In this interview excerpt we will be looking at how small business owners can be smart about keeping their debts and credits on the proper side of ledger. For some small business accounting tips we are joined by chartered accountant and tax specialist, Allan Madan.
Int: When a company is first starting out what are the most important things they need to know about accounting tips for small businesses?
Allan: First off, where most businesses fail is with respect to accounts so they really need that strong accounting pillar and what they should do is purchase a small business accounting software package like QuickBooks or Simply Accounting, keep all records and receipts and really be on top of it.
Int: Say they get one of these programs, what can they expect to get from a program like QuickBooks?
Allan: With a program like QuickBooks Pro or Simply Accounting they can expect regular financial reporting, their income statement, their margins, all of the information they need to make key critical decisions to keep their business on track.
Int: Is there anything else they can do aside from just a software program?
Allan: Absolutely, keeping accurate receipts, your little credit card slips, bank statements and credit card statements are all important because when it’s time for an audit that’s what the CRA wants to see. This, by far, is amongst the most important small business accounting tips.
Int: What are other common mistakes that entrepreneurs make in accounting and what small business accounting tips can they be given?
Allan: The common mistakes are entering the debits and credits incorrectly. So it’s always great to seek advice from a professional, how to use software, and how to keep records appropriately. A little money spent on a professional would save you a lot in the long run.
Int: What can entrepreneurs do themselves as far as small business accounting tips are concerned and what do they usually need help with? Or is there a risk in thinking I can do this or you really need a professional to take care of it?
Allan: The biggest things that you should get an accountant to help as an entrepreneur with respect to accounting is tax return preparation. If you are an incorporated entity tax returns can become very complex and they are not simplistic to fill out on the CRA’s website.
Int: What are some of the common questions you get from business owners?
Allan: The common questions are how do I save tax? Tell me how I can increase my bottom line? There is many ways to do that. I will just go through the couple of important ones. One is to claim your home office expenses if you work from home so that would include things like property taxes and mortgage interest. Another common strategy is to incorporate your business. Unlike employees who pay really high rate of tax, corporations only pay a tax rate of fifteen and a half percent.
Int: Let’s look at some tax loopholes here. Tax Deferrals, charging rent to your business, buying home through your business, keep HST collected.
Allan: Buying your home through your business, it’s known as an employee home purchase plan. In a nutshell you borrow money from your corporation to buy your dream house and you repay your corporation over a period of time. Keeping the HST collected, you collect 13%. But there is a method called the Quick Method where you only have to give back 8.8% and keep the spread; and this is an important accounting tip for small businesses.
Lastly, one small thing that people may not think is a big deal but really helps out is towards the end of the year make major purchases. So you can claim six months worth of depreciation even if you only have the capital asset for few days.
Int: What about financial controls? You have some tips in this area as well for small business owners?
Allan: The biggest financial control is to review your books and records regularly. It’s amazing how much insight you can gain by reviewing your statements with your accountant to look out for red flags.
Int: Talk about some of the financial tips and importance of those.
Allan: Employee expense report is a key. As you know as your business grows there is so much only that you can be involved in. So making sure the checks and balances and approvals from employee expense reports is important.
Int: What about being a small business owner yourself? What are the mistakes you have made? What are the things you did right and what did you tried to impart to your clients?
Allan: The thing I did right is accounting. I was really on top of my books & records and my tax loopholes. The mistake that I made was really not networking enough as a business owner. Now that I have learnt the importance of meeting people and individuals of business interests I have really expanded my potential client base.
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.