A lot of new business owners have no experience in accounting or bookkeeping. This lack of understanding often leads to some very common mistakes.
The first mistake is to just ignore the bookkeeping and accounting for several years until you eventually find time and/or money to deal with it. In these circumstances owners are prompted to get compliant after the CRA sends demand letters ordering them to file outstanding returns. From my experience working with clients, at least 10% of small businesses file their first returns late. This can lead to unnecessary penalties and interest, which can often times be more costly than the actual bookkeeping.
Another mistake small business owners often make is that they engage a bookkeeper without knowing their bookkeeping needs. Bookkeeping can performed on a continuous basis (daily) or periodically whenever a report is required and the costs range greatly for dealing with the same amount of data. Continuous bookkeeping is the most expensive option. For some companies, having daily up-to-date records is necessary to keep an accurate portrait of the company’s financial position. Bookkeeping cost savings increase the more infrequent it becomes (monthly vs quarterly vs annual). When appropriate, annual bookkeeping is the most cost effective and efficient way, especially when done through a streamlined software system, such as CaseWare. QuickBooks and Sage are normally used for ongoing bookkeeping files and are not as efficient for data entry.
Some small businesses have several employees, receivables collection activity, payables, and relatively numerous transactions that make the bookkeeping and frequent bank reconciliations necessary. Without up-to-date books and records, owners wouldn’t know their profitability, and more importantly, their available cash flow. For businesses in this category they would want to have their bookkeeping performed on either a continuous basis, or a frequent periodic basis (weekly, semi-monthly, monthly).
For small businesses that don’t have employees and their transactions don’t necessitate constant bank reconciliations, such as realtors, period bookkeeping is the best match. If they are reporting annually for GST they can leave their bookkeeping to the end of the year. If they are reporting quarterly for GST then they should look into switching to annual filing. If your annual sales are less than $1.5 million, you can opt for annual filing (note – quarterly installments still apply). Opting for quarterly GST filing when it is not required increases your bookkeeping costs with no real benefit.
Lastly, it’s important to remember that bookkeeping solutions can be flexible. For example, if someone is required to file monthly for PST, they might be better off using continuous bookkeeping just for their sales. The bulk of the cost savings of annual bookkeeping can still be achieved when recording the expenses. There are numerous businesses that benefit by using a hybrid bookkeeping system.
Call us today if you would like to discuss your bookkeeping options with a Public Business Accountant. We can help you develop the right bookkeeping solution to meet your needs.
Solomon Nordine is the owner and president of Complete Accounting Solutions. Mr. Nordine is a Fellow Public Business Accountant (FPBA) and a United States Accountant.