Heading into a new quarter, it’s always a good time to check in on your cash flow, money practices, and overall managing financing. Whether checking in on your own or working with a professional, there are several financial aspects of your small business to check in on and possibly change to help suit your needs. These strategies may help you know where your money is at every moment and help make tax season a smoother experience.
First, investing in a bookkeeping platform that works for your small business is essential. Automation is best; make sure your current platform (or the one you’ve been eying) can make things as easy and efficient as possible for your needs. This includes sending out invoices on a schedule, paying contractors, and tracking spending; all of these help give owners a clearer sense of their financial standing at any point. Since there are so many platforms out there with varying prices and subscription levels, pay attention to the finer details of each and see how it fits your business. If you’re looking to experiment with a free option, try Wave Apps, which offers various automation options, invoicing, is user-friendly, and is available as an app on your phone.
As a small business owner (especially as a sole proprietor), personal and business finances can easily get intertwined, which can make tax season even more difficult. One strategy is to get a separate company credit or debit card, and only put company costs on those. Therefore, at the end of the fiscal year, your statements can double as tracking company expenses as well, making deductions a smoother experience.
Deductions are an essential part of bookkeeping. First, understand how Canada’s small business deduction works. A corporation’s small business deduction (SBD) for a taxation year is generally calculated by multiplying its SBD rate by the lesser of its income for the year from an active business carried on in Canada, excluding certain income and exceeding certain losses; taxable income for the year; and business limit for the year.
Evaluate what your system for recording and tracking deductions is. Whether it’s a solid old-fashioned spreadsheet or a bookkeeping app, make sure all of your business expenses are tracked so that come tax season, your business is prepared. Potential deductions may include advertising costs, business start-up costs, business meals, maintenance repairs, business travel office rental costs, mileage, and more. Keep your receipts (hopefully as organized as possible); or sign up for a receipt tracking app, such as Expensify, Smart Receipts or Receipts by Wave. While it may sound tedious now to have to input each receipt, it will pay off. This is also an essential tool to cultivating growth within your company.
If deductions and bookkeeping still sound daunting, find an accountant. Taxes and overall financial management can be confusing, so it’s helpful to have a professional in your corner. They’ll know best practices and give suggestions (and their fees may be a business deduction!) Working with an accountant in your niche or industry is recommended. For example, Hell Yeah Bookkeeping specializes in creative agencies and production companies. This specialized knowledge can help your business make the most out of your money.
There may be some deductions that you might miss. For example, if your small business is home-based, you may be able to claim deductions that range from the interest on your mortgage to a portion of cleaning materials costs. Another potential deduction is hiring your spouse or child. By employing them, through some income splitting, your net income could possibly drop to a lower tax bracket, allowing for a greater deduction. Additionally, if your small business (or sole proprietorship) hires tradespeople, you may be eligible for an Investment Tax Credit of up to $2000 for hiring an apprentice in the first two years of their program.
Check in with your local business network. Talking with other entrepreneurs to see how they’re handling cash flow, especially in these economically unpredictable times, is helpful. They might have recommendations or bookkeepers that they work with. If you’re new to the area or industry, search online to find an online network first. Start with Canada’s Small Business Knowledge Centre to connect with other small business owners.
While this may sound counter-intuitive, consider educational opportunities. They may not be related directly to money management, but they can help to contribute to financial growth in the future. There may be industry-mandated yearly training, so it’s also helpful to factor that in with financial planning. Additionally, scout out any business development courses, workshops, or college-level courses or programs that might be of use. And remember, educational costs may be deductions, so don’t forget to track them.
Lastly, if you use a platform such as Wix, Shopify, or Squarespace to operate an online business, all of these have tools built into them to break down annual sales. Spend some time understanding how they operate, review the free online tutorials, and take advantage of the robust analytics they offer to see how sales are going -- and opportunities for growth.
If the fall is a hectic time with holiday sales, use the beginning months of the new year to review the finances of the business, do necessary admin work, and see how the company fared in the previous year so that you can make more calculated decisions going forward. It’s wise to set aside some dedicated time, either alone or with your team, to review this data rather than rushing into the next calendar, or fiscal, year.
This article is intended for general informational purposes only and does not constitute legal advice or an opinion on any issue. It should not be regarded as comprehensive or a substitute for professional advice.