- Do it yourself, either via a spreadsheet, or using a small business accounting software package;
- Hire an accounting professional.
Each has advantages and disadvantages. Let’s take a quick look at both:
Doing it yourself
The main advantage of doing it yourself is cost: In the immediate term, you can save money on accountants’ fees.
The most basic approach is using a simple spreadsheet to track incomings and expenses. But nearly every business with any success quickly outgrows this method. If you’re not yet ready to hire an accounting professional to help, you’ll be glad you invested in a quality small business software package.
We reviewed two leading packages – Xero and QuickBooks – here.
These packages not only simplify filing – they can also help you organize your documents and receipts. That will help reduce hourly fees when you eventually do outsource your accounting to a professional.
But the disadvantages of doing it yourself are many:
Lost time. As a business owner, your time is extremely valuable. Every minute you spend on tax compliance, rather than on business development and customer service, has a cost. A very high cost. We don’t know what the real value of your time is per hour. But you have to account for it when you do taxes.
Mistakes. Accounting is a specialized profession. Accountants have years of education and experience behind them that may help you avoid errors that Canadian business owners commonly make:
- Forgetting to register for or collect HST/GST;
- Missing deductions, such as business use of home or use of car, or failing to account for depreciation of computers and other equipment. That hurts cash flow, and costs money.
- Forgetting to claim province-specific benefits like the Ontario small business deduction or the New Brunswick Small Business Tax Investor Credit.
- Attempting to claim too much in deductions. The Canada Revenue Agency will compare your deductions to industry norms. If you claim too many kilometres on your car compared to other businesses in your industry, you could raise a red flag. Meals and entertainment deduction record-keeping can be especially tricky.
Poor organization. If you’ve been using the “shoebox method” of storing business receipts and other records, you are at a very high risk of having misplaced or unreadable documents. At best, poor organization is a timewaster. You may be forced to spend many hours just trying to sort out your documents rather than filing and getting on with business.
Hiring a small business accountant
When you hire an accountant to help you with tax filing and compliance, you can expect to pay a fee. But these professionals routinely justify their fees many times over.
First, they can advise you on how to set up and maintain your recordkeeping throughout the year. They can also show you how to use the Cloud to help store and organize documents, so that filing is a snap. Setting up your systems in December and January can save many hours of toil in April of next year.
They can coach you on financial management best practices, such as avoiding commingling of funds.
They can also help keep you abreast of coming deadlines, filing requirements and HST/GST compliance. This helps you save on late fees, penalties and legal costs.
Most importantly, accounting and bookkeeping professionals save time. They can take care of your books, to free you up to take care of your customers.
LedgersOnline provides affordable bookkeeping services for any business anywhere.
Contact us today, or learn more about our affordable small business accounting services and see how we can help you.