One of the toughest tasks new small businesses face is keeping track of their finances, but it’s also one of the most important. On top of your regular duties, you need to either handle your business accounts yourself or hire a bookkeeper or accountant, which can cut into your cash flow. Luckily, taking care of your own bookkeeping doesn’t have to take up loads of your time or stress you out, because you can streamline the process for maximum efficiency.
Basic bookkeeping means recording and classifying your business’s transactions, namely the money you take in from customers and pay out to suppliers. If your business has low volume, single-entry bookkeeping works well, because it’s just like recording a checking account register. When your business grows, though, double-entry bookkeeping makes more sense: You record each transaction twice to balance it both as a credit and debit in company accounts. This option is useful for businesses with multiple suppliers and revenue streams.
In theory, you can use either of these systems with both cash and accrual bookkeeping, but Canadian businesses must use the accrual method unless they’re farming, fishing, or charity concerns or self-employed commission agents. The cash method means you record instances where money changes hands, be it bills or electronic transfers, such as when a customer buys your widget or you pay a supplier for a widget parts expense. Accrual accounting means you enter transactions when they occur and not when money changes hands: If Customer X buys your widgets on credit or you use credit to buy widget parts from Supplier Y, you note the transactions when they happen and not when Customer X pays you or you pay Supplier Y.
The key accounting principles you should know when doing your own bookkeeping are assets, liabilities, and equity. Assets are things your company owns, including inventory, and accounts receivable, whereas liabilities are things your company owes, such as loans, accounts payable, and mortgages. While equity applies to ownership stakes, it also shows what you have left over when you subtract your liabilities from your assets. Equity also includes any income you haven’t yet distributed. The equation you need to balance your books is simple: Assets – Liabilities = Equity.
You also need to create an income statement by balancing your revenue, expenses, and costs. When you get money by selling products and services, this counts as revenue. When you spend money to make goods or services, this counts as a cost. Expenses are the amounts you spend to run your business unrelated to the products or services; these include salaries and wages paid out to you and your workers. Here’s the equation you need to figure out your business’s income: Revenue – (Costs + Expenses) = Income.
Canadian Business Law
To comply with Canadian business law, you need to keep records to satisfy your reporting obligations to the Canada Revenue Agency. The Canada Business Network suggests you keep paper and electronic receipts, detailed records of expenses and sales, payroll details, and taxes you collect and pay. You should organize these records in a way that’s easy to understand in case you need them later. Keep the records for six years starting from the end of the tax year in which you reported them, because they can save you time and money should the CRA audit your business. In case of an audit, efficient bookkeeping is vital to your small business’s continued good health.
Online accounting programs such as QuickBooks Online take lots of the guesswork out of doing your own bookkeeping. These programs help you create electronic invoices and store and record electronic receipts, so you get paid faster while keeping your finances organized. This sort of virtual bookkeeping works especially well when you have a mobile business, because it gives you easy access to your accounts from your tablet or smartphone and takes the hassle out of remote sales. Virtual bookkeeping also helps you track changing tax rates, create reports with just a click, and download and organize your banking transactions. Hundreds of online apps work with QuickBooks, so you can make a system that suits the needs of your small business without facing a steep learning curve. If you need help calculating customer discounts or job costs, the desktop version of QuickBooks has you covered.
Automated accounting saves you time and energy when balancing your books. Tools such as automated data entry remove the costly mistakes that come from human error while also cutting down on accounting redundancy to streamline your bookkeeping. Artificial intelligence in accounting can help you suss out valuable business insights from your business transactions. When you combine automated accounting with AI, you can better see spots where your business is losing money and identify top-selling inventory items, so you can plug financial leaks quickly and plan inventory purchases well in advance. Online accounting programs such as QuickBooks also let you share data with your accountant automatically, such as by sending out pre-scheduled invoices for reoccurring bills. These programs also back up data as soon as you enter it.
A little forethought can make handling your own business accounts and bookkeeping hassle-free. With access to computers, mobile devices, and all-inclusive bookkeeping software such as QuickBooks, you can know where your business stands at all times and plan for future growth with ease.