The dream of every entrepreneur is to own and run their businesses successfully. At the onset, they usually start small either by establishing one or buying an existing business. The type of business in many cases is one in which the entrepreneur is a trained expert with several years of experience. While establishing the business the entrepreneur will also undertake tasks such as in-house bookkeeping to minimise costs. But, are they expert in bookkeeping and accounting? Are they prepared to undertake such tasks with no formal training or do you even want to do that? Bookkeeping is one of the most common tasks that are ignored by entrepreneurs when they start businesses and this could lead to detrimental effects on the success and future of the entity. They are usually too busy running other affairs of the business to pay attention to the books.
As a business entrepreneur, you should focus your energies and efforts doing those aspects of the business that you are best suited for. Leave the numbers of bookkeeping, accounting and taxes to the professionals to help you keep track of your bottom line. Your business will benefit from good bookkeeping records in the following ways:
- The purpose of any business is to make profits. Any organization, especially a small business with limited resources that does not make profit will eventually shut down. The profit motive, common known as the bottom line, must be closely monitored. The correct bottom line will be clearly provided through correct bookkeeping, accounting and financial statements preparations.
- Differentiating between personal and business activities for small business is critical. A trained bookkeeper will help you track all incomes and expenses that relate to the business and thus eliminate understating or overstating your bottom line. Maintaining separate bank accounts for business and personal activities is essential.
- An experienced bookkeeping will advise you on the appropriate accounting software that meets you daily, monthly and annual reporting needs. The software should be able to provide the business with management reports regularly that are required for the smooth running and successful operation of the entity.
- With the help of the bookkeeper/accountant, determine what type of controls you want to put in place and what items you want to monitor closely. You could wish to keep close watch on your inventory and thus set up a system that will help you achieve this.
- Reconcile your bank account, petty cash account and the credit card accounts regularly. Most small businesses operated mainly on cash, an asset that can easily fall into misuse. It is therefore important to ensure that all cash receipts are banked intact regularly and reconciliations done on a timely basis. If the business owner is not familiar with reconciliations, a bookkeeper can do this.
- Good record keeping will minimise the chances of your business being audited by Canada Revenue Agency (CRA). Inadequate records and claiming personal expenses as business is another trigger for the CRA audit. Bookkeepers/Accountants understand what is considered business expenses and what is not.
- Always provide documents to support your business activities. Revenues should be recorded on invoices or cash sales receipts. Expenses should be evidences by bills, cash or credit card purchase receipts. Cheque payments should also have supporting documents. Documents provide evidence and the reason for the transaction
- If you have employees and do not have a payroll system in house, outsource this service. A professional bookkeeper or accountant can easily provide this service. The payroll system is very handy in providing employee records, annual tax returns and payroll liabilities.
- If you sale goods or provide services on credit, Accounts Receivable (A/R) is one area you should keep close watch on. A delay in the receivables can lead to serious cash flow problems in the organization. Good bookkeeping software should provide alerts when accounts are overdue. Equally important, you should closely monitor your Accounts Payable (A/P) and take advantage of any discounts that arise from timely payments or avoid being charged late payment penalties.
- Good bookkeeping and accounting will enable the organization comply with the operating legislation and the tax laws. A small business with no proper records can easily be shut down by the tax authorities for failing to comply with timely returns of items such as GST, Payroll Source Deductions and Corporate Tax Returns. It is during such times that entrepreneurs realize the importance of good record keeping and the need for bookkeepers and accountants.
Accounting and Bookkeeping needs for a small businesses might not be complex at the start of the business. The owner will take upon himself this duty and try to maintain the books, but is soon overcome by other aspects of the business such as marketing and promotion. When this occurs, record keeping falls into arrears and as time goes by even the primary source documents for updating records are not made. The longer the delay, the higher the chances of forgetting what transpired when the transaction first occurred. Unless an entrepreneur is an accountant or bookkeeper, they should concentrate their efforts and energies on doing what they are best trained to do and leave accounting and bookkeeping to the professionals. If the organization is too small to hire a full time bookkeeper or accountant, it can outsource the services to third party firms at a much lower cost.