Take the right steps now to avoid costly end-of-year accounting mistakes
There are a lot of reasons why people start a business. “Because I really love bookkeeping” isn’t one of them. In fact, in a recent survey, half of business owners said bookkeeping is the day-to-day task they hate the most. But like it or not, bookkeeping plays a critical part in your failure or success. Do it well and your business will benefit — especially at this time of year, as you put your books in order and prepare for tax season. Here are few steps you can take right now to do your bookkeeping better.
Separate business and personal expenses
Yes, it may seem easier to manage your business and personal finances in a single account. But it's not a good idea. It leaves you open to financial and legal risk. It can cause you to mix up personal expenses and business deductions, like putting that family trip to Hawaii down as a business expense. Oops. It can also cost you many hours at tax season (when time is your scarcest resource) as you sort through all your monthly statements to identify those transactions that really are business transactions.
Your books and your tax returns will all be much improved once your personal and business finances are separated. If you don’t already have a bank account and credit card dedicated exclusively to your business, you should start them now and run every business expenditure through those accounts.
Keeping records
Although CRA does not generally specify the records you need to keep or the system you should use to keep them, they does specify your responsibilities for these records and the requirements they need to satisfy. Records have to be reliable and complete, include the information needed to meet your tax obligations and support your credits, and be supported by documents.
If your filing folder is already overflowing with receipts, you can scan all your receipts and store them electronically (with sufficient backup). This is a great way to reduce your storage volume (digital and otherwise) and build an archive of easily retrievable receipts.
Properly expense large purchases
Not all expenses are created equal. This is something that many business owners don’t realize. Say, for instance, you visit your local office-supply store and pick up $300 worth of printer cartridges. These can likely be written off as a one-time expense. But say you also pick up a shiny new $300 printer. Is this also a one-time expense? No. Due to the longevity of the printer — you’ll probably be using it over the course of many years — you most likely need to capitalize that purchase as an asset rather than an expense. Just because you spent the same amount of money does not mean you can file your purchases as the same sort of deduction.
Don’t put off bookkeeping up the last minute
Don’t put off your bookkeeping until days before you file your tax return. It can constrain your cash flow, because you don’t have a running tally of what’s coming and going. It can cause receipts to fall through the cracks and cost you valuable write-offs.
Bookkeeping is one of those cases where a little goes a long way. Set aside a small chunk of time each week to invoice customers, record all your receipts and payments, and follow up on late payments. It’s better to do a few bookkeeping tasks once a week rather than let the books go and take on a monster at the end of the year.
An updated books and financial statements tell you where you stand at any given moment and indicates what’s working and what isn’t. If done well it will make your business succeed.
Talk to us today, and we would certainly help you with your tax and bookkeeping needs.