The importance of bookkeeping cannot be stressed enough when it comes to running your own business. Many businesses, which otherwise have been successful, have been dragged down by their failure to maintain proper financial records.
Whether you’re a small business owner looking to grow your business or you’re just a little nervous about tax season—early tax planning (bookkeeping and record-keeping) is crucial to keeping your business financially healthy.
So what is bookkeeping?
If you don’t already know, bookkeeping refers to the process of organizing and storing of your financial and accounting documents including ledgers, journals, financial statements, income tax records, and more.
Why exactly is bookkeeping so crucial anyway?
1. Avoid an Audit from the CRA
In 2013, the CRA dedicated a bulk of its program spending resources (54%) to small to medium sized businesses, with $1.3 billion in government spending on small and medium enterprise audit activities the following year.
If that doesn’t worry you, the 2017 Federal Budget recently announced an additional $523.9 million investment towards CRA compliance programs over the next five years—meaning more money to audit small business owners like yourself!
Want to avoid an audit altogether? It’s simple. Keep track of all your books regularly. If you want to be even more prepared, pay close attention to the red flags that the CRA notices in small businesses like revenue discrepancies, outliers, and large business expenses.
2. Keep the Stress of Receiving an Audit at a Minimum
Having your books in good order means that you’re well equipped for the unfortunate case that your books ARE audited by the CRA. Because self-employed small business owners are the most at risk for a CRA audit, proper bookkeeping becomes more crucial than ever. The more accurate and up-to-date your company’s books are, the quicker the CRA can move on from your case—leaving less time for headaches, and more time for actually growing your business.
3. Improved Financial Analysis & Management
In order for your business to stay afloat, it needs cash. We all know that cash flow management is not an easy task. Proper bookkeeping allows you to analyze and manage your cash flow so you can see a more accurate picture of your business’ financial situation.
Proper bookkeeping also helps you keep on top of paying invoices to vendors in a timely fashion. Plus, you always know exactly where your outgoing money is being spent. Who wouldn’t want to know where their money is going? With the Kashoo app, you can enter and track your expenses and income on-the-go, and even create and send out branded invoices straight to your clients along with a link for them to pay with their credit card on the spot—making keeping track of your finances a whole lot easier.
4. Don’t Miss Out on Potential Tax Deductions
Slow and inconsistent bookkeeping can easily lead to missing a legitimate tax deduction that you otherwise could have received. (i.e. home office expenses) Alternatively, the CRA could disallow your tax deduction based on missing paperwork, which you might have misplaced. According to Toronto-based income tax attorney Rotfleisch, you should be keeping your receipts and invoices for at least 6 years, otherwise the CRA has every right to deny the deduction that you’re claiming. This means that you should be waiting until the end of 2023 until you can safely destroy your 2017 return.
Keep in mind the general rule of thumb in any tax assessment is that the CRA is always right—unless of course, your records prove otherwise.
5. Be More Equipped & Informed
By the time tax season comes and it’s time to file your year-end taxes or submit your GST/HST remittance, you don’t want to be scrambling for your paperwork. You also don’t want to receive a notification letter from the CRA stating that you’re subject to an audit. Save yourself time and headache by recording all your transactions (income and expenses) directly in Kashoo, and reap the rewards of bookkeeping in the long run. Ready to take charge of your business? Try Kashoo free!