Your books are the financial roadmap that helps guide business owners to make decisions. Unfortunately, some common mistakes can have significant negative consequences. Here are the top 10 do’s and don’ts that Vancouver businesses need to know about bookkeeping.
Do Separate Your Business and Personal Finances
It’s important to keep your business finances separate from your personal finances. When setting up your business, you should open a bank account that is only used for business transactions. This also includes any other financial tools such as checks and credit cards. Without separating your finances, reconciliations are nearly impossible and can lead to misuse of business funds.
Do Reconcile Your Accounts
Reconciling your accounts monthly can help you catch mistakes that might be made in your books. Without a proper reconciliation, your business could be at risk of unnoticed fraud, bank errors, and cash flow issues.
Do Set Aside Money for Taxes
Your company will need to plan for taxes each year. Some businesses make the mistake of not setting aside enough money to cover the tax liability. This is especially true for newer businesses. It’s exciting to see the money coming in from your first sales, and it is easy to forget about taxes that must be paid. The last thing a business needs is to be hit with a huge tax bill at the end of the year.
Do Monitor Your Cashflow
Cashflow is the lifeblood of your business. As money flows in and out of your books, it’s critical to make sure that you always have enough on hand to cover any upcoming expenses and payroll. If you run out of money, your business will need to stop operations until you can secure additional funds. Proper bookkeeping ensures that businesses have good visibility of their current cash flow.
Do Negotiate Better Terms with Vendors
Negotiating better terms with vendors that your business works with frequently can give your company an advantage. These terms can be both better rates and longer payment timeframes. Lower costs can help reduce your expenses and increase your profit margins. Longer payment terms allow you additional time to keep your money in-hand improving your company’s cash flow. Ask your bookkeeper for a list of your top vendors to review.
One of the worst things you can do is procrastinate on your bookkeeping. It’s very easy to get distracted with other important business activities and put off journal entries. As time goes by, you put yourself at risk of having outdated financial records, lost receipts, and cash flow issues.
Don’t Discard Physical Records
Make sure that you retain all of your bills, receipts, and other financial documents so they can be properly recorded in your books. Don’t make the mistake of throwing these documents in the trash after you have completed your bookkeeping. These physical documents are important to keep in the event that you get audited. The Canada Revenue Service recommends keeping these documents for six years.
Don’t Be Careless with General Ledger Categories
Professional bookkeepers know how to properly set up their expense categories in the company’s books. It’s critical to plan this out as poorly organized categories can lead to miscategorized expenses. While you want to make sure that each expense is recorded in detail, you also don’t want to have too many expense categories. Accidentally duplicating accounts is one of the more common reasons for miscategorized expenses.
Don’t Neglect Your Financial Statements
Your financial statements will help you understand how your business is performing and tell you a lot about the decisions that you need to make to protect your financial security. Set a regular cadence to review your balance sheet, income statement, and cash flow statements. Set some metrics and levels that you would like your bookkeeper to monitor and alert you of.
Don’t Take on More Than You Can Handle
Bookkeeping can be overwhelming. Business owners need to know when it is time to bring on an expert to take over your bookkeeping. As your business grows or becomes more complex, there will be things that you need to keep track of. For over 30 years, the team at Valley Business Centre has been providing comprehensive accounting, bookkeeping, and tax services to our clients in Whistler, Squamish, the Sea to Sky Corridor, and metro Vancouver BC areas. Let us know how we can help with your bookkeeping needs.