A solid, organized bookkeeping system lays the foundation for business success. By keeping your financial records up to date and accessible, you’ll save time and avoid unnecessary expenses and enjoy better performance over the long run. Here are key bookkeeping tips to help you stay organized while you run your business.
1. Manage Your Data Efficiently
Consistency and timeliness are critical for efficient data management. When you adopt good bookkeeping habits and an organized structure from the start, you’ll find it easier to:
- Prepare year-end documentation,
- Optimize tax deductions,
- Explore and understand your financial position
- Improve your company’s bottom line
Your Chart of Accounts
Planning for growth starts as soon as you plan your chart of accounts. Properly labelling and categorizing your records will speed up your bookkeeping and ensure your financial reports are constructive. Start with the bare minimum, then modify and expand your accounts as your business develops.
Your Source Documents
Recording and reconciling the transactions associated with various business activities is key to keeping your books financially valid. The best time to document expense and income-related events is when they happen. So, make sure your company has robust day-to-day bookkeeping processes in place for gathering, generating, and archiving source documents like receipts, invoices, timesheets, and other tax records. Things to consider:
First, make sure to collect all financial documents. This includes:
- Invoices (both received and issued)
- Receipts
- Bank and credit card statements
- Payroll records
- Expense reports
- Tax forms and returns
- Contracts and agreements
Then categorize all documents based on their type and purpose. Common categories include:
- Revenue: Sales invoices and receipts, cash register tapes.
- Expenses: Purchase invoices, receipts, and utility bills.
- Payroll: Employee wage records, payroll taxes.
- Banking: Bank statements, loan documents, credit card statements.
- Tax: GST/HST returns, income tax filings, and relevant correspondence with the Canada Revenue Agency (CRA).
Documents should be filed in a logical order, typically chronologically and by category. Digitize all documents. Use a scanner or a mobile scanning app to create digital copies of paper documents. Finally, adhere to the CRA’s requirements for record retention. Generally, you must keep all business records for six years from the end of the last tax year they relate to.
Your Accounting Software
One of the most important functions of any accounting system is making it easy to find what you need when you need it. Digitalizing your payables and receivables with online accounting software like Xero or QuickBooks Online improves data accessibility and can help eliminate the need to store and manage paper files.
2. Use Separate Bank Accounts
We often see business owners using both their personal and business credit cards for business expenses. When you commingle finances, you risk generating tax and liability issues for both you and your business. Setting up and using separate bank accounts for personal and company funds will not only help you avoid the headache of unravelling expenses and income at year-end, but you’ll also benefit from:
- Improved financial forecasting, business planning, and budgeting,
- Accurate tax deductions for shared expenses like cell phones and vehicles and
- Better positioning in terms of qualifying for supplier credit, business loans, and investor funding
Separating your personal and business bank account also means you’ll be far less likely to attract unwanted attention in the form of tax audits.
3. Take Advantage of Bookkeeping Digital Tools
When it comes to organizing your business bookkeeping, you won’t find a better line-up of helpers than today’s digital apps, automation, and software.
Third-Party Apps
Doing away with manual bookkeeping in favour of online accounting can give your business access to a host of integrated, time-saving apps like Receipt Bank, Plooto, and TSheets. Digital tools like these not only make bookkeeping chores less cumbersome but also reduce the need for manual data entry, which can mean fewer transcription errors.
Business Management Programs
There’s no better way to organize your enterprise than with specialized industry management software. Whether you operate a brewery, construction company, or cannabis dispensary, there’s a dedicated management platform to help you manage your inventory, track production and monitor your sales more effectively.
Automated Reminders and Electronic Payments
Sometimes, just maintaining better control over your cash can make all the difference when it comes to growing your business. If you haven’t yet, consider:
- Signing up for text or email alerts that let you know when credit card and utility bills are ready to be paid,
- Setting up automated payments to deal with recurring expenses,
- Streamlining your receivables by accepting client payments via PayPal or e-transfer
Taking advantage of digital assistants will not only help to keep your cash flow positive but also reduce the fees associated with late or missed payments.
4. Hire a Professional Payroll Service
Business owners can manage their employee payroll using online payroll software. But you cannot substitute proper payroll knowledge with payroll software.
