So you started your business but are a bit lost in regards to what you need to keep track of all that money coming in and out. Here are a couple of tips to help you stay on track for when tax time comes around.
Tip # 1 Open up a separate bank account for your business, even if you are a sole proprietor. A separate bank account will help you keep track of all your business transactions and keep them separate from your personal. Your company bank account should be used only for business transactions and not to buy personal items. If you are a corporation, any money you spend out of the company for personal reasons will be taxed personally. If you need money out of the company, the easiest way to track it is to write yourself a cheque or transfer the money to your personal account.
Tip # 2 Keep all your receipts! Yes, it is important because Canada Revenue Agency can deny the expense if you have no backup. You can keep the original paper copy or an electronic version as long as it is accessible and readable. These days you can simply scan or take a picture of your receipt and save it to your computer or in an online storage system.
It is super important to keep all of your documents so when it comes to tax season you are prepared and have everything. I have seen Canada Revenue Agency flat out deny expenses simply because the business owner didn't have a receipt to back it up. This can occur even though you can see the payments coming right out the company bank account with dates and names on it. It is also important to keep track of all of your invoices and when they get paid. This is going to help ensure you are getting paid in a reasonable amount of time. Just sending out invoices and not tracking the payments could mean there is money you are owed and your business is not going to grow.
Tip # 3 Choose an accounting software if you decide to do your own bookkeeping. There are a lot of really good software packages out there for all different price ranges. As an online accountant, I have a bias towards online products, especially Quickbooks online, but here is a small list a couple of different software I have personally used and think are worth considering.
- Quickbooks - I recommend this to all my clients
- Wave - this is free
- Sage - not my favourite, but I know some people who like it.
A number of small business owners try to do their bookkeeping in excel, but I don't recommend that. Excel is a great program for projecting and budgeting, but when it comes to doing your bookkeeping stay away. The amount of time I spend fixing client excel spread sheets is not worth it, especially when there are so many great products out there that are free and do a much better job.
Tip # 4 Find an accountant. It is okay to do you own bookkeeping, but I recommend hiring a professional to handle your taxes, especially if you are a corporation. When taxes are done properly, it means less errors and less likely that the government will come in and review your records. Also, a professional accountant will help you with tax planning, payroll and GST/HST.
When you are just starting out there is no need to hire an accountant at a big firm as their fees are much higher and your local/online firm will provide the same services. A good way to find an accountant is to ask friends and family for a referral. Remember, if you aren't happy with your accountant you aren't stuck. Another accountant can easily pick up where things were left off.
Tip # 5 Schedule time to do your bookkeeping and review the numbers. Knowledge is power and having your bookkeeping done on a monthly basis is going to show you your performance and where you can improve. Don't forget if you hate doing it or don't have the time, just hire someone to do it. Just get it done. Your accounting is something that HAS to get done every year so don't wait until the last minute. Being proactive will reduce stress and keep you informed about your business. Schedule the time to do it on a regular basis.