw a re-launch party so that old friends and new friends will have the chance to meet the expanded team.

Finishing up the Year

Now that we’ve got an expanded team, we’ve got some additional bandwidth to take on new projects. Research projects, communications projects, project management projects – you name it! We’ve got some amazing capabilities these days so if you’d like to learn more, drop us a line. We’d love to hear about your projects and how we might help.

1. Hollywood portrays tradespeople as undesirable. The stereotypical sexist steel worker, the fat plumber whose butt crack hangs out, the silent and stoic construction worker, etc…
2. Madison avenue (advertising companies) who try to sell people that working hard for a living is undesirable
3. Washington (or your equivalent seat of government) who create policies that make it difficult for tradespeople
4. Silicon Valley (as the representative of high tech) who glorifies gadgets over hand tools

I am not going to say that these arguments are flawless but the point is clear – Western societies don’t respect trades jobs like we used to. No big deal, right? Back in January of this year, I wrote a piece on how a looming labour shortage in BC is going to cripple our efforts to maintain and upgrade our infrastructure in this province – a point that Mike Rowe raises in his talk as well [READ]. Enrolment in trades programs at post-secondary institutions are down across the board. Here’s a quote from the TED talk:

Barack wants to create two and a half million jobs. The infrastructure is a huge deal. This war on work, that I suppose exists, has casualties like any other war. The infrastructure’s the first one Declining trade school enrolments are the second one. Every single year, fewer electricians, fewer carpenters, fewer plumbers, fewer welders, fewer pipefitters, fewer steamfitters. The infrastructure jobs that everybody is talking about creating are those guys. The ones that have been in decline, over and over. In the meanwhile, we got two trillion dollars, at a minimum, according to the American Society of Civil Engineers, that we need to expend to even make a dent in the infrastructure which is currently rated at a D minus.

Our situation in Canada is no different. We’re spending money on infrastructure right now but our capacity to supply the labour needed to do the work is diminishing rapidly and, as I am suggesting, will be almost non-existent by 2015. All of these issues gave me pause to think about why I left the trades at a young age and turned to “creative class” work (to borrow the Richard Florida term). Here’s my background:

I come from a large, mostly blue collar family that has given me a healthy respect for the trades. My father is a welder. Several of my uncles work in the wood finishing business. Another uncle owns a landscaping business. Many of my cousins, my brother-in-law and my sister are in the trades. It should come as no surprise that I did my stint in the trades as well. Between the ages of 13 (yes, 13) and 21, I worked as a signmaker. If you’re not familiar with this trade, I’ll forgive you but it’s essentially people who manufacture, maintain and install signs. Those real estate development signs? We did those. Restaurant signs? We did those. We even made signs for The X Files to turn local libraries and college buildings into “FBI Headquarters”.

The work I did was mostly with metal, plastic and wood. I used fairly simple tools like band saws, drills, nail guns and table saws to make these signs. We painted them, we finished them, we applied vinyl lettering to them. Every sign was a unique work of art in its own right. Later, as the company I worked with grew, I learned how to weld to help them expand the business into display cases. By the time I was 20, I was the de facto foreman. In the end, I left the business because they went through a rough financial period and were having trouble making payroll.

That was my last blue collar job and I never really looked back. I didn’t think that the work I did was beneath me. Far from it – I enjoyed the work and was often whistling while I worked. What changed was that I went to university to study social science instead of going to trades school. Why? Because at the time, I wanted to be a cop and knew that I needed a university degree under my belt if I was going to get that job. That’s the only reason. I thought law enforcement would be a better job for me. In the end, I was wrong but I never went back to the trades.

Everything that Mike Rowe said is true. There are forces that conspire to make the trades seem undesirable. I took a lot of heat from my classmates during my undergrad when I would come to school after working at the sign company and I was “dirty”. I smelled like sawdust and welding flux. Nobody wanted to sit anywhere near me. I had a few people ask me if I was in some kind of government program for “the disadvantaged”. What they didn’t realize was that I was paying for my university degree with cash and they were accumulating huge student loans.

