This article was originally published in the January/February 2010 issue of the MOMpreneur on pages 18 through 20. I present it here excluding their graphics.

Managing the Books YOURSELF

by Laura Kenway

Keeping books is a legal requirement if you operate a business in Canada. A good set of books can provide you with more than just tax preparation information.


Here are five bookkeeping tips for unincorporated, small business owners.




$Tip 1 Always keep business finances separate from personal finances. Don't give the tax auditor a reason to audit both. This practice reduces bookkeeping entries and errors.

  • Separate bank and credit card accounts decreases the risk of under reporting sales or over stating business expenses.
  • Deposit all business income collected, including cash, to your business bank account.
  • Use business cheques or a business credit card to pay business expenses instead of your own personal funds.
  • Take regular draws rather than using business accounts for personal expenditures.


  • $Tip 2 Audit proof your records. This practice increases the likelihood of a smooth flowing audit.

  • Don’t confuse 'proof of purchase' and 'proof of payment'. You need both. Cancelled cheques, debit or credit card receipts only show proof of payment. You need actual bills / receipts showing what was purchased as well.
  • Credit card and bank statements are important source documents providing third party confirmation of account balances.
  • Diarize your logic for your business ventures or have a formal business plan to show the expenses were incurred with the expectation of profit.




  • ... the success or failure of your business could come down to these two choices: how you decided to keep your company's books, and how well you kept the books.




    $Tip 3 Educate yourself on what is tax deductible. This practice legally lowers your net taxable income.

  • Keep all receipts, no matter how small the amount and make sure they are legible. You will be surprised how they add up over the year to lower your tax bill.
  • Keep property tax, home maintenance, insurance and utility bills to claim the maximum home office expense deduction.
  • Keep an auto log if you use your personal vehicle for business purposes; along with all the operating receipts.




  • $Tip 4 Develop a method to organize and process paperwork. This practice minimizes lost deductions. A lost source document means a lost tax deduction and increased taxes.

  • Select a filing system. File organization doesn’t have to be complex to work.
  • Schedule a recurring appointment to do bookkeeping.
  • Save time by entering bookkeeping data in batches.
  • Reconcile bank and credit card statements monthly.
  • Review internal financial reports for accuracy monthly (make sure the numbers make sense).




  • $Tip 5 File all tax compliance reports on time to avoid expensive penalties, even if you can't pay the amount owing. This practice keeps more money in your pocket and up-to-date reporting.





    When to Outsource the Work
    Annually review the decision to do your own books. Should you outsource all or parts to a bookkeeper? Reviewing this decision presents questions like what do you look for in hiring a bookkeeper and/or an accountant; how do you know when it's time to hire a professional, and what is the difference between a bookkeeper and an accountant.

    A BOOKKEEPER accurately and correctly classifies and records transactions in the general ledger through data entry as well as performs bank and credit card reconciliations. The steps are somewhat mechanical, involve understanding debits and credits, general bookkeeping principles and being comfortable using computer software. The books are generally not ready for tax preparation. You may decide you have the skills and the time to do some or all of this job yourself.

    A PROFESSIONAL BOOKKEEPER is sometimes referred to as an uncertified accountant; they are trained to review and analyze the general ledger for accuracy, and to prepare adjusting entries and useful reports for the owner, including internal financial statements. The books are generally ready for tax preparation.

    AN ACCOUNTANT determines the best setup for your bookkeeping system (it is not one system fits all), monitors it and interprets the results. These processes are more subjective than the bookkeeper’s job and requires an understanding of the bookkeeping process. Professional bookkeepers are usually trained to assist small business owners in these tasks.

    IT'S TIME TO HIRE A PROFESSIONAL BOOKKEEPER IF YOU:

    • don’t know where to start or are struggling but don’t think you can afford to outsource (some training on data entry may be all you need);
    • enjoy doing the books but need someone to answer bookkeeping questions you can’t figure out on your own or want a professional to periodically review your general ledger to ensure you are on the right track;
    • don’t enjoy bookkeeping, are just terrible with numbers, or dislike doing paperwork;
    • want a bookkeeper but don’t have room in your own home office (bookkeepers don’t have to work on-site);
    • are continually behind, frequently pay tax penalties, or are simply not filing tax compliance returns;
    • have up-to-date books but no idea what the information tells you about your business;
    • don’t have regular financial information you can use to grow your business.





    The need for an accountant is dependent upon the size and complexity of your business.




    HERE ARE SOME THINGS TO CONSIDER WHEN HIRING A BOOKKEEPER OR ACCOUNTANT:

    • Decide, in advance, what work you want done.
    • If possible, meet face to face and see where they work at least once to get an idea of how organized they are.
    • How do they operate? Determine whether they just process data or take time to review and explain results to you.
    • Consider your general “feel” for them then go with your instincts. Do you feel comfortable giving them confidential information? Do they speak to you in a way you understand?
    • How are fees structured? Do they have an engagement letter? Are they insured? Are they qualified?



    The bookkeeping industry is currently unregulated in Canada so choose your bookkeeper carefully. The Institute of Professional Bookkeepers (IPBC) and the Canadian Bookkeepers Association (CBA) have online directories you can search for a qualified professional bookkeeper in your area.

    The need for an accountant is dependent upon the size and complexity of your business. If your business is simple with no outside third party reporting, you may not require the expertise and expense of a certified accountant. Accountants / professional bookkeepers can prepare less costly Notice to Reader (NTR) financial statements that may be suitable for your needs.

    Canada has three types of certified accountants; chartered accountants (CA), certified general accountants (CGA) and certified management accountants (CMA). Only public practice CAs or CGAs can provide financial statements that express review or audit opinions. (See reference at the end of this article.)

    Take control of your business finances. Remember the success or failure of your business could come down to these two choices - how you decided to keep your company’s books; and how well you kept the books.





    Laura Kenway is the owner/manager of Lakeshore Bookkeeping Services. She runs a small, personalized practice that specializes in home based businesses. She also provides free of charge at Bookkeeping-Essentials.com, an online Small Business Accounting Guide dedicated to supporting work from home business owners who do their own books.





    Edited November 2010 - Who can do audits, reviews and/or compiliations? See BC's The Corporations Act Part 7 - Audits Division 2 Appointment and Removal of Auditors 205 Persons authorized to act as auditors. In Ontario, see Public Accounting Act, 2004 Public accounting services and Licensing of Public Accountants. Other provinces may have similar legislation.



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