Small business owners understand the value of maintaining accurate financial records. Smart, small business accounting practices are an essential part of managing your operations, planning for the future, and avoiding costly errors that catch the attention of the Canada Revenue Agency (CRA).

Dealing with unforeseen expenses is often one of the most significant financial challenges small business owners face. Plus, keeping up with accounting-related tasks can get overwhelming quickly if you’re unprepared.

From opening a business bank account to accurately recording your expenses to budgeting for the future, here are 10 ways for small business owners to help maintain accurate records and stay focused on growing your business:

An accountant meeting with client
  1. Budget for the Future. Estimate where your business’s income will come from over the next one to three years, and project where you think you will be. It can be tricky since there are factors beyond your control such as inflation or what your customers may do. But it can still help you figure out where to invest your revenue during the offseason when demand for your products or services may be slow. Take stock of what your company may need in the near and long-term future. For instance, do you need to replace your computing systems or acquire new equipment? Planning for major expenses and repairs and maintenance can keep things running efficiently.
  1. Use Separate Bank Accounts. Don’t mix your personal finances with business finances. Instead, have separate business and personal bank accounts. A business bank account makes it easier to track expenses and take advantage of tax deductions, and some financial institutions may offer the option of a line of credit to use in a short-term cash crunch.
  1. Keep Your Receipts. Holding onto business-related receipts for purchases you made will come in handy come tax time so you can claim business expenses. It doesn’t matter what the receipt is for, whether it’s office supplies or a new piece of equipment. Knowing what costs you incur each month makes it easier to keep abreast of where your money is going.
  1. Monitor Accounts Receivable. Accurately record all deposits to your business bank account throughout the year. If you can’t account for where your funds are coming from, you may be leaving yourself open to paying taxes on funds that aren’t actual income.
  1. Track Your Customer Invoices. Are your customers paying their bills on time as agreed? You need to stay on top of that. Have a plan if customers are late settling their accounts, such as issuing a second invoice, giving them a call to gently remind them their account is past due or adding additional fees if deadlines are missed. 
  1. Budget to Pay Taxes. You know you have to pay taxes, so get into the habit of setting aside the necessary funds you’ll owe to the government throughout the year. Failing to prepare can result in an unpleasant surprise in the spring when tax season arrives, such as an audit or a significant tax bill that may incur interest or financial penalties from the CRA.
  1. Get Errors and Omissions (E&O) Insurance. Also referred to as professional liability insurance, E&O insurance protects you against claims or lawsuits alleging financial loss due to a service you provided, negligence, or failing to deliver a service as promised. It also covers your legal defence costs if you are sued, as well as any court-ordered monetary judgments or settlements up to your policy limit. E&O insurance usually accompanies other types of business insurance to provide your small business with a comprehensive policy, such as commercial general liability insurance and cyber liability insurance. Imagine what the cost would be if you were subject to a third-party lawsuit. Without insurance, it may threaten the survival of your business.
  1. Automate Your Accounting Practices. You may be able to manually track your finances for the first couple of years you’re in business, but taking advantage of accounting and bookkeeping software options to automate certain tasks can make things easier and reduce the risk of errors. Whether you use it or provide a bookkeeper or accountant with access to your account, small business accounting software can make mundane financial tracking tasks less so, and you should be able to link it to your business bank account. Doing that, in turn, makes keeping tabs on your income and expenditures simpler, gives a clear view of where you’re at, and you can easily generate reports to understand where every penny is going.
  1. Accurately Track Your Inventory. It’s vital to have accurate inventory data. Whether you manually count your inventory regularly or use an inventory management system to automate the process (provided it’s integrated with a point-of-sale or automated accounting system, for example), the more organized you are, the better. Sound inventory management practices can help avoid discrepancies with your bookkeeping.
  1. Hire a Professional Accountant. It never hurts to turn to an experienced professional to manage your finances, even if it’s for a few hours each month. Whereas a bookkeeper may focus on recording and classifying your expenses and income, an accountant can take it a step further by helping you strategically plan a budget and file accurate tax returns. Furthermore, an accountant will know about certain write-offs, deductions, and other loopholes to help lower your tax bill.
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