Accounting tips for small business owners in Canada are an essential part of managing operations, planning, and avoiding costly errors that catch the attention of the Canada Revenue Agency (CRA).
In addition, keeping up with accounting-related tasks can get overwhelming quickly if you are unprepared.
Small business owners need to understand the value of maintaining accurate financial records. Apparently, dealing with unforeseen expenses is often one of the most significant financial challenges small business owners face.
Are you interested in learning how to become a successful business owner? The secret is to stay on top of excellent accounting records. That’s why today, we’re here to discuss some accounting tips for small business owners in Canada. Keep reading to learn more!
In this article
- 10 Accounting tips for small business owners in Canada
- #1. Separate business and personal expenses
- #2. Record each transaction
- #3. Set aside money for taxes
- #4. Improved record accuracy
- #5. Dedicate time each week for bookkeeping
- #6. Hire an Accountant
- #7. Keep an eye on your invoices
- #8. Practice Budgeting
- #9. Creating a retail Audit scheme
- #10. Prepare revised annual Profit and Loss estimate
- Financial Controls – Accounting Tips for Small Business in Canada – Accountant Oakville Mississauga
- Frequently Asked Questions
10 Accounting tips for small business owners in Canada
To develop a well-rounded understanding of a business financial situation, here are some useful accounting tips for small business owners in Canada.
#1. Separate business and personal expenses
Keeping business finances and personal finances in one account can quickly create many problems for your small business.
During the reporting period, for example, you have to review all your bank statements to make sure you have invoices for each payment you receive from each customer.
In the case of a separate account just for business, it is all easy, but when mixing personal and business transactions in the same bank account, it will result in a nightmare to understand which one is personal or business.
A simple way to do this is to register for a business bank account and credit card.
#2. Record each transaction
One of the easiest accounting tips for small business owners in Canada is to start recording every transaction that happens in their businesses.
As a business owner, it will be easier for you to immediately figure out what the transaction is about instead of figuring it out at the end of the year.
Building upon your record keeping will help you to develop a strong foundation for your bookkeeping needs.
It is also beneficial for you to organize all the transactions you are recording to find any records you need, no matter when you need them.
#3. Set aside money for taxes
Tax payment is very important for every business. So systematically put money aside for it.
Unpaid taxes can incur penalties and interest from the Canada Revenue Agency (CRA), so make sure the money is there when you need it.
#4. Improved record accuracy
Keeping your account records organized is one of the basic accounting tips for small business owners in Canada.
Of course, this makes a huge difference when you do bookkeeping twelve months later and don’t remember where your receipts are and which one is business or personal expenses.
If you prefer to keep paper records, make sure you store them in a secure place, such as filing cabinet or filing box.
For optimal efficiency, it’s crucial to store papers in a hanging-file system. Put each category of papers in a separate folder and store them in a filing cabinet or upright in a filing box placed on a shelf.
On the other hand, if you prefer to keep electronic records, keep all your accounting information structured. To avoid any data loss, you can save your files on cloud storage such as OneDrive or Drop Box.
In this case, even if something happens to your computer, you can still access all your data from another device. It is better to choose only one way of keeping records, either paper or paperless.
The electronic option is easy to store, easy to search and it does not take any physical space in your office.
#5. Dedicate time each week for bookkeeping
To stay on top of your financial records, review your financial books every week. It will give you an updated idea about the current state of your business.
More so, you will also understand how manage your cash flow and realize what expenses you have coming your way. Reviewing your financial records each week will allow you to evaluate how much income your business has brought each week.
In addition, it will give you the ability to analyze any financial situations that could arise, so you can find ways to soften the impact or avoid the problem altogether.
#6. Hire an Accountant
One of the easiest ways to avoid the stress of keeping up with your business bookkeeping is to hire an accountant. An accountant will provide you with information about your financial status anytime you want it.
Furthermore, a professional accountant makes sure that all the information and data you have is accurate and can generate interim reports for you.
Indeed, accounting software can sometimes be exceedingly difficult to operate especially if you do not know what you are doing. That is why hiring a trained accountant to stay on track with your business’s bookkeeping needs is essential for your business.
#7. Keep an eye on your invoices
Another common mistake that small business owners make is that they mix up receipts and invoices.
Late and unpaid bills can hurt your cash flow. Then put a process in place for if a bill goes unpaid such as issuing a second invoice, making a phone call and even levying penalties such as extra fees at certain deadlines.
Ensure that you track all your late invoices, unpaid invoices, and paid invoices during monthly/weekly bookkeeping activities.
#8. Practice Budgeting
Budget practice is one of the most basic accounting tips for small business owners in Canada. Preparing a budget that breaks down every dollar you plan on spending will help you set aside money for things that your business depends on.
Besides, you will quickly understand how much you will have to pay in taxes. Some of the items that you will have to practice budgeting for include expenses such as maintenance, repairs, supplies and additional inventory.
Most importantly, practicing budgeting for a new business will create healthy habits that will help your business grow.
#9. Creating a retail Audit scheme
A retail audit scheme is a detailed, chronological record whereby accounting records, project details or other financial data are tracked and traced.
This scheme will help you track down all of the transactions you have had in the past, making it easier for you to verify that the recorded information is accurate.
Some of the documents you can include in an audit scheme include estimates, invoices and even purchase orders.
More so, creating an audit scheme will make it easier to prevent fraud in your business, improve your accuracy when it comes to paying taxes and finding any missing transactions in your list.
#10. Prepare revised annual Profit and Loss estimate
As a business owner, you need to evaluate how much money you are actually making, whether your net assets are going up or down, the difference between revenues and expenses, what caused those changes, and how you spend profits. While you’re at it, you’ll identify trouble spots and make adjustments to improve sales and margins.
Financial Controls – Accounting Tips for Small Business in Canada – Accountant Oakville Mississauga
Effective financial controls are a must for a small business in Canada. A lack of financial controls can lead to fraud, unreliable business intelligence and poor financial information.
Examples of financial controls are:
- Keep receipts for expenses without it, you have no proof of purchases made.
- Make sure you maintain a separate credit card for business purchases only. The last thing you want is a grocery bills or movie tickets appearing on your credit card. Imagine if that is seen by a tax auditor.
- Open a separate business account for your business expenses and deposits. Ensure there is no personal expenses in your business account.
- Always keep a daily sales log and a deposit book to enable you track sales deposits. This will not give room for employee theft.
- Dual signatures is advisable on company cheques. If only one person is authorized to sign cheques, then there is a possibility for that person to commit fraud by writing cheques for invalid expenses.
- Review and approval all employee expense reports before they are paid, which will keep spending under control.
- Regularly backup your electronic financial data so you don’t permanently lose it
Consult with your accountant in Mississauga / Oakville on how to improve or grow your small business’ financial controls. When handling your financial matters, do not forget the Accounting tips mentioned above for Small Business owners in Canada.
You can also see how you can enter Canada as a business immigrant.
Frequently Asked Questions
Can small business owners do their own accounting?
Yes, many business owners do just that. However, as your business grows, you may find you need the support of an accountant.
How can you pay yourself as a business owner?
There are two main ways to pay yourself as a business owner:
- Salary: You pay yourself a regular salary just as you would an employee of the company.
- Owner’s draw: You can draw money (in cash or in kind) from the profits of your business.
What reports should a small business have?
There are three basic reports that a small business requires to keep track of its finances: the balance sheet, the income statement and the cash flow statement.
Using the above-listed accounting tips, you will be able to improve your business with financial record keeping drastically.
More so, it will help you spend less time on your business’s financial aspect and more time growing your business and enhancing your customer relationships.