There’s more to becoming a new entrepreneur than getting your business cards printed. As a budding business owner in Canada, you’ll need to accomplish a number of accounting-related tasks. Before you start ticking off boxes in the start-up accounting checklist below, however, you should consult with a legal advisor to ensure your business is properly set up and registered.
Start-up Accounting Checklist for New Business Owners
The first step to starting a business is registering it. Professional advice and a business plan are essential when registering a business.
1. Name your business and request for legal approval of the business name
The first thing your lawyer will do is submit a name reservation request on behalf of your company and a request for legal approval of the name you’ve chosen.
☞ Pro Tip: You should consider several name options in case your preferred business name has already been taken.
2. Register your business
When registering for your business, you’ll also need to consider the legal structure of your business.
Whether you register as a sole proprietorship, partnership, or corporation will impact:
- how you report your income and expenses,
- which annual tax returns you’ll file, and
- the liability you’ll assume
If you plan to work with partners, you should speak to your lawyer about drawing up a shareholders’ agreement. Things don’t always go as planned when you start a business, so clarifying how decisions and disputes will be handled is important.
3. Get your CRA business number
Finally, you should also ask your lawyer to get your Canada Revenue Agency (CRA) business number and set up your CRA payroll and GST sales tax accounts.
Once your company is registered and you have your business number in hand, you can move on to the start-up accounting checklist below:
4. Open a dedicated business bank account
This step is critical since having business and personal transactions flow through the same bank account can lead to:
- disorganized bookkeeping records,
- missed business deductions,
- cash flow issues, and
- higher year-end accounting costs.
☞ Pro Tip: Be sure to ask your bank which documents to bring when setting up your business account.
5. Apply for a dedicated business credit card
You may not qualify for a business credit card right away, but for the reasons described above, you should at least use a separate personal credit card for all your product and service business expenses.
6. Hire an accountant for basic (but invaluable) tax advice
Your tax advisor may, for example, recommend incorporating so you can take advantage of the small business deduction (a reduced tax rate for Canadian-controlled private corporations).
☞ Pro Tip: Ask your tax advisor if your company is eligible for the SR&ED tax incentive program or other government grants.
7. Set up a versatile, scalable accounting system
When you start a new business, you need to have a bookkeeping process up and running from day 1.
We strongly suggest using cloud-based accounting software (i.e. QuickBooks Online or Xero) to keep your books up to date and stay on top of your business’s financial health.
☞ Pro Tip: If you're new to bookkeeping or unsure how to manage your own books, consider outsourcing your bookkeeping.
Online bookkeeping systems make it easy to outsource your accounting to a company like Enkel when things get too complex, time-consuming, or costly.
8. Track your out-of-pocket expenses
Out-of-pocket expenses are business-related payments you make with your own money. These payments:
- get recorded in your accounting system as either business expenses or capital expenditures, and
- result in a business deduction and an IOU (from your company to you) called a shareholder loan.
☞ Pro Tip: Dealing with out-of-pocket expenses can be complicated so make sure you get your bookkeeping system set up properly from the start!
9. Find a third-party payroll processor
If you are hiring employees for your new business, you will be responsible for ensuring that your employees are paid accurately, on time, and in compliance with employment standards and legislation. However, payroll legislation can be complex, and errors can lead to fines and penalties.
Therefore, you should consider outsourcing your payroll to a third-party payroll processing company like Enkel rather than trying to manage it yourself.
10. Get business insurance
The most common insurance coverages include:
- General Liability,
- Property,
- Business Interruption, and
- Disability
11. Apply for business licenses and permits
Your location, industry, and business type will ultimately determine your necessary governmental license and permits. Learn more about the business licenses and permits here.
A Note About Record Keeping
The CRA requires that you keep financial reports and accounting and bookkeeping records for six years from the end of the last tax year they relate to. These documents include:
- sales invoices and purchase receipts,
- bookkeeping ledgers and journals,
- bank and financial statements, and
- various tax returns
Keeping your records organized, up-to-date, and accounted for is essential. Find out how Enkel can take the pain out of managing your bookkeeping records.
