How to Build an Accounting System for Startups
- Written by Business 2 Community
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Apart from the people, a business’ systems act as a backbone. Give it the right ones at the right time and you’ll have a commercial entity that will thrive and withstand most of the storms that come its way.
Most entrepreneurs look forward to setting up management control systems. This includes having certain monitoring tools and financial planning modules in place to be more aware of what’s going in the business.
Because having accurate company information handy (in an organized manner) is crucial to correct decision-making, it makes sense to set them up as soon as possible. This especially holds true of accounting systems because it is important to be in the know of the financial health of your company.
In this post, we look at how to build an accounting system in a startup firm.
1. Use What You Know
It makes sense to keep all business related documents such as bank statements, invoices, bills, receipts, tax papers, as well as legal and governmental documents concerning your company safely. Engage in the services of a tax advisor for this matter as he/she can advise you about the documents which need to be kept permanently, and the ones which can be disposed of after a certain timeframe.
2. File Your Documents
It is important to have a filing system in place, with a separate file for each kind of financial document. These files can be stored either physically and/or virtually. Have a file for all documents that require action, and once finished, shift them to their individual files.
3. Decide Your Accounting Needs
Depending on the intricacies of your business’s financials and your own comfort level, decide who will handle your accounting needs. You could do so yourself, hire help, or outsource the entire gamut of accounting activities to a third party (i.e. a company or individuals who specialize in small business accounting).
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How small business owners can stay organized this tax season
- Written by Globe and Mail
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As tax season approaches every year, it always seems to hit us at the busiest time in our personal and professional lives. Although most private businesses in Canada face the same tax-preparation issues year after year, this doesn’t have to be the case.
Here are some key things you can do to stay organized on the tax side of your business:
Keep your documents accessible. It’s important to incorporate a system for organizing all of the receipts and paperwork you’ll need for filing your taxes or to provide to your tax professional. These documents may include your previous tax returns, financial statements, receipts from charitable donations, and a detailed mileage and logbook if you’re claiming your vehicle and records of food and entertainment expenses.
For most people, organizing documents and receipts isn’t the most fun aspect of being a private business owner. However, you can simplify your life around tax time if you implement a system that works for you. For some business owners, it’s best to put aside 15 minutes every day to organize, scan and file their documents. For others, they may only be able to do it once a month. Whichever option you choose, be sure to stick to the schedule and you won’t have to scramble when it comes to tax time.
If you’re an annual HST filer, you can recover the HST paid by claiming input tax credits (ITCs) on your HST return. To ensure that your claim will be allowed, you need to ensure you have accurate documentation and records in case your claim is challenged.
Claim any eligible deductions. Look ahead to potential deductions and credits you may want to take advantage of at tax time. Rather than struggle to come up with the capital to make a large charitable donation in December or to make a last-minute Registered Retirement Savings Plan (RRSP) or Tax Free Savings Account (TFSA) contribution, divide your obligations and pay a portion each month.
Review your outstanding debt to ensure that you make your interest expense deductible to the maximum extent possible. Debt is only deductible if it was used to earn business or property income. It is always wise to pay off non-deductible debt as quickly as possible.
Ensure your accounting software is the right fit for the business.
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RESPs: What happens if your child doesn't go to university?
- Written by Yohoo
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Many Canadian parents diligently put money aside every month for the kids’ post-secondary education. But what happens to that cash if those young ones later decide not to go to university?
It’s a question Robert Armstrong, vice president and head ofmanaged solutions at BMO Global Asset Management in Toronto, hears all thetime.
“The number one concern I get with all our clients is ‘Ifour children don’t pursue post-secondary education, do we lose our money?’
“That’s one of the key reasons why some people are hesitant to open an RESP,” he adds. “Who knows what your child’s going to do in 18 years? That scares a lot of people.”
Rest assured, parental units: You do not lose that money.
“Whatever you put into your RESP you get back, no question, no tax, no issues whatsoever,” Armstrong says.
But, keep in mind that whatever money the government kicked in through the Canada Education Savings Grant (CESG) or the Canada Learning Bond goes back to its rightful owner.
But an added bonus is that any returns or interest earned on investments within the RESP are yours to keep, even if you qualified for the CESG and some of that interest was earned using the government’s funds.
You have two options once you close an RESP account (more on that later): roll the money over into your RRSPs (highly recommended, assuming you have contribution room) or close it, which will come with financial implications.
