That does not mean it’s the end of the road for you. You can still find the best way to manage bookkeeping for your startup.
After all, bookkeeping is a must for small business owners in Canada.
During the initial stages of your newly launched business, one of the foundations you need to invest in, along with your accounting needs, is your bookkeeping. You can hire a bookkeeper at the start to establish the basic financial foundations of your business early on and prepare for future growth.
If you are looking for the best way to handle your bookkeeping effectively, look no further. This article will discuss how you can manage bookkeeping for a small business.
What is Bookkeeping?
To put it simply, bookkeeping is the process of systematically recording the financial transactions of your business. It makes sure that the records of all the financial transactions of your business are error-free and up-to-date. That means the process has to be accurate.
A bookkeeper is someone responsible for this task. A bookkeeper summarizes financial activities into reports to get a look at the current status of the business. This is something that should be done daily.
Is bookkeeping the same thing as accounting? Not really. Accounting covers a broader scope and bookkeeping is part of it. Specifically, a bookkeeper does the following jobs:
- Daily recording of financial transactions
- Posting credits and debits
- Maintaining and balancing general ledgers, current accounts, and historical accounts
- Making the payroll
- Loan payments
- Monitoring asset depreciation
- Produce financial reports
Importance of Bookkeeping for Startups
From selling handmade crafts online to starting a small bakery in town, whatever your business is, bookkeeping is crucial for your enterprise.
And if you own a small business in Canada, you already know that you need to comply with the CRA so you need to keep track of your revenue streams every day. CRA compliance is just one of the reasons why you must not neglect your bookkeeping. Here are the other reasons why bookkeeping is important for your startup:
It accurately keeps track of all financial transactions.
How much did you spend this month on office supplies? Did your sales increase this month? Where does the majority of the cash go each month? When you faithfully record your cash flow, you can answer these questions easily. Bookkeeping can help you do this. So when you need to find how much you paid to this certain supplier, you can easily go back to your records and check the numbers.
It helps you make better budget decisions to scale your business
When you accurately take note of all the financial transactions right to the last penny, the information you can get will guide you in making the right business decisions. This is to avoid running your business as if you are blindfolded.
When regularly do bookkeeping, you know exactly where your money is going.
When you start a business, you expect it to grow. You set your goals and do everything you can to achieve them. So what can hold you back? Poor financial records. Without the right data, you cannot measure the performance of your business. If you cannot measure business performance, you cannot make informed decisions.
Bookkeeping makes sure that you have accurate financial records and are on top of your books to make better budget decisions in scaling your business.
It helps you avoid an audit
Let’s face it, receiving an audit from the Canadian Revenue Agency (CRA) can be very stressful for a small business owner. This is especially since CRA has been exerting more efforts in its compliance programs. It has allotted additional funding of around $1.9 billion to support tax compliance activities.
If you want to avoid getting an audit, the solution is simple. Update your books regularly. You can even do the extra mile and learn about the usual problems that the CRA flags in small businesses – from outliers to discrepancies.
It keeps you prepared when filing your tax
If you are doing business in Canada, you have to pay your taxes yearly.
With regular bookkeeping, the financial information is ready and you don’t have to panic over looming deadlines.
Want to receive tax deductions?
Then consistently keep your books. CRA can disapprove tax deduction if you are missing some important document. This would not happen if you are regularly bookkeeping. As a general rule, keep your invoices and receipts for at least six years. So if you started your business last year, you have to wait until the end of 2026 before you can dispose of your 2020 documents.
It gives you peace of mind
If you are a small business owner, chances are, you already have a lot on your plate running the business. If you have unfinished books and a tax CRA deadline, this can weigh you down even more. Don’t strain yourself physically and emotionally because of poor financial recording. With consistent bookkeeping, you can have peace of mind since you can pull out any record or examine data anytime. Your business’ financial information is always ready.
The Best Ways to Manage Bookkeeping For a Startup
It pays to be organized.
Let’s face it, some businesses can be more organized than others. Now that you are aware of the many benefits of keeping your books regularly, you have to actually do it. When it comes to your small business, you have to follow bookkeeping practices to meet your goals and achieve success.
Basically, there you can manage bookkeeping for your startup in three ways:
- You can do your bookkeeping as a small business owner.
- You can get an online bookkeeping tool.
- You can work with a bookkeeper or an accounting consultant.
Let’s discuss each option to know the best way that works for you.
Doing your bookkeeping.
The first way is doing your own bookkeeping.
