Bookkeeping is often referred to as a necessary evil and thought of as a painful and expensive part of operating a business, but it is a back-office function that must be done. While we strongly recommend that business owners focus on running their businesses and leave bookkeeping to the professionals, we know that it’s a reality some can’t face. If you’re out there handling the books on your own, here are a handful of bookkeeping tips to keep in mind heading into the next tax year.
Separate your personal and business accounts
Your business should have a separate checking account and credit card. Not only will you be able to track expenses more efficiently, but in the event that something goes wrong or the CRA wants to review your books, you will only need to review the one account. If separate accounts are not kept, CRA will look at all your personal accounts especially for tracking the income.
Use a digital platform for tracking expenses
Using old methodology by tracking expenses on paper is a major time sucker. Although you may be more comfortable using paper, consider utilizing a cloud-based software program that allows you to track expenses and easily create various financial reports. Today’s technology creates a great advantage for businesses when it comes to tracking and 24/7 access to records and information, such as invoicing. Plus, it allows you to better budget and plan for the future.
Look at the big picture
While most expenses are consistent throughout the year or there is a common period of slow growth due to seasonality, it’s imperative to know the financial flow of your business for an entire year. You will have a better understanding of your books and be able to more effectively plan for slow periods.
Plan for major expenses
Just like you do in your personal life, you should always be saving money in your business to cover a drastic event — such as losing a major client, change in the economy, etc. — that could significantly hurt your business. Take a look at your expenses, determine the minimum amount you would need to operate for six months and start saving.
Meet in May and October with your accountant
This will give you a financial visual of your business and better understanding of what the next tax season will have in-store.