Is your bookkeeping becoming a constant source of stress? You’re not alone. Letting bookkeeping go unattended is a very common issue among entrepreneurs. As a business owner, you have a vision of great things to come. You keep your head down and focus on what matters to grow your business. Compared to the million other tasks to tackle, bookkeeping seems like a speed bump on the road to success—a needless distraction from your goals.
Excitement Turns to Disappointment
Let’s take Bob, a founder of a software business. Bob has a dream of making it big and a plan for how to make it happen. Day after day, he works tirelessly to execute his vision. He talks to potential clients, builds his product, and launches a Minimum Viable Product. Bob reaches out to even more potential clients through various channels and is finally starting to see revenue coming in—a product-market fit seems within reach. Unfortunately for Bob, his books are a huge mess.
Bob needs to start delegating tasks, but he doesn’t know if the business can afford to bring in new team members. He doesn’t know which of his numerous marketing activities has had the most impact. What should he focus on to grow efficiently?
Receipts start piling up. Invoices go unpaid. On top of that, Bob is starting to receive notices from government agencies. Now, Bob is really sweating. Could the government come after him for noncompliance?
When it comes time to seek funding from investors, not a single one wants to finance his company, because Bob’s fundamentals carry a great deal of uncertainty. Bob can’t secure the money that he needs, and as a consequence, his business withers and eventually comes to an untimely end. Bob’s tragic story could have been avoided had he taken the time needed to address his bookkeeping earlier.
You don’t want to end up in Bob’s shoes.
The Benefits of Timely Bookkeeping
- Decision-making. Make informed decisions based on actual data. Having a clear view of your finances makes it easier to prioritize your activities.
- Planning. Accurate books enable long-term planning. Medium- and long-term goals become realistic, not just stabs in the dark.
- Invoicing. No more unpaid invoices slipping through the cracks—know exactly how much money you’re owed by customers.
- Cash flow. Running low on cash and being unable to pay employees or suppliers is an unpleasant feeling. Keeping up-to-date books makes cash flow more predictable.
- Tax returns. Skip the mad dash to get your books up to date at tax time.
- Financing. Having reliable financial records is a prerequisite for external financing.
Making the Effort
If you find yourself in a tough bookkeeping situation, not all is lost. EVZO bookkeeping experts are ready to help you resolve any bookkeeping problem. We offer a bookkeeping catch-up service and monthly remote bookkeeping packages to make sure your books never get out of hand. Get in touch with us to discuss your needs.
If you prefer to do the catch-up work yourself, here’s a rundown of the process we use at EVZO.
Step 1: Set up accounting software
If you haven’t done so already, set up a software accounting system for your business. It’s definitely worth it in terms of saving time and money. There are many accounting applications to choose from, but our favorite is QuickBooks Online. It’s got great automation features, built-in invoicing and inventory tracking, flexible reporting, and an auditing log that makes it suitable for work with outside accountants.
BASIC SETUP: Go through the checklist in this helpful Getting Started article. It’ll help get you up and running with QuickBooks Online in no time. Don’t forget to add your products and services, connect your financial bank and credit card accounts, and set up the right sales tax codes for your business. Collecting sales tax and tracking your obligations to the government are mandatory once you’ve reached $30,000 of yearly revenue. Registering for sales tax even before you reach that milestone is probably good idea. You’ll be able to deduct the sales tax you pay as part of your business operations (see ITCs) from the amount collected on your sales.
CHART OF ACCOUNTS: At this point, you should look into customizing a default chart of accounts for your business’ needs. Any major activity should get its own account. For example, if you spend a sizable chunk of your marketing budget on Google ads, go ahead and create an account to track that expense separately from other marketing. If your business sells physical goods, it’s a good idea to keep track of the cost of goods sold in separate accounts.
Step 2: Collect Receipts and Invoices
Gather all the documents showing your business expenses and sales. Typically, these would be your invoices, receipts, and vendor account statements. It’s important to be thorough in collecting as many of these as possible to have an accurate picture of your business. Be sure not to include any personal expenses, which sometimes get mixed up with business receipts.
Step 3: Enter Sales and Expenses
It’s time to add all the invoices and receipts you collected to your QuickBooks Online file. Bear in mind that you are responsible for keeping copies of all your receipts and invoices as supporting documents in case of an audit.
