It is more common than not for an entrepreneur to start their own business and get caught up with the day-to-day. After all, most entrepreneurs and small business owners start a business for a reason: they want to do whatever their business does, makes, sells, or provides on a daily basis. Doing bookkeeping tasks can either seem like a chore, or perhaps, are simply not top-of-mind for small business owners, so here are some tips to keep in mind:
Forecast Cash Flow
This may seem obvious, but the worst thing that can happen to your small business, is running out of money to operate at any point in time. Whether your business is cash flow positive or not, it is important to know how much you need to pay, and how much you will collect, and when.
While it may seem very time consuming, if your small business is running well, we recommend doing cash flow forecasts at least once per month.
There are various ways that you can track your cash flow, and depending on the size of your business, you may already have software that can help; however, a simple Excel spreadsheet is a very easy way to forecast your cash flow. What you would need to do is simply determine when your bills are due, and estimate when you will collect your accounts receivable. Forecast as far out as you have visibility to the ins and outs.
Tracking expenses will go hand-in-hand with forecasting your cash flows. There are two main reasons for tracking your expenses, and doing so very diligently:
1. Tax Deductions
2. Tracking Spending
If you are not tracking your expenses, and keeping receipts (or uploading them into a Cloud Accounting software, which is what we recommend), it is likely that you will not be deducting (“writing-off”) all of the expenses that you otherwise could have; resulting in paying more tax than you should.
Secondly, by tracking your expenses, you cash look at where you are spending the most. This may enable you to trim spending in areas, or perhaps ask for volume discounts by moving similar expenses to a single vendor.
Separate Business Bank Accounts and Credit Cards
While it is technically not required, having a separate bank account and credit card for your small business will making bookkeeping significantly less time consuming for you (or your bookkeeper, if you have one).
Many small business owners tend to mix their personal expenses in with their business expenses (regardless of whether or not their small business is incorporated). This might make it a nightmare to reconcile their business expenses and get their books in order. If a bookkeeper is used, this will certainly cause them to spend more time, and time is money. Keeping business spending separated from any personal expenses might even save you money if you have a bookkeeper, as they will spend less time doing your books.
Prepare to Pay Tax
Hopefully your business is making money and if it is, it will be very important to set some of that money aside to pay tax. The Canada Revenue Agency will most certainly want to get what is owed to them, so as you are earning throughout the year, you should be putting 25% to 35% aside (this may vary significantly, and is just a general range) to pay the CRA once the year is done. You may also need to make tax instalments depending on how much your business earned in the prior year.
Hire a Tax Professional
While we do recommend that you hire a bookkeeper to ensure that your books are in order, and to minimize the cost of having your tax return prepared at year-end; it is even more important to hire a tax professional, ideally a Chartered Accountant, to prepare your tax return.
There are a number of tax deductions, tax planning strategies, and various income splitting opportunities that may be available to you and your small business which can save you significant amounts of money.
While hiring a Chartered Accountant to prepare your tax return is strongly recommended, it is important to note that Chartered Accountants can often provide significant business insight, and they can help you grow your business. They often have a variety of experience, and are exposed to the ins and outs of many small businesses on a regular basis, which will enable them to offer you advice on how to grow your company.
The latest Cloud Accounting solutions are very affordable (or in one case, completely free) and can help you manage your invoicing, tracking your expenses, and provide you with excellent reports that will enable you to see how your business is performing. Some of our favourites are:
QuickBooks Online and Xero are both very affordable, with prices ranging from $10/month to $40/month depending on your needs. Wave Accounting is completely free. Each of them is excellent, and we support them all. Please feel free to give us a call and we can help determine which Cloud Accounting software is best for you.