So why didn’t I go back to the trades? I think it was a few things:

1. At that time, pay for tradespeople was far below what I could make as a creative class individual. My job at the sign company paid $12/hr in 1996. By 1998, I was making $18/hr working in PR.
2. As someone with a newly minted university degree, it didn’t seem to make much sense to go back into the trades – why had I just spent five years at school if I was going back to a job where I didn’t need any training?
3. I was told by many people that my skills would be put to best use in creative class jobs – not in the trades.

It was only in the last few years that I’ve started to partially regret not sticking with the trades. Pre-2010 Olympic fever in Vancouver saw tradespeople making amazing money – more than me and usually with less experience. I think some effective PR here has also alleviated some of the stigma attached to the trades. In BC at least, we’ve returned to a time when students can choose to specialize in a trade in grades 11 and 12 and fast track their career. The kid next door is doing it and he’s doing great. At the end of the day, I have settled into the role of the entrepreneur but my roots in the trades will always be there.

I agree with Mike Rowe that there is a “civil war” in North America between tradespeople and everyone else. As someone who has walked in both worlds, the tension in palpable to me. Just some food for thought.

The basic scam in the Internet Age is pretty easy even for the financially illiterate to grasp. Companies that weren’t much more than potfueled ideas scrawled on napkins by uptoolate bongsmokers were taken public via IPOs, hyped in the media and sold to the public for mega-millions. It was as if banks like Goldman were wrapping ribbons around watermelons, tossing them out 50-story windows and opening the phones for bids. In this game you were a winner only if you took your money out before the melon hit the pavement.

Source: [LINK]

I lived through this kind of insanity in Vancouver and Ottawa during the late 1990s and this description made me laugh heartily. I have some friends and colleagues that are building solid web-based businesses but it bears remembering how far off the rails we can go when we suspend disbelief.

Big deal – rock band makes noise and pisses off locals. The real story here is that a band whose music is rapidly becoming too uncool for Apple TV commercials actually got some press coverage. This is a good thing! It’s going to build some buzz about what they’re doing and might actually drive up record sales. I’m still not going to buy their album because I’m a stubborn SOB. THEY’RE DEAD TO ME! DEAD! YOU HEAR? However, I wouldn’t change the station if the song came on the radio. I’m curious to hear if they’re rocking harder now.

I think there’s a lesson to be learned here from a marketing perspective – if you can’t do it right, do it loud. There’s a local jewellery chain here that has made shtick out of having the worst radio spokesperson in the business. This guy’s voice makes me want to drive my car into the first school bus or old lady I see. I pay attention though. I know more about this guys’ jewellery shop than I do any of his competitors.

I’m trying to think how to leverage the power of being loud in my own business. Suggestions?

Before meeting Sandi socially, I wasn’t convinced that I needed a bookkeeper or that I needed to incorporate my business. After telling her how much income tax I paid last year (yikes!) it became clear that the time had come for me to incorporate. Incorporated companies, under the tutelage of an experienced bookkeeper, can reduce their taxes by a huge margin. Sandi had helped several other companies with their incorporation paperwork and I asked her to help me with mine.

Now that Sandi’s got me more off to a good start, she’s taking over the bookkeeping and is going to do my tax preparation for me this year. Part of growing as a business owner is knowing when to delegate to specialists and I have a lot of confidence in Sandi’s abilities. That and to be frank, it’s cheaper for her to do the books than for me to do it instead of generating billable hours. I’ve already referred her to several colleagues of mine and she’s still got room for more clients so if you’re in the Lower Mainland and need a good bookkeeper, check her out. [LINK] McGill Bookkeeping and Tax Services – bookkeeping and income tax preparation for businesses of all sizes.

Without further ado, here’s my interview with Sandi McGill:

Aaron: There are some tax advantages to incorporating over sole proprietorship, right? What are they?

Sandi: Yes there are definitely advantages to incorporating. Incorporating your company creates a separate legal entity. It keeps your personal finances and your business finances completely separate which is good when you are looking to borrow money.

There are also tax advantages to incorporating. A sole proprietor must declare all business income from January 1st to December 31st, on that year’s personal tax return. With incorporating even a one person small business can stagger the year end to allow for better tax planning. For example, if the corporation’s year end is January 31st but the personal tax return covers from January 1st to December 31st. By not declaring management/director salaries or shareholder dividends until sometime in January, the shareholder/tax payer can defer the business income to the next tax year or split the payment of income from the corporation to the shareholder/director in order to lower personal taxes payable.

