Scott Park, CPA, CA
As the year comes to an end, many business owners may find themselves behind in their bookkeeping or perhaps they haven’t even started at all. This blog is meant to communicate the importance of bookkeeping throughout the year, not just at the end of the year.
What is Bookkeeping?
Bookkeeping refers to the process of recording the day-to-day transactions within a business. These transactions include purchases, sales, receipts, and payments. A bookkeeper fulfills the role of ensuring that all transactions are properly recorded, which is typically done by using computer programs like QuickBooks Online. They are also vital in supporting the business owner to help them make better decisions on a weekly or monthly basis.
So why is bookkeeping so important, anyway? Here are 7 reasons why bookkeeping is important to your business.
1.Keep proper records as required by law
According to the law, you are responsible for:
2.Avoid a CRA audit
In recent years, the federal government has increased the budget given to CRA to move forward with compliance programs and taxpayer audits. Want to avoid an audit? Do your books. The proverbial shoe box of receipts is not a good bookkeeping system. This is certainly one of the audit triggers that could get you audited.
3.Make sure you’re not missing out on business deductions
Sloppy bookkeeping may lead to over looking legitimate business deductions. Also, CRA may disallow your deductions without the proper documentation. Therefore, a well-designed bookkeeping system will help you to avoid paying more in taxes than you are legally required.
4.Keep your personal and business expenses separate
This is a common area that creates unnecessary work, hassle and confusion when not handled properly. Personal expenses should not be recorded as expenses in the business. They cannot be claimed as a business deduction. You certainly want to avoid a situation where you may find yourself being audited by CRA and they deny any personal expenses as business deductions as this will lead to increased taxes plus interest and penalties.
5.Improved financial analysis and management
As a business owner, don’t you want to know how well your company is performing on a financial level? Being able to generate a basic balance sheet and income statement will go a long way to monitor if the business is on the right track financially. Being able to monitor cash flow is also critical. Regardless of how busy you are, once supplier invoices go unpaid or customer payments have not been received, your business will suffer. A good bookkeeping system will help manage these cash flow nightmares.
6.Fulfill your tax obligations on time
Most businesses will have multiple statutory compliance tax filings to complete such as PST returns, GST/HST returns, payroll remittances, T4 and T5 slips, tax returns etc. Keeping your bookkeeping up to date will ensure that all compliance tax filings are done properly and in a timely manner to avoid unnecessary late filing penalties.
7.Reporting to banks or attract potential investors
Being able to provide timely and relevant financial reports when it comes time to renew your bank loan or if you are seeking potential investors is invaluable. It goes a long way when meeting with third parties to show them that you are organized and able to provide them with the financial information they are looking for.
To achieve all these, you should hire a qualified bookkeeper. Bookkeeping can spell the difference between success and failure and can also literally save thousands of dollars for your business.
Disclaimer: The blogs posted on Scott Park & Co Inc. website provide information of a general nature. These blog posts should not be considered specific advice since each person's personal financial situation is unique and fact specific. Please contact us prior to implementing or acting upon any of the information contained in one of our blogs. Scott Park & Co Inc. cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.