You probably keep a lot of your business’ financial details in your head: be it which suppliers needs to get paid or which customers have outstanding balances, etc. It’s understandable why would you like doing it this way; after all, you don’t need to learn using a new software, you aren’t risking that the system would crash and you’d lose your entire data. Doing it that way may be convenient as well because you can tweak your budget anytime and anywhere.
However, when you don’t have a system and processes in place, unpleasant surprises can pop-up, important dates missed and essential paperwork misplaced or forgotten. Getting a better grasp of your cash flow can enable you to meet long-term financial and business growth goals easier, smooth out the seasonal ups and downs of your cash flow and even improve your profits. Knowing where you stand will also keep you out of trouble with the Canada Revenue Agency.
Here we share our five bookkeeping tips for small businesses to help you avoid making costly mistakes and build a profitable practice:
Be realistic about the expenses that could come up in next one to five years. Is it likely that you will need to move to a larger facility? Will your office equipment require an upgrade to meet the business demands and remain competitive?
It is important to address the seasonal ups and downs of your business, and how it will affect your cash flow, so that you can budget your spending accordingly and avoid making costly mistakes.
Knowing when to take money out of your business account and mitigating shortfalls during the slower months are the key factors of running a sustainable and profitable business.
Without a good record keeping and proper processes in place, it can be hard to track your expenses, which means that you may be missing out on tax write-offs that you could otherwise be eligible to benefit from.
Business credit cards can come handy, especially to help keep good track record of your expenses and keeping them all in one place. As long as you keep up to date with your payments it can serve as a very useful and cost-effective tool. Most providers have now adopted the service of categorizing your monthly bill into types of expenses, meaning another task off your to-do list.
To help you prepare for audits, it is also useful to keep a good track record in your calendar of all the clients that you meet for those “coffee dates”, lunches and events to meet your potential clients and maintain existing business relationships. This will help substantiate your expenses for your tax records in the event of an audit.
The same goes for the car mileage. When driving long distances to meetings, ensure you either keep track of your mileage or do your calculations with Google Maps to keep a log of the distances you traveled and all other associated costs.
Whether it’s a pocket notebook with a pencil, an Excel spreadsheet or a financial software, ensure you also keep track of what is being deposited into your business bank account.
You are likely to make a variety of deposits in your account throughout the year. From loans, to sales revenue, to cash infusions from your personal savings. If you cannot account for where each of these deposits came from you’re leaving yourself open to paying taxes on money that isn’t supposed to be counted as income.
You know that you’re going to have to pay taxes and you know when. So you should systematically put money aside for that purpose. Unpaid taxes can incur penalties and interest from the CRA, so make sure the money is there when you need it.
By putting money aside each month, or each time a contract is paid, it will come as less of a strech when they are due.
Late and unpaid bills can hurt your cash flow. Assign someone to track your billing invoices. Then put a process in place for what happens when a bill doesn’t get paid. That can be issuing a second invoice, following up with a phone call and even levying penalties such as extra fees by certain deadlines.
Make a plan for if clients are 30, 60 and 90 days late. Remember, every late payment is an interest-free loan that hurts your cash flow.