Another tax advantage to incorporating is that the business owner (shareholder) can pay themselves in Director’s salary, dividends or a combination of both to lower personal income taxes payable but still show personal income. By paying dividends to the owner/shareholder the corporation also shows income. This helps both the individual and the corporation when looking to borrow money. Lastly, corporations pay a lower rate of tax on income, especially corporations with annual income under the small business reduction amount. For 2008, the small business reduction amount was $400,000.

Aaron: How much extra paperwork is involved? Can a bookkeeper help manage that extra paperwork?

Sandi: There is definitely some extra paperwork. First there is the actual incorporating. This involves an incorporation application and the adoption of a set of Articles of Incorporation. A standard set which is fine for most small businesses can be found on the BC OneStop Business Registry site [LINK]. There is a cost to incorporation of about $350 that is paid to the Government of BC when you file your Incorporation Application. Secondly, there is the Corporate Tax Return (T2). This can be found on the CRA website [LINK] or you can have a professional bookkeeper or an accountant prepare it for you. I recommend having it prepared by a professional as this is a rather lengthy return with many schedules and it can be a bit confusing. Although you can pay an accountant to do all this, a knowledgeable bookkeeper can help you at a much lower cost.

Aaron: What is the advantage of having a bookkeeper over doing your own books?

Sandi: The first advantage is that if you have a good bookkeeper they will better understand what you can and cannot deduct as a business expense. The Income Tax Act in Canada is a very large and confusing publication which is open to interpretation. There are many grey areas and a bookkeeper can help with that. Secondly, having a bookkeeper do your books leaves you free to build your business and earn money. This holds true whether you are a sole proprietor, a partnership or a corporation. A good bookkeeper can probably do your books in less time than you can because this is their field of expertise.

Keep in mind that if you take your books to an accountant, they actually have a bookkeeper do the books and they just review it. You may at some point have to have your books audited by an accountant but why pay the accountant’s rate to have your books prepared? It makes more sense financially to have a good bookkeeper and use the services of an accountant only when necessary.

Aaron: What should someone look for in a good bookkeeper?

Sandi: Well for starters you definitely want one that is knowledgeable but also not afraid to tell you they don’t know the answer to your question (remember Tax Act is HUGE and confusing) but will research it and get back to you. It is impossible for any bookkeeper or accountant to know it all!

Secondly, you want a bookkeeper that is accessible. Not 24/7 but at least returns your calls in a timely manner.

Lastly, I think it’s important that you find a bookkeeper that communicates well with you. Your bookkeeper should explain things you don’t understand but nicely. You definitely don’t want one that talks down to you. Ultimately, you need to understand what is going on in your company and on your tax returns. A good bookkeeper will provide you with monthly income statements and balance sheets once your paperwork is entered into the bookkeeping software.

Aaron: How many hours per month does a good bookkeeper need to spend on a company’s books? What does it cost?

Sandi: Well honestly that depends on the size of the business, how much paperwork and the state of the paperwork when it is given to the bookkeeper. Handing your bookkeeper a bunch of balled up receipts is going to cost more than if you have your paperwork a bit organized. Remember you are paying your bookkeeper the same rate to sort and file as you are to have them do your books. On average you are looking at between $50 to $150 per month plus about $25 per quarter per government sales tax and payroll filings. Annual tax returns can run from $100 to $150 for a sole proprietor and $400 for most small corporations.

Aaron: What’s the biggest mistake people make when they try to do their own books and taxes?

Sandi: They pay too much in income tax! Most people don’t take all the deductions that they are entitled to or they claim expenses that are not valid business expenses. Either of these mistakes cost you money, either by paying too much tax or by having to pay penalties and interest if you are caught making false deductions by CRA.

Effective August 1, 2009 – Friuch Consulting Ltd. will be re-locating its offices to South Vancouver near the scenic Oak St. Bridge! Working from home and on the road has been fine for us for the past six and a bit years but there comes a time when you need to get more serious and this is our year. We’re very excited about moving into our new space and once we’re settled in, we plan on throwing a friends & family open house so you can check it out and meet the whole team. Here’s the view from the office:

We’ll put our new mailing address up on the website once we’re moved in but if you want to check out where we’ll be on the map…

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