Running a small business requires many skills, including basic bookkeeping. With the advent of the digital age, online software programs are fast replacing paper tracking methods. While automation makes life easier for entrepreneurs, it shouldn’t tempt you to delay revenue and expense management until just before the deadlines to submit your returns. The Canada Revenue Agency mandates that business returns be filed six months after the end of the fiscal year. Pulling together all your financials at the last minute can have significant consequences. Errors in data entry lead to overpayment or underpayment of taxes, neither of which is desirable.
Business Expense Reconciliation
If you’re an active owner, business takes you out of the workplace and on the road. You incur expenses by taking clients out to lunch or logging miles on personal vehicles. These daily expenditures may be small, but they add up over a fiscal year. It is a monumental task to recall kilometres travelled or gather paper receipts a month before taxes are due. Credit card statements help with expense consolidation, but using cash on a day-to-day basis generates those mounds of paper that can be easily lost or forgotten.
Don’t attempt to guesstimate what you’ve spent. The penalties are steep for an underpayment of taxes. The CRA levies a $100 fine or a 50 percent assessment, whichever is greater, against the amount of tax that is understated.
Don’t fall into the trap of procrastinating. Managing expenses on a weekly basis will help prevent a mad rush to report deductions accurately at the filing deadline.
Payroll taxes can present similar challenges. You may pay employees twice per month or every two weeks. In either case, it is crucial to track deductions and set aside adequate dollar amounts for timely payments.
As with business expenses, paying employees creates multiple transactions over the year. Employers with more than one employee and multiple payroll transactions take on an added risk of penalties that apply to timely filing and mandatory deduction rules.
You can hire a bookkeeper, but allot frequent, regular time to record and provide accurate data to that individual. Even a seasoned professional can make errors by trying to do too much while facing a looming deadline.
As time passes, the assets you have on hand may be inadequate to make payroll tax payments. Quarterly remitters who fail to make timely payments or fail to remit are subject to a 10 percent penalty when accounts run seven days past due. That penalty can increase to 20 percent if late payments are made more than once in a calendar year
The Bottom Line
You do need to focus on the top line; customers are important, and so are sales. However, ignoring the nuts and bolts of your accounting methods can put a big dent in your bottom line. Don’t wait until the last minute. Along with weekly staff meetings and client appointments, schedule time to manage cash inflows and expense outflows.