Congratulations on starting your new business! Launching any business is no small feat, with many decisions to be made about where to prioritize your time and money. It's no surprise to us that bookkeeping is typically at the bottom of that list, but it is important to get your books in order from the start to avoid future headaches (especially at tax time).
Here are some initial steps you should consider when setting up your bookkeeping:
1. Open a new bank account - No matter how small your business starts, it always makes sense to separate your business and personal bank accounts. Do your best to use the separate accounts and credit cards for business transactions and you'll avoid extra effort down the road and have a better immediate sense over your company's true cash position.
2. Track your expenses - The only way you can write-off expenses is if they are tracked. Paper receipts can be a real nuisance so we suggest you request e-receipts for every transaction and snap smartphone pics when a papercopy is the only option. A great online tool for tracking your expenses easily is shoeboxed. Separate your receipts into 5 categories to make it easier a tax time:
Meals and entertainment - If you bring a client out for lunch, etc, keep the receipt and note who the attendee was.
Out of town business travel - When you leave town, keep all receipts that relate to travel expenses and write reminder notes relating to the purpose of the trip.
Vehicle related expenses - Record where you went, when, why and how far it was from 'your office' whenever you go somewhere for a meeting or event.
Purchasing gifts for business - When you treat clients or exmployees to concert or sporting event tickets, you'll want to track this information as there are limits, etc to what can be claimed at tax time.
Home office expenses (only if you work from home) - Keep your utility bills. Your accountant will help you determine the eligibility based on the % of space in your home dedicated to your home office.
3. Decide which bookkeeping method to use - Are you going to do it yourself or outsource it? Accounting software is becoming more and more entrepreneur friendly these days, so doing it yourself is reasonably feasible. But is this where you want to spend your precious time? It is likely that opting to spare the cost early on will not save you in the long run as when you do finally hire someone they'll likely need to do a clean up. If you still think you'd prefer to do it yourself, check out some popular online software packages like Xero, Freshbooks, and Wave are all positioning to do-it-yourself enterpreneurs .
4. Get your Payroll right (if needed) - If you decide to hire people, there are compliance factors to consider. As an employer, you need to know the rules around source deductions and remittance deadlines because there are stiff penalities if you are late. Good bookkeepers should be able to guide you through these obligations.
5. Don't forget the tax! In Canada - you generally do not need to start collecting sales tax until you generate more than $30,000 in sales, however you may want to register sooner. Once you register, you can also get back the eligible sales tax you pay on purchases, and for most start-ups you spend more than you make in those initial months.
6. Re-visit your bookkeeping quarterly. As your business grows, so do the number of transactions. There is an art to ensuring the data you are recording can help influence future business decisions, but the last thing you want to spend your precious time on is bookkeeping.