Unless you are an accountant or a fan of working with numbers, bookkeeping is probably not your favourite task. But adopting some good habits early can help you avoid costly errors when it comes to record keeping.
You probably keep a lot of the financial details of your business in your head: which supplier you need to pay, which customers are outstanding, etc. It’s understandable to do it this way, you won’t need to learn a new software, there is no danger of a system crash that loses all your data, and you can tweak your budget as often as you need without sitting down at a desk.
However, when you don’t have a system and processes in place, unpleasant surprises can pop-up, goals can be missed and important paperwork forgotten. Getting a better handle on your money can help you to make and keep long-term goals, smooth out the seasonal ups and downs of your cash flow and even improve your profits. It can also help you to stay out of trouble with the Canada Revenue Agency.
Here are our five tips for small business bookkeeping.
1. Plan for Major Expenses. Be honest about the expenses that could be coming up in the next one to five years. Is it likely that you will need to upgrade your facilities? Is your office equipment on its last legs?
It is important to acknowledge the seasonal ups and downs of your business, and how they will affect your ability to spend during those times.
By making sure that you have forecasted for major upgrades, or peaks in staffing costs, you will avoid taking money out of the company in good months and finding yourself short in slow months.
2. Track Your Expenses. Expenses can be hard to track, which means that you may be missing tax write-offs that you could have benefited from.
Business credit cards can be handy tools to make sure all expenses are kept together and tracked. As long as you keep up to date with your payments that is. Most providers have now adopted the service of categorizing your bill into types of expenses, meaning one less task for you to do.
To help prepare for audits, it is also useful for you to make notes in your calendar of the clients that you are meeting for each of those coffee dates, lunches and events. This will help substantiate your expenses for your tax records, should you be audited.
That goes for car mileage too. When driving long distances to meetings, make sure you either keep track of your mileage or do a calculation with Google Maps to log how far you travelled and the associated costs.
3. Record Deposits Correctly. Whether it’s a pocket notebook and pencil, an Excel spreadsheet or financial software like QuickBooks, make sure you keep track of what is being deposited into your business bank account.
You are likely to make a variety of deposits in your account throughout the year. From loans, to sales revenue, to cash infusions from your personal savings. If you cannot account for where each of the deposits have come from you’re leaving yourself open to paying taxes on money that isn’t income.
4. Set Aside Money for Taxes. You know that you’re going to have to pay taxes and you know when. So systematically put money aside for it. Unpaid taxes can incur penalties and interest from the CRA, so make sure the money is there when you need it.
By putting money aside each month, or each time a contract is paid, it will come as less of a sting when they are due.
5. Keep an Eye on Your Invoices. Late and unpaid bills can hurt your cash flow. Assign someone to track your billing. Then put a process in place for if a bill goes unpaid. That can be issuing a second invoice, making a phone call and even levying penalties such as extra fees at certain deadlines.
Make a plan for if clients are 30, 60 and 90 days late. Remember, every late payment is an interest-free loan that hurts your cash flow.