Tax season is upon us once again, leaving many business owners scrambling to find receipts and get their numbers in order before the April 30th deadline. Unless you’re an accountant or a masochist, bookkeeping likely doesn’t rank high on your list of favourite tasks. However, adopting some good habits into your financial outlook can reap benefits throughout the entire year.
The Importance of Keeping Records
If business owners are guilty of one thing, it’s failing to write down processes and the reason why things are the way they are. This extends to the financial side of the business, where details tend to be stored in the entrepreneur’s head and not somewhere more accessible. It’s totally understandable to conduct business this way. After all, you won’t need to learn how pesky software works or spend any time worrying about failures in hardware.
There’s an inherent danger in operating this way. We’re all human and humans make mistakes. Unpleasant surprises are prone to pop up, goals can be missed and sometimes important paperwork can be forgotten. This week, we’re going to detail some easy tips to help you navigate your business bookkeeping and keep you in good standing with the Canada Revenue Agency.
Budget for Big Expenses
At one stage or another, we’ve all received a large unexpected bill that throws our finances for a loop. Whether it’s car repairs or emergency plumbing it happens, and it can pop up at any time. Businesses face these same unexpected cashflow issues. The only way to plan for them is to work on building a contingency fund that will leave you able to weather most storms. By making sure you’re covered for unexpected costs, you’ll avoid having to dip into any money set aside for taxes and put yourself in pole position to handle the seasonal ups and downs of your business.
Keep an Eye on Expenses
Are you tracking your business expenses? If not, you could be missing out on valuable tax deductions that would bring down how much you owe the CRA at tax time. One of the most effective ways to track your expenses is to get a credit card exclusively for business expenses. This way, all your potential deductibles will be kept in one place that’s easy to reference. For items like business meetings and car mileage, it’s best to simultaneously keep a record of who you’re meeting, where you’re meeting and what the money was spent on. This will be enough to satisfy any CRA audit.
Watch Your Deposits
It’s also valuable to accurately account for all the money that’s deposited into your business bank account. Throughout the course of the year, it’s likely money will flow into this account from a number of sources. From loans, to business revenue, to cash from your own personal savings, not all of it is income. You need to be able to account for the origin of all that money, and potentially provide proof of that origin in the event of an audit.
Set Money Aside for Taxes
Maybe the simplest point we’ll make today, but one that needs to be made nonetheless, is to ensure you’re setting money aside throughout the year to pay for taxes. If you owe money come April, you can spend this money to service the debt. If not, you’ll have a nice lump sum to reinvest in the business or buy yourself a treat. Unpaid taxes are likely to incur interest and penalties from the CRA. Building a war chest to cover this is just good planning.
Track Your Invoices
There are few things more frustrating as a business owner than late or unpaid bills. It’s a massive problem and one that leaves victims running into cashflow problems. Make sure you have a system in place that reminds you to follow up on unpaid invoices. This can involve you issuing a second invoice, following up with a phone call/email, or even issuing a penalty if deadlines aren’t met. Ultimately, any late payment you receive is an interest-free loan you’re granting the other party.
Find Out More
Looking for ways to whip your business bookkeeping into shape? At GD Commerce we’re happy to work with you to find solutions to your business problems. Contact us and we’ll be delighted to chat!