Most entrepreneurs have at least one favourite tool – something that makes the business of running a business a bit easier. For Martina Rowley, owner of Beach Business Hub in Toronto, it’s a low-tech accordion file folder.
“I use it to store my receipts, with each slot representing different categories such as travel or office supplies, as well as personal expenses,” says Ms. Rowley, whose company provides virtual administrative-assistant services. “At the end of the year, I just add up the receipts from each slot and enter the totals into an Excel spreadsheet to hand to my accountant.”
Not all entrepreneurs have Ms. Rowley’s knack for keeping their business finances organized. Many small-business owners fail to track income and expenses and often end up mixing business and personal receipts, says Teya Mali, owner of Homeroom Small Business Solutions Inc., in Vancouver.
This increases the possibility that they will file an inaccurate tax return, with personal expenses claimed as business costs and legitimate company spending omitted from the return, says Ms. Mali.
“If everything is just going into one pile, it makes it hard to figure out how much you should be putting away for your income tax and for your sales tax,” she says.
It can also cause trouble with the Canada Revenue Agency, says Keith MacIntyre, a partner in tax services at Grant Thornton LLP, an accounting and business advisory firm. He points to one entrepreneur who claimed the cost of his daughter’s wedding as a business expense.
“In some cultures, it’s customary business practice to invite clients to events like your child’s wedding,” Mr. MacIntyre says. “But you need to be able to prove to the CRA that the expenses you’re claiming really were in service of the business.”
So how do business owners make sure they’re putting business and personal expenses in the right pile? Here are tips from experts for getting organized and staying on the CRA’s good side.
Open separate banking and credit card accounts
This makes it easier to account properly for all income and expenses, Mr. McIntyre says. A bonus: Many credit card providers issue statements that organize purchases into categories. For the busy entrepreneur, this means no more tallying up receipts at the end of the year. “Credit cards are great because they give you documentation, and you can access the statements online,” he says. “If you lose a receipt, you can just contact them and they’re usually pretty good with providing you with that information.”
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