By Tim Kwan, CPA, CA
Tim obtained his Chartered Accountant designation through articling at a Big 4 accounting firm and a boutique accounting firm. He then opened Kwan + Co., leveraging his knowledge to build his business from the ground up. He loves to volunteer, including being the Treasurer of Hearts and Hammers, which provides renovations to individuals with mobility challenge.
Tim decided to become a Chartered Accountant because he is passionate about building relationships, both personally and professionally. He loves to help individuals thrive and grow, and having his own practice allows him this opportunity with individuals and businesses. As a CA, Tim uses his extensive knowledge to create a positive social impact through his practice.
Tim’s comprehensive small business expertise will alleviate the burden of your accounting needs so you can focus on running your business. By providing concise, timely, and accurate financial reports, he can help you get the financial details you need to make informed decisions to expand and grow your business. Tim, through his experience of building his own business, understands your needs and can help you maximize tax deductions and optimize solutions through tax planning to save you cash, giving you more freedom to do the things that you are truly passionate about.
Accounting and Tax Tips
Inadequate accounting procedures and practices could be the financial downfall for your business. Poor accounting could lead to catastrophic business consequences such as:
- Overlooked or unpaid expenses
- Penalties for late tax filing or inaccurate tax filing
- Difficulty paying employees or bills (law suits, interest, penalties)
Here are a few tips to get you started on your road to accounting mastery.
1. Keep your personal and business expenses separate.
There is nothing more stressful and time-wasting than having to sift through old receipts or expense reports trying to figure out if they are personal or business-related. If you just hand this to your bookkeeper, remember that they charge by the hour, so you can save yourself a lot of money by just being organized from the beginning. I recommend using a separate bank account and credit card for business expenses so that you are set up right from the get-go, but if you still use receipts and boxes, write a P or a B on the top of EVERY receipt or invoice so you can have some kind of reference.
2. Use an accounting software (Excel does not count).
There are a lot of different kinds of accounting software out there that have many different functions. If you are doing your accounting in-house, your software will be critical in organizing revenues, expenses, invoices, receipts, vendors, and employee lists, and some software can directly upload bank statements, making bookkeeping a breeze. A software can even create or manage budgets and forecast revenues and expenses for your business, which are essential skills for long-term viability of your brand. Excel, while good for some things, is simply insufficient for business needs. Accounting errors will lead to even more errors in your tax return and cause you serious headache in the future. Talk to any professional accountant as there are many cost-effective, cloud- based solutions that will allow you to easily manage your bookkeeping with your phone or tablet.
3. If it is not documented, it is not done.
So many people use their own vehicle or even their house as part of their business. The business-related percentage of your vehicles and property (insurance, maintenance, heating, fuel, lease, etc.) costs can create a sizeable deduction, but I see the same mistake over and over again: documentation is simply not done. Think total business km divided by total km in year and home office square feet divided by total home square feet, multiply these ratios by the total expenses. The onus is on you to prove how much you use your vehicle or property for business and personal use, and the only way to prove this is by documenting your usage. Extend this mindset to all expenses and deposits into your bank account, keeping statements and receipts for evidence and audit proofing. Always remember that if it is not documented, it is simply not done. Don’t pay tax when you don’t have to, and always document it.
4. Be proactive with your taxes.
Right from day one you should have a procedure in place to track sales taxes (GST/HST). Open an account with the Canada Revenue Agency to receive your tracking number and have access to make changes, charge GST/HST, file a GST/HST return, and make payments to settle your GST/HST balances. Filing a GST/HST return is a yearly requirement so there is no getting away from it, and if you want it to be less of a headache, you must track this information. Good accounting software will have this included, so if you are using a software, make sure it is included as that is not always the case. Having no knowledge of this could lead to a rude awakening as I have seen back balances owing in excess of $10,000. Don’t let this happen to you. Put aside a bit of money every month to help alleviate tax bills in the future so you are not hit with a big lump sum payment after filing. Be proactive rather than reactive with your taxes.
5. Know when to let go.
Eventually you will reach a point in your business when doing your own bookkeeping becomes tedious. You will realize that you should be spending your time handling the actual business and worrying less about the books. This means it is time to hand over the accounting needs to a professional accountant. Yes, it is going to cost you more than seeking help from the real estate agent down the street, but understand a few things. Professional accountants have years of experience in understanding how critical it is to be accurate and timely with your bookkeeping. Canadian CPAs are governed by a nationwide organization that requires CPAs to continually learn about Canadian accounting standards and taxation rules that directly affect your business. When that time comes, put your books in the hands of a professional and give yourself more time to do what you love.
While this list will not ensure you will never encounter any problems, it is a great starting point for things to consider. The most important advice I can give you is to plan ahead. Understand your obligations as an entrepreneur and ensure you can meet all those obligations. If you cannot do it yourself, seek help from those who can help you.