Know your reporting obligations - or be prepared to face the costs.
Too many times have I seen someone start a business, start operating, and then discover later that they were required to file returns and remit things like GST/HST and PST, payroll remittances, and other tax withholdings. Not only will you still be required to remit these payments later, but you can also be hit with significant penalties and interest on these amounts if you don't file and pay on time.
That's why it is important to understand what your tax reporting obligations are early on. Hiring an experienced bookkeeper will not only mean that your records are to up to date, but it can also help you to make sure that your reporting and remitting obligations are met on time. Connecting with a professional accountant can also mean that you get tax advice that will help you structure your business in a way that ultimately saves you taxes, which is another reason that seeking professional advice for your business should happen sooner rather than later.
Thinking you'll save money by doing the bookkeeping all by yourself, or hiring the cheapest bookkeeper you find.
When you're just starting a business, often you have more time than money, so unless you've got a stash of cash to invest in your business, it often makes sense to do as much as possible on your own. People often think of bookkeeping as simply adding up numbers from receipts, so it makes sense that this is something that anyone can do, right?
Not exactly. Take Joe for example. Joe runs a small printing business that is just over a year old. Because his business is just getting off the ground, he has decided to look after the bookkeeping himself. He gathers all of his receipts together for the first year he's been operating, and adds up his sales and expenses into an excel spreadsheet. He takes this information and all of his receipts to his accountant. Unfortunately, Joe doesn't realize that what gets reported on his taxes different than what is on his spreadsheet. He gets a much larger bill from his accountant than he expected, because his accountant had to spend extra time re-sorting and re-adding the information that Joe provided in order to properly report it on his tax return.
Hiring an experienced and knowledgeable bookkeeper could have saved Joe the extra unexpected accounting fees. In fact, because Joe's business is still small, he could have saved the most money by doing some of the bookkeeping himself under the guidance of a professional from the start.
Not keeping proper records.
Having the right accounting information available can help you both run your business more effectively and reduce your overall tax and accounting costs, but your financial records aren't just about the numbers in your accounting software. Whether it is being able to find information efficiently or preparing for a CRA audit, it is important to make sure that your original receipts and records are properly stored and accessible for up to 7 years.
How you handle your filing system will be up to you (we can offer some great tips to make this easier!), but one way or another make sure you keep your records. From my experience helping clients through audits I can tell you that it is not enough to have simply paid an expense - if you want to deduct it for tax purposes, you'll need to be able to prove you paid it if CRA ever comes asking (and they do, regularly).