Bookkeeping Best Practices for Ontario Small Businesses

Bookkeeping and accounting Are Not the Same Job

It makes sense to address this misconception straightaway as it is a source of significant problems. Bookkeeping is an operation which deals with capturing transactions on the fly: every sale, every expense, and every payroll entry recorded as it occurs. The analysis, statement preparation, and decision making based on that information is accounting.

A business that performs either of these functions but not both lacks a part of its puzzle. Neat books without any analysis do not move anywhere. Conversely, analysis done with incomplete or sloppy books may be pure guesswork. Two heads are better than one when it comes to these matters.

The Baseline for Compliance You Won’t Want to Forget

To get a better understanding of what best practices involve, it may first be useful to understand the baseline that the CRA sets out:

All business transactions must be supported by some form of documentation – no guesses but solid record keeping.

The supporting documentation (receipts, invoices, contracts, payroll records) must be retained for a minimum of six years from the end of the tax year associated.

HST/GST remittance periods depend on your revenue threshold, while payroll remittances have their own schedules.

This is just the bare minimum. Everything else listed here helps you stay well above it.

• Get Your Business a Dedicated Bank Account

  It’s the easiest way to end up with an accounting nightmare, and the good news is that it can be easily avoided. As soon as your personal groceries and business supplies use the same bank account, you’ll have a headache with each reconciliation. Open a business account and business credit card from the start, regardless of whether you are working as a sole proprietor.

  Apart from making your life easier, proper segregation is one of the first things that will give credibility to your records in case of any questions from the CRA – mixed accounts are considered to be one of the red flags of audits, not because of any ethical problems with them, but due to difficulties in verification.

• Bookkeep Your Transactions While You Do Them, Not When You Remember Them

  Entering data from three months’ worth of receipts all in one tired weekend is how you end up with mistakes – a receipt for gasoline booked under office expenses, an invoice of $600 mistakenly entered twice, and payments by clients which are entirely ignored in the process. But the solution to the problem is simple – form a five-minute habit of noting down the transactions that occurred on a daily or weekly basis.

  Doing bookkeeping on a real time basis also helps because you get an accurate picture of where you stand financially, instead of realizing late that you don’t have enough money to pay rent!

• Automate the Repeating Tasks

  Cloud-based accounting systems (QuickBooks Online, Xero, Wave) have been made specifically for this purpose. Transactions can be automatically pulled from bank feeds, invoices are sent automatically, and tax calculations on each transaction happen automatically without the need for mental arithmetic. The initial set up takes only a few hours but it will pay back the investment in no time.

  The real benefit here lies in visibility – having a dashboard where you see everything in real time means you won’t be surprised at the end of the year when you find that your margins have decreased.

• Reconcile Your Books Monthly Without Exception

  Reconciliation is basically verifying that what you think you have in your books matches with the reality of your bank statement. Issues like skipped transactions, duplicated transactions, forgotten bank fees, or even potential fraud are caught right away – and much faster in monthly reconciliation than in annual reconciliation.

  Make it a calendar appointment that you have once per month and pair it with an analysis of your profit/loss statement and balance sheet quarterly.

• Create a Practical Source Document Filing System

  Each entry in your books should be linked to a document. This could be an invoice, receipt, signed contract, or paycheck stub. In case a CRA auditor or even your own accountant when it comes time to pay taxes says “can I see the source of that,” the response should come within minutes, not after an hour spent rummaging through your file box.

  Some of the features of a practical filing system would be:

  1. Immediately scanning receipts using an application that connects directly with your accounting software
  2. Organizing the documents by vendor and date rather than putting everything into one place
  3. Separating the employment-related documentation because it must comply with additional laws

• Know Your Deadlines Prior to Them Becoming Urgent

  There are several periodic deadlines faced by Ontario small businesses that have significant financial implications for those that fail to meet them:

  Requirement	Trigger
  HST/HST Registration Requirement	Once annual revenues surpass $30,000
  HST/GST Remittance	Monthly, quarterly or annually based on revenue
  Payroll Remittances	Within six months after the fiscal year end
  Record Retention Corporate Tax Filing	Five years minimum following the tax year Within six months after the fiscal year end

  Failing to meet any of these deadlines carries with it penalties and interest that accrue over time – and unlike forgetting to return a library book, the CRA will not send a nice warning about your deadline approaching.

• Create a Rhythm for Reviews in Your Schedule

  An annual race against the clock is the antithesis of good books. Instead: Monthly – ensure all transactions have been recorded and properly classified Quarterly – reconcile in detail, financial statement reviews, verify HST remittances Annually – do the book closing, have everything ready for the accountant’s corporate filings.

  The rhythm makes bookkeeping not a daunting task but regular maintenance, like having a car serviced on schedule rather than repairing it after it breaks down.

The Mistakes That Do the Most Harm

There are a few recurring themes when a business fails:

Late Data Entries- The longer something is left undocumented, the higher the chance that something will be forgotten or filed under the wrong category.

Unreliable categories-“Software subscription costs” that are listed under office costs for some quarters, but professional fees for others are making your statements untrustworthy and inconsistent.

Lack of a backup plan- Your year of accounting records shouldn’t be lost because of a failure of your laptop or a ransomware attack on your system. Cloud storage with automated backups is a cheap and simple enough solution.

Poor access control- Passwords should be used to protect financial information; two-factor authentication can be added later when more than one user is working with the documents.

None of those needs to be solved through drastic measures. Consistency is needed, and it’s all bookkeeping is about.

Manual, Software, or Outsource – Choosing for Your Setup

Eventually, most firms will settle for an approach that is in between, which involves the use of software for capturing the transactions and the bookkeeper or accountant analyzing the results periodically.

It’s Time to Get Some Professional Help

If you find yourself doing late nights of data entry in spreadsheets when you should be focusing on actually running the business, or you find yourself getting anxious about the pending CRA notice because of worries over your financial records, it’s likely time to get help. Not only will a solid bookkeeping service save you hours, but they’ll also catch all those mistakes and missed tax credits that outweigh their costs.

BetaTaxes sets up audit ready bookkeeping systems for Ontario small businesses which will not turn into an annual panic come April. Contact us today for a free consultation.