As a business owner in Canada's largest city, you've got a lot of work on your hands already. Recording and analyzing your business's daily transactions and its overall financial health is a full-time job in itself. So what do you do if you're just starting out? In this post, you'll find a few basic bookkeeping tips to point you in the right direction.
These tips are by no means everything you need to know to handle your business's finances, and at least once in a while, you should hire a small business accountant in Toronto to check your work or help out with your taxes. You'll rest a lot easier knowing you have the right numbers on the books and that you don't have to worry about getting in trouble with the CRA.
With that, here are some of the basics of bookkeeping for your business.
What is Your Business Structure?
Depending on whether your business is registered as a sole proprietorship, limited liability partnership or a corporation, you have different rules when it comes to handling your finances and reporting to the CRA. This Government of Canada website is a good starting point for the information you need. Follow this link if you're a sole proprietorship or partnership and this link if your business is set up as a corporation.
Separate Your Finances
Open separate accounts for your business and personal finances (bank accounts, credit cards, lines of credit, etc.) and don't use one for the other. Not only does this help keep you out of trouble with the CRA, but it also makes bookkeeping and accounting a lot easier and less time-consuming, which can save you money if you decide to hire a professional later on.
Know Your Deductions
Some of the expenses you can deduct from your income include:
- Bad debt
- Startup costs
- Transportation costs
- Office supplies
- Interest and bank fees
- Some meals, entertainment and travel
For a list of allowable expenses, visit this CRA page.
Choose a Bookkeeping Method
There are two methods of recording your business's transactions, the cash method and the accrual method. With the cash method, transactions are only recorded when money changes hands. So if you send an invoice to a customer, you don't record anything on the books until the invoice is paid.
With the accrual method, you record transactions twice, once when a bill is received or an invoice is sent to a customer, and again when you pay the bill or receive payment from a customer.
If your business is straightforward, using the cash method may be best as it's easier to handle and gives you an accurate picture of your business's available cash.
But if you start to grow or want more insights into your revenue and expenses, the accrual method can give you a more accurate understanding of your business's overall financial performance.
Depending on how complicated your transactions are, you'll need either a simple spreadsheet for your bookkeeping, bookkeeping or accounting software or to hire or consult a professional.
Keep Your Financial Records
Not only is this good practice, but you're also required to keep your financial records for at least six years after the year you used them to file your income tax returns. These records can include
- Payroll records
- Bank and credit card statements
- Investment statements
- Tax returns