If you’ve ever taken the plunge into the uncertain waters of business, then you obviously understand the importance of keeping orderly and neat business records. The success, or at least the continuance, of any business, is hinged on developing and maintaining an orderly and effective bookkeeping system regardless of whether your firm is incorporated or unincorporated.
There are various methods of keeping and maintaining records, for example:
– Manila folder
– File hosting system
– Online electronic systems
– Computer system
Whichever method you use, the ideal bookkeeping system ought to be easy to use as well as provide ample storage and effortless retrieval of records. Above all, the bookkeeping system should be suited to your specific business needs which are determined by the business type, size, and complexity. The resources at your disposal can also determine the record-keeping method you should opt for.
There are numerous reasons to want to keep orderly records, and they include legal compliance, profitability, efficiency, cost-effectiveness as well as reduction of taxes. Each of these reasons is elaborated further hereunder:
Legal Compliance
Perhaps the most pressing and inescapable reason why every business should keep records is so as to comply with the Canadian legal requirement for businesses. According to the Canadian law, an entrepreneur, sole proprietorship, company, partnership, or whichever business structure you choose to conduct business, is required to protect business records and turn them over together with supporting documents if and when required by the CRA. Businesses are also required to be present when CRA officials examine the business records at the address where they are kept.
These records have minimum requirements they must satisfy. For example, they should be reliable and complete; have annexed supporting documents; include all information necessary to meet tax obligations and calculate credits, and be kept in either English or French or a combination of the two languages.
Electronic records ought to be supported and maintained by a system that can produce records accessible by CRA officials and readable by CRA software. More, if a business opts to keep electronic records, then it should store proper backup copies at a different site within Canada save for the business location.
Detail Tracking and Improving Business Operations
As any business owner will attest, while in this trade you’ll need to track tons of information such as sales, customers, as well as inventory. If you lack a proper, efficient, and effective bookkeeping system, you could easily lose sight of very important business details, thus, plunging you into a hot mess, especially with regards to serving clients. To meet or exceed customer expectations and demands, you must first know who they are, their tastes and preferences, as well as shopping mannerisms. These details are key when tailoring your services to suit each customer’s needs. If you lose them or can’t easily access or retrieve them, then your goose is cooked, quite literally as you risk disappointing the customer and losing them forever. Therefore, it is critical that you keep and maintain an orderly bookkeeping system that will inform you of who your customers are, their purchases, as well as their purchasing mannerisms.
Good Bookkeeping is a Bulwark for your Organization against All Forms of Business Risks
In case any entity decides to challenge your business’ actions or deeds, the records will come in handy to prove that whatever actions you took were appropriate and called for. The records will also come to your aid when faced with legal hurdles. They’ll show that you’ve complied with every regulatory requirement. Therefore, if you intend to mitigate the risk of legal problems or pressures in future, it is prudent to keep orderly and up-to-date business records.
Good Business Bookkeeping is Important for Long-Term Accountability and Sustainability
Good bookkeeping is beneficial to your business both now and in the future. You must be aware of the challenges of fast technological change, media degradation, and the introduction of a barrage of new applications and formats incapable of effective bookkeeping- therefore, you need to undertake the business of bookkeeping with a lot of diligence and strategy as the records might be needed in the future. Think, for instance, what will happen in the future when staff and clients seek to assert their rights against your business- it will be advantageous to you if you stowed the information pertaining to their entitlements in a safe place as you can refer to the records to fulfill your obligations or challenge their claims if they are unfounded. More, information regarding the construction of public infrastructure such as bridges and roads will be required to maintain the assets in future.
Proper Bookkeeping can Help a Business Reduce Its Tax Liabilities
Most businesses are aware of their receivables, but they fail follow their payables. That is because most businesses will draw cash from their bank account, spend it, and fail to record the expenses. What that means is that receivables and payables don’t tally- receivables will yield an accurate record while payables won’t be as accurate. Now, if your business has high receivables and low payables, the auditor will find a higher profit margin than reality. While your income will be accurately documented on the invoices, the expenses won’t be easily traced. Therefore, try as much as possible to keep a proper record of receivables and payables to reduce your tax liabilities.
Improving Efficiency
Proper bookkeeping enables small businesses to administer their resources and information more efficiently by reducing the possibility of duplication, the amount of time and effort spent searching for or recreating information, and costly errors. Research shows that 20% of staff time is spent trying to locate information. More, keeping proper records means optimizing office space by reducing or eliminating unnecessary records.
Planning
Good bookkeeping helps a business to plan its future. For example, it can enable a business owner to track the inventory needed for the next year or quarter, depending on the coming season. This is especially important to cloth vendors who ought to anticipate the need for new inventory all year, thanks to the seasonal cycles.
But how can a small business properly maintain its records? This is how:
– Maintain an inventory record- if you deal with a number of small ticket merchandise such as stationeries, you’ll need to employ a computer systems to trail inventory. Alternatively, you can tie the computer system into the sales by installing a point of sale (POS) inventory system. But if you deal with bigger ticket items, then you can do it manually on paper.
– Maintain an accounts receivable system- You need to maintain an accounts receivable system if people buy from your business to pay at a deferred date. In such a case, the accounts receivable system will record and update what you are owed.
– Petty cash record- ensure you maintain a petty cash records and maintain a log of every expense paid from petty cash.
– Revenue & Expense Journal- it is ideal for keeping track of the amount of money streaming in and out, and where it goes.
It is important to bring your information or bookkeeping system up to speed with best practices across Canada. Of course, you can restructure the records system on your own- but be prepared to spend several months on it. Perhaps the most effective thing to do in that regard is to outsource the task to chartered professional accountant who’ll help to develop a tailored action plan for cutting costs while making your records compliant with Canadian law and more efficient. More, a chartered professional accountant can allow you to get the required bookkeeping services on a la carte basis.
© 2017 Revenue District