Going the DIY payroll route means becoming intimately acquainted with legislation and regulations surrounding :
- deducting, reporting, and remitting income tax, EI, and CPP
- vacation pay, T4s, and ROEs
Depending on your business model, you may even have to navigate different payment requirements for full-time, part-time, commission, and contract workers.
Many business owners find it less stressful and time-consuming to work with a payroll service like Payworks – or to outsource their employee payments altogether. Hiring a professional back-office team is often the best way to ensure your payroll process is always completed accurately and on time while staying compliant with payroll regulations.
5. Stay Informed About Your Business
The biggest benefit of an organized bookkeeping system may be that it’s the only way to stay financially informed about your business. The more you know, the more informed your decisions will be. Making an effort to regularly monitor your accounting transactions and statements will help you plot a successful path forward.
Consider setting aside concrete time in your calendar to:
- Review your business transactions at the close of each day,
- Study your financial statements monthly (preferably with an accountant’s help to interpret the information they contain),
- Evaluate your income and expenses month-over-month and year-over-year, and
- Assess your return-on-investment from various sales initiatives and categories
Formulating an organized plan to track and examine your finances daily, monthly, and annually will help you identify trends and seasonal fluctuations and highlight areas where your business could be taking steps to improve its short-term and long-term operations. When tax season arrives, you can confidently hand your books over to your tax accountant to maximize your tax returns.
The Importance of Getting Your Bookkeeping Done Right From The Start
A simplified and systematic bookkeeping system has several benefits. Creating a strong bookkeeping process earlier on can make the difference between a successful long-term business and a startup failure.
Managing Cash Flow
Based on research conducted by CB Insights, 29% of startups fail because they run out of cash.
Working capital is important to small business owners as it represents the business’ ability to manage upcoming expenses. A lack of working capital can be difficult for businesses as liquid assets are necessary to pay for their day-to-day operational expenses.
A strong bookkeeping process in collaboration with an online bookkeeping application (such as Xero or Quickbooks Online) can make it easier for you to manage your books and working capital. With money and time both being finite resources, it is pertinent for you to track your cash flow and create budgets right from the start to ensure future success.
Data-Driven Decision Making
Maintaining your books from the start can provide you with valuable information about your business. When it comes to money-making opportunities or managing your working capital, having a clear picture of the company's financial health can aid business owners in making decisions based on facts rather than feelings.
Online accounting software such as QuickBooks Online and Xero offer the ability to run real-time financial reports showcasing the status of your business. The more information you track through your accounting software, the more meaningful these reports can be.
Financing Opportunities
Many small business owners require external funding from banks, investors, or online lending platforms. An up-to-date and accurate bookkeeping system can help you understand your financial situation - how much working capital you have and how much you need. Additionally, if you do require external funding, you will need to provide a series of financial statements and additional information.
Leaving your bookkeeping until you need these financial reports becomes a game of catch-up, and you’re left with inaccurate financial information. When you get your books right from the start, you can easily generate accurate financial statements with the click of a button.
Through online lenders such as Lendified or Fundera, you can gain access to short-term business loans in as fast as 48 hours simply by sharing information about your business and its financial performance with them online. Therefore, having an accurate and reliable accounting system could also help speed up your funding process and help you achieve your business goals more quickly.
Filing for Taxes & Compliance
Every business must comply with its federal, provincial, and local business tax laws. From sales tax to income tax to payroll tax, each has a different deadline and payment amount. Having a clean and accurate set of books can help you figure out when and how much tax you need to pay, reducing the risk of late payments or penalties. Having a clear paper trail also reduces the risk of business fraud and embezzlement.
Bookkeeping is an integral part of any business and,, when done right, offers a wide range of benefits—from managing cash flow to compliance. It is a task that should be conducted daily to ensure information is up to date and reliable for decision-making purposes.
If time is a constraint preventing you from performing your bookkeeping tasks, you might want to consider outsourcing to a professional bookkeeping firm or using apps to simplify your bookkeeping process.
At Enkel, we have a team of dedicated, experienced bookkeepers who can help you lift the burden of number crunching and data entry while providing you with accurate financial reports at the end of every month. Contact us today to learn more about how we can help!
