If you’re starting a small business on your own, you’re probably used to keeping a lot of financial details in your head, e.g. which customers are outstanding, which supplier you owe money to, etc. Keeping details in your head has its advantages: you don’t need any expensive tracking software, there’s no danger of hard drive crashes or power outages destroying your data, and you can edit budgetson the go.
But at some point, there’s going to be onedetail too many to remember. If you don’t have bookkeeping processes in place, you may misplace important paperwork or forget about payment dates, which can get you in trouble with the CRA.
For most of us, bookkeeping is not our favourite part of doing business, and we very often outsource this duty to professionals. That said, there are a few good bookkeeping habits that every business owner should keep.
Anticipate and Plan for Major Expenses
Sit down and be honest with yourself about the expenses that could come up in the next five years. Will you need torenovate your building? Will your office equipment require replacement?It’s important to take into account seasonal ups and downs of your industry, and how they will affect your buying power throughout the year.By anticipating dry spells and peaks in staffing costs, you can avoid overspending in good months to keep yourself afloat during slow months.
Record Your Expenses
Expenses are very important to record – if you don’t track them, you are likely missing out on tax write-offs. Fortunately, expense tracking is easier now than ever. Business credit cards are handy tools that record your purchases and categorize your monthly spending into types of expenses.
Be sure to keep your receipts whenever you meet clients for coffee, lunches, and events. Your receipts will substantiate your expenseclaims if you are audited. This goes for car mileage as well. When driving to meetings, make sure totrack your odometeror use Google Maps to perform a mileage calculation.
Have Accurate Deposit Records
You don’t need fancy software for this. You can use an Excel spreadsheet or a notebook and pen. However you do it, make sure it’s consistent. You will make many types of deposits to your account throughout the year – from sales revenue,to loans, to cash from your personal savings. If you do not account for where your deposits come from,you’re opening yourself up to a situation where you’re paying income taxes on cash that isn’t income.
Keep Money Aside for Taxes
Tax payments fall under a regular schedule, so you have no excuse not toput money aside for them. Unpaid taxes will incur interest and penalties from the CRA, so make sure you make you have cash on hand and make your payments on time.
Have A System For Receivables
Late and unpaid accountswill hurt your cash flow. Put a process in place for unpaid bills. This might mean issuing a second invoice, calling or leaving messages, and possiblycharging interest or fees.Standard practice is to have a plan in place forbills that are 30, 60, and 90 days overdue.
About S&W Chartered Professional Accountants
S&W Chartered Professional Accountantsis professional accounting team based in the Greater Toronto Area. Do you have questions about small business accounting, tax planning, or property tax? Contact us today – we’ll be happy to answer any and all questions.