If you close the account and withdraw the earnings as cash — growth known as accumulated income that was tax-sheltered within the RESP — that money will be taxed, plus you’ll pay a 20 per cent penalty.
To be eligible to transfer the funds to your RRSP, the RESP must have been open for at least 10 years; the beneficiary must be at least 21 and not currently seeking post-secondary education; and you must be a Canadian resident.
But hold on. Before you decide to close an RESP, there are a few other factors to consider.
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The 5 Key Tips to Resolve Your Love/Hate Affair with QuickBooks
- Written by Accounting Web
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As an Advanced QuickBooks Expert I often talk to accountants who have very strong opinions about QuickBooks. They either love it or hate it. What I have found is that many times, accountants love and hate QuickBooks for the same reasons. I thought I’d share the top five reasons why accountants love/hate QuickBooks and some tips to help you love QuickBooks just a little more.
Tip No. 1: It’s easy to change transactions in QuickBooks
This is the No. 1 reason why accountants have a love/hate relationship with QuickBooks: it's so easy to change transactions. You love QuickBooks because you can make changes easily without making lots of journal entries. You hate QuickBooks because clients can make changes so easily.
To keep clients from making changes in QuickBooks, I recommend setting up Date Warnings in QuickBooks and also password protecting closed periods. This is done from the Edit Menu and selecting Accounting and Company Preferences as shown in Figure 1.
Figure 1. Date warnings and closing date.
Tip No. 2: The infamous 'Undeposited Funds' account
The second reason why accountants love/hate QuickBooks is the Undeposited Funds account. As a former auditor, I can tell you that the Undeposited Funds account used to make me very nervous because I didn’t understand its purpose. After all, Undeposited Funds was not a topic in any of my college accounting courses.
Accountants hate it because they don’t understand it. Let me give you a short explanation: the Undeposited Funds account is used to track moneys collected until a deposit is entered in QuickBooks. I happen to love the Undeposited Funds account because, when used correctly, the amount of the deposit entered in QuickBooks should match up to the deposit amount on the bank statement. This makes the monthly bank reconciliation process super easy. If the Undeposited Funds account is not used, deposits in QuickBooks must be added together manually to reconcile them to deposits on the bank statement.
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The Top 7 Bookkeeping Mistakes Made by Small Businesses
- Written by Business 2 Community
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Small businesses are up against a lot. They have to face fierce competition, an uncertain economy, unexpected expenses, and other challenges. If you own a small business, the last thing you want to do is add to the obstacles in front of you by sabotaging yourself with poor bookkeeping practices. What are some common mistakes that small businesses make, and how can you avoid them?
Not Saving Receipts for Small Amounts
When it comes time to take care of taxes, you want every advantage you can get. One advantage that many businesses do not use is the possibility of saving receipts for purchases less than $75. The IRS doesn’t require that you save those receipts, but the documentation they provide can give you valuable backup for the deductions you claim.
Create a folder specifically for such purchases. You can also scan your receipts into a file on your computer so you still have a record of them even if something happens to the hard copies.
Improperly Classifying Employees
Independent contractors, freelancers, consultants, and your regular employees aren’t all the same when it comes to figuring out your business’s finances. Assign the proper classification for your employees; this will change how you handle your taxes.
Communication Errors
Do you make sure your accountant stays up-to-date on everything? Failing to hand over receipts, or not reporting when you reward an employee with a bonus can create discrepancies in the numbers. Little mistakes like that mean that your accountant may have to waste time tracking down the facts.
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Even if you take care of the books yourself, you should still stay on top of communication by reminding your employees to be diligent about their record keeping.
Skipping an Accounting System
Your business may be small— so small, in fact, that you decide to save money by not using software that is specifically designed for accounting. Even if you use spreadsheets and a well-organized file system to keep track of where your money goes, you are missing out. As Doug Boswell, an accounting expert, points out, “…before having your taxes done, the tax preparer needs to cobble together some sort of makeshift system that will allow your tax return to be prepared, but it almost surely won’t capture all your deductions.”
Review your options for accounting software. Something affordable, like Sage Software, Bookkeeper, or Business2Go, will take care of all your needs without putting a financial burden on you. The software keeps track of invoicing, allows you to link your bank account and lets you view your finances at a glance. It’s a quick, simple and effective way to keep an eye on your finances throughout the year.
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