Unsurprisingly, this is the most common way of managing bookkeeping for startups.
According to a survey by Intuit, approximately 81% of small to mid-sized businesses (SMBs) in Canada do their own books internally. Form this percentage, around 41% of these SMBs have owners doing their own bookkeeping.
As for the reasons why they do it, a total of 96% of SMBs with DIY bookkeeping measures say it was more convenient while 94% do it because it saves them money.
So if you are the owner of a newly-launched business and you are doing the bookkeeping yourself, you are actually not alone.
This method is viable if you are running a really small personal business, like selling your own hand-made earrings. You can even do this using the traditional way, meaning, writing directly on a manual book or typing on a spreadsheet. Taking up this responsibility means you have enough knowledge in handling financial records like creating invoices, generating a profit and loss statement, or doing payroll.
Is this the best way for you?
Do your own bookkeeping if:
- You just want to be compliant with regulations;
- You don’t have extra budget to hire another person to do it;
- You have basic accounting or bookkeeping knowledge;
- You have extra time doing financial records besides managing your business;
- You don’t plan on expanding your small business anytime soon; and,
- Your current cash flow is manageable.
Getting an online bookkeeping tool.
If you want to do grow your business but you want to still do the bookkeeping on your own, another way is to get an online bookkeeping tool.
If manually doing your bookkeeping is not working for you anymore, you should try automating it.
An accounting or bookkeeping software like Xero, Wave, or Quickbooks can cover the most basic functions for small businesses like:
- Accounts payable and receivable
- Online payment collection
- Bank and/or credit card integration
- Profit and loss statements
- Cashflow statements
- Balance sheets
You can also add user access o your accountant or bookkeeping consultant if you plan to hire one in the future.
Automated bookkeeping can make your financial recording more streamlined and error-free. Accounting to Software Path, 90% of companies tend to reduce manual data encoding errors by 90% when they use an online tool. Accuracy is the name of the game here.
Be realistic about your business growth. If you are a startup business and you are planning to expand or get more sales, that would mean more financial transactions. Don’t be afraid to automate some aspect of your business workflow so that you will have more time thinking about how to scale your small business.
If you do not know what tools to use yet, you can search online or ask a professional accountant for some advice.
Is this the best way for you?
Get an online bookkeeping tool if:
- Bookkeeping is taking up a substantial amount of your time now;
- You are scaling your business but do not have enough budget to hire your own accountant or bookkeeper;
- You want error-free and convenient bookkeeping;
- You can allow a small amount for a monthly online bookkeeping tool subscription;
- You have to do more than just compliance;
- You want to access your records anytime, anywhere; and,
- You want to generate financial statements or reports without breaking a sweat.
Working with a bookkeeper or accounting consultant.
If you are a business startup and you KNOW that your business has the potential to reach massive growth, then you can work with a bookkeeper or accountant.
You can do this two ways: Either outsource it to an online service or hire a part-time or full-time bookkeeper to do your books.
An online bookkeeping service provider can manage your bookkeeping concerns virtually. Communication can be through e-mail or phone calls. This is really useful, especially after the COVID-19 pandemic when remote work is recommended to avoid exposure. You can save on operating expenses since you are not adding another person to your office.
On the other hand, if you have the budget, you can also hire someone to do the job. This can be a better alternative are more of a hands-on person and you want someone to focus on your business alone. Hiring an in-house bookkeeper means he or she will become more familiar with your internal financial processes and transactions.
Is this the best way for you?
Work with a bookkeeper if :
- You need to take off the burden of doing bookkeeping;
- Your business needs your 100% attention;
- You are having trouble catching up with your financial records;
- You already have the budget to hire in-house personnel or an online service provider;
- You want someone to concentrate on the financial side of your business; and,
- You want to grow your business even more
As your business grows, so does your bookkeeping responsibility.
You must find the best way to manage bookkeeping for your startup and get help at the right time to stay calm with all the numbers. Talk to an accountant if you want a professional opinion on what bookkeeping method could work for your small business. It’s better to build your financial foundations early on than to wait until it’s too late. Whether you should do your bookkeeping on your own or get someone to do it, don’t leave your business to guesswork. Ask for help today.
Anna Grigoryan is a professional corporate accountant who provides accounting, bookkeeping and tax services to Small Business owners and individuals. She has more than ten years of professional experience in public accounting and a bachelor’s degree in Business Accounting. Anna is the CEO of Taxory, an accounting firm in Toronto area.