Many business owners have the misconception that bookkeeping is just a matter of balancing the books. This belief often leads to confusion about cash flow and profit, as well as underreporting income and overpaying taxes. Bookkeeping is important for keeping your business running smoothly and maintaining accurate records. If you’re starting out, however, there are some things you can do that will make life easier for you—both now and years down the road
1. Track your business income and expenses
The first step in keeping your own books is to track your business income and expenses by category. This will help you keep track of what you need to pay for, like office supplies and utilities, as well as what’s coming in, like customers’ payments.
Once you’ve chosen the best system for tracking these numbers, try making it easy on yourself by using an accounting software program or spreadsheet program (such as Microsoft Excel) that automatically updates the data based on each transaction. You can also try using a specialized accounting program designed specifically for small businesses—many are offered online at no charge!
2. Keep an eye on the cash flow of your business
You need to keep a close eye on your cash flow so that you can make sure there’s enough money coming in to keep the business running. You also need to make sure that bills are paid and that any debts are settled on time.
The best way to keep an eye on your cash flow is by using QuickBooks’ built-in reporting functions. If your bookkeeping software doesn’t offer this feature, then use spreadsheets or another type of program for tracking numbers. You can also use a simple spreadsheet tool like Excel or Google Sheets and track your income and expenditures over time by setting up separate columns for each item.
3. Find bookkeeping software that works for you
There are many kinds of bookkeeping software, and you should choose the one that works best for you. As you search for a program, consider which features are most important to your business. For example, if you have employees who are paid through direct deposit, then look for an accounting system that can manage payroll as well as other financial activities (such as accepting credit cards or handling invoices).
If you’re in an industry with specific needs—for example, if most of your clients are local businesses—then look into programs designed specifically for small businesses in those industries.
4. Use direct deposit, especially if you have employees
When it comes to paying employees, direct deposit is the easiest way to go. With a bank account or payroll service (like Intuit), you can set up direct deposit for your workers and have their paychecks deposited directly into their accounts. This is an especially good idea if you have multiple employees—it’s easier than writing out checks and paying them personally.
Direct deposit also allows you to track payments more easily. You’ll know exactly when payment was made, so there won’t be any messy mistakes with checks or other forms of payment at tax time (and yes, this is an issue that may come up!).
5. Don’t commingle your personal and corporate funds
To avoid problems, it’s important to keep your personal and corporate funds separate. This can be a challenge if you’re also an entrepreneur working in a home office because many people use their personal bank accounts as the primary source of funding for their business.
However, if you want to maintain control over your finances and ensure that you pay yourself correctly on time each month, then keeping these accounts separate is key.
6. File your tax returns on time
The next step is filing your taxes on time. If you’re a freelancer or self-employed, this means filing an income tax return once a year. You can usually file online using the Service Canada website. Make sure that you are filling out your form accurately and honestly—if you misrepresent or hide information, it’s considered fraud by the CRA, and if they find out about it later, they may penalize you.
Remember, bookkeeping is just keeping track of your numbers and making decisions based on what those numbers tell you. It doesn’t have to be scary. There are plenty of resources online that can help you with everything from starting a spreadsheet to interpreting what the numbers mean. If you’re still intimidated, or if you know you need more, don’t hesitate to reach out to us for professional assistance!