For a small business owner, bookkeeping is often seen as a mundane and tedious task that can take hours of time and hiring a bookkeeper is seen as an unnecessary expense to the small business owner starting up. This is the primary reason that well over one-half of business owners do not keep their finances up to date monthly. Bookkeeping, as unnecessary as it may seem is your businesses secret weapon when it comes to business management and growth. With accurate and consistent company financials that we as business owners can effectively manage and grow our business.
Hiring a Certified Professional Bookkeeper from the start of your business can not only save you money, but will help you manage your cash flow and increase profits.
Here are the 8 most common bookkeeping mistakes you need to avoid:
Improper or poor record keeping.
Improper or poor record keeping is common for any business. It is very easy to lose receipts, to place paper work in a pile and forget about what you purchased and why. Also, most small business owners; whether sole proprietor or corporation are not fully aware what can be claimed when remitting taxes with CRA and potentially could miss out on tax write off’s. Having a proper filing system and recording keeping can save you money. In the event the small business owner is audited by the CRA it can provided the necessary documentation.
Using the business bank account as a personal bank account.
This is a very common mistake for most starts up. As an incorporated business, the business is a separate entity to the owner(s). Many start-up businesses do not understand this concept and continue to use the business bank account as a personal bank account. This can cause a lot of issues:
Anything you withdraw personally would be a shareholder loan and is owed back to the Corporation.
According to the CRA, If the shareholder loan is not paid back within a year from that corporation tax year end date. Then the loan amount will be included in the income, as well interest at the prescribed rate would be required to be paid.
Tracking Cash Flow can be difficult.
When the business owner spends money out of the corporation it makes it difficult to effectively manage cash flow. Which in turn can lead the business in to financial distress.
It is important to set a clear Salary or dividend expectation at the beginning.
Not reconciling bank accounts.
Not having separate bank accounts for personal and business activities can become an issue, I highly recommend this even as a sole proprietor. If your audited, you as the business owner may need to provide completed records of business activities that are separate from personal expenses. Make sure your bank accounts are reconciled every month. This will minimize errors and potential errors.
Neglecting Sales & Payroll Tax.
When starting up a business many business owners are not aware that they need to create GST account once sales have reached $30,000. As well, a source deduction account is not setup as well. This is due to basically not being aware. A Certified Professional bookkeeper will ensure that you have these to accounts setup from the beginning. With many businesses, not reporting sales tax, accounting for it or paying the government filing is a common mistake. Oversight in collection of these program accounts can result in significant fines and penalties that in turn affect your company’s bottom line.
It is important to have effective communication with your bookkeeper and company employees. Keep your Certified Professional Bookkeeper involved and integrated with what is going inside your business. This allows your bookkeeper to create strong financial statements that reflects the true operation of your business.
Tracking Reimbursable Expenses.
Many nosiness owners pay for business expenses out of their personal funds. Over time, the owner will tend to overlook these expenses. Failure to account for reimbursable expenses can result in lost of money and lost tax deductions.
Improper Categorizing Expense.
If you as the business owner or some one you hired does not have bookkeeping knowledge, this can be a problem. Accurately tracking income and expenses in the correct categories ensures proper measurement of profit ability.
As stated at the beginning of this article many business owners try to do the bookkeeping themselves. We all know that time is money, many business owners do not put enough value on their time. Hiring a bookkeeper will allow the business owner to really focus on growing their business and putting their time where it is needed. Leave the bookkeeping to a Certified Professional Bookkeeper. They will know what to record, how to record it and the accounting changes that affect the business on a ongoing basis.
Look at your business and determine if any of these 8 common bookkeeping mistakes apply to your business. If so it is now a great time to make changes to your bookkeeping. Your business success is determined on how strong your books are.
Lets get your business on the right path from the start, book a free consultation today.