INVOICES: Create invoices by clicking “+ New” in the sidebar, followed by “Invoice” in the “CUSTOMERS” menu. Make sure to enter the right customer, invoice number, amount, and product/service. You can mark an invoice as paid by again clicking “+ New” in the sidebar, followed by “Receive Payment” in the “CUSTOMERS” menu. When applying a payment to an invoice, make sure to enter the right bank account where the payment was deposited. Don’t forget to apply payments to all paid invoices. Learn more about creating invoices and receiving payments here.
RECEIPTS: Add your receipts by creating an “Expense.” Click “+ New” in the sidebar, followed by “Expense” in the “SUPPLIERS” menu. Don’t forget to choose the right tax code and expense category. Learn more about expenses here.
There is an app called Receipt Bank you can use to make the above process much less labor intensive. Receipt Bank lets you take pictures of your receipts and invoices, which are then processed and published to QuickBooks Online. With Receipt Bank, you don’t have to enter the amounts, dates, suppliers, and clients—this data will be extracted automatically. There’s an additional benefit of not having to keep physical copies of receipts, as Receipt Bank stores digital copies to be used in case of an audit.
Step 4: Record Payroll Expenses and Source Deductions
Payroll is a fairly complex topic with many aspects—source deductions, vacation pay, T4 slips, and more. For more information about payroll check out this CRA guide. It suffices to say that, as a small business, it’s almost always a good idea to use a third-party payroll provider. The one we recommend to our clients is called Wagepoint. It’s a web application that handles all the complexities of doing payroll. Wagepoint will calculate the right deductions, make government remittances on your behalf, and produce pay stubs and T4 forms for your employees, among other things. Getting employees set up in Wagepoint is straightforward, and it integrates well with QuickBooks Online.
No matter who you choose as your payroll provider, make sure that your pay runs and deductions are properly imported into your accounting system.
Pro tip: You may need to register your business with your provincial workers’ compensation board (WCB/WSIB/CNESST). Contact your provincial board for more information.
Step 5: Reconcile Financial Accounts
Once your revenue and expenses are recorded in QuickBooks Online, you’ll have to verify that these transactions match the transactions in your bank account statements. This process is called reconciliation. If you went through the basic setup checklist in Step 1, your bank accounts should be connected to QuickBooks. If not, set up your bank account and credit card feeds before proceeding. In QuickBooks Online, you can start reconciling by clicking the Settings gear icon in the upper right corner, followed by “Reconcile” in the “TOOLS” menu. Learn more about reconciling here.
Pro tip: It is highly recommended to have dedicated business accounts to avoid the messiness of comingled personal expenses.
Step 6: Review and Adjust
At this point, your books should be in pretty good shape. You should now go back and review your accounts receivable (invoices) and accounts payable (bills) for any discrepancies. Look for open invoices or bills and double check to make sure that they weren’t actually paid. Sometimes an invoice or bill may have been recorded twice by mistake; go ahead and delete the duplicates.
Another good way of making sure you didn’t make any mistakes is by reviewing your financial statements and seeing if anything stands out as obviously wrong. There are three financial statements of key importance: the balance sheet, the income statement (e.g., profit & loss, P&L), and the cash flow statement. See this helpful article for a short primer on reading financial statements.
You can generate and export financial statements in QuickBooks Online by clicking “Reports” in the left sidebar. Then, finding “Balance Sheet,” “Profit and Loss,” and “Statement of Cash Flows” in the list of available reports.
Step 7: Sales Tax
The final step is producing a sales tax report and remitting whatever sales tax is owed to the government. Skip this step if your business is not collecting sales tax (e.g., if your clients are outside of Canada).
In QuickBooks Online, go to “Taxes” (left sidebar). Click on “Prepare return” next to the period you wish to file. Review the actual sales tax report and export or print it—you will need it later.
- You have a refund due. File the GST/HST report with the CRA and the government agency in charge of collecting sales tax (PST/QST/RST) in your province. If your province/territory doesn’t have a provincial sales tax, file with the CRA only.
- You owe sales tax. The most convenient way to remit sales tax is by making a payment through online banking. Most banks and credit unions have the abilities to collect payment AND file a sales tax report. If your financial institution doesn’t have this feature, you’ll have to file with the government and make a payment in two separate steps.
You can now go back to QuickBooks and mark the report as filed. Repeat these steps for each unfiled sales tax period.
There’s no denying that there’s some degree of complexity to this process. As a business owner, you may not have the time to go through all these steps. Maybe you’d prefer to let trained professionals handle it. That’s where the EVZO bookkeeping team can step in and help get your books in order.
We offer bookkeeping catch-up and monthly bookkeeping packages tailored to the needs of Canadian startups and small businesses.