Small businesses are on the rise as more people opt to work and create financial stability, for themselves. Owning a small business can be a big challenge. According to Innovation, Science and Economic Development Canada, between 2014 and 2018 an average of 97 640 businesses were created every year and 89 227 businesses disappeared. That leaves an average of 8 413 businesses that made it to the next year, which is roughly 11,6 percent.
Dealing with small business taxes and managing finances are one of the biggest stumbling blocks for businesses. Avoid becoming a statistic by steering clear of the following mistakes that small businesses make.
1. Not keeping small business records.
Evidence of expenses is needed if an audit is done on your business. Practice good organizing skills by keeping all your receipts and writing exactly what the receipt was for on the back. The same idea goes for cash or trade payments – every single transaction needs to be recorded and considered. It is illegal to not report such transactions. If you are managing your tax and finances yourself, it is essential that you have a decent and organized system to keep track of everything. Make sure that you have one place for all your receipts and use a proper filing system to keep everything together. It Is very important that you prioritize working with and checking your finances regularly. If done incorrectly, you can skew the results and make it more difficult to plan.
Create a schedule to organize your receipts at least once a week, if possible, to prevent a ton of work by having to play catch-up at the end of the month.
2. Personal versus business expenses.
When you run your own small business, it is inevitable that certain areas will overflow. It is important that a clear distinction is made between business and personal expenses, and what percentages they occupy. For example, if you use your vehicle for both business and personal purposes, you might need to write down the kilometers driven for each and then calculate the percentage to apply to vehicle-related expenses.
By keeping your finances separate, you’ll always know what transactions were commercial and available to claim tax on, and which transactions were your own and unrelated to your business’ budget. A good tip is to have separate bank accounts for each and diligently work with each.
3. Trying to manage everything yourself.
You have enough on your plate as it is. Trying to do your own finances and taxes is bound to go South, especially when you’re not used to working with numbers. Mathematical errors in your business can harm you in the long run or make tax time extra difficult. Inaccurate payroll records will also likely be a nightmare when it comes to tax and can incur hefty penalties if it is not managed properly.
The success of any small business often depends on good money management, so if you’re uneasy around the calculator, it is better to have a professional on your team who can make sure your business is financially sound.
4. No backups of your records.
It is extremely important to have either digital or physical paper copies of your records. Technology can be unreliable at the best of times and making sure that you have backups is essential to prevent unexpected problems. Have peace of mind by keeping at least two copies of your financial records. Even better – have a professional manage your finances and you can be sure that they will keep backups of your taxes and accounts.
5. Not managing your small business finances effectively.
Setting up a budget and proactively managing your cash flow are two ways to effectively manage your business’ finances. By having a budget, you not only have guidelines on how much left you have to spend, but it also provides you with an idea of how your business is growing. If you have little experience with budgeting, make the effort to contact a professional to help you. By budgeting and forecasting, you can plan and execute better.
Starting your own business is hard enough, and continuing to manage it is even harder, especially when it comes to your company’s finances.
If you are in need of an accountant in the Vancouver area who understands the BC and Federal tax system, Soleimani Accounting would love to be your financial support team, to help your navigate the complex tax system and help your flourish and achieve your goals. Always nice to have a professional on your side to manage your finances and tax each year to prevent mistakes and associated stress.