Launching your online store can be a remarkable milestone for your businesses. You are ready to share your products with the world and you certainly worked hard to get there. Sadly enough, after the initial excitement has worn off, it is time to get back to work and on top of your accounting. Keeping an eye on your numbers is a major responsibility that all small businesses owners must tackle, and doing it well from the start is instrumental towards becoming successful. While launching an e-commerce system may not be exciting as opening physical store doors, keeping your accounting clean and organized will allow your business to keep growing and stay afloat in the midst of change.
You may be wondering where to start. Shopify offers a comprehensive guide on small business accounting on their blog- for the convenience of our readers, Accounting Solutions Ltd has created an even more concise guide for Canadian SMBs who are looking to get their company on track. We know your time is precious, so we want to provide you with the most valuable, practical information.
1. Get Your Business Its Own Bank Account
This may be common sense for some, but it is absolutely crucial for any business to store their income. In some cases, such as for LLCs, partnerships, and corporations, it is even a legal requirement. Not only is a bank account a massive convenience for a business, it is a prime record-keeper, and will be a practical tool when tax season rolls around. Pick your bank wisely and be clear about what your needs are. There is a lot of shopping to be done and banks differ greatly in their business account structures. Setting up a chequing account is an appropriate start, but it is definitely recommended to open a savings account for tax purposes.
2. Record ALL Expenses
By doing so you will be able to accurately monitor your business’s growth, build financial statements, keep track of deductible expenses and prepare tax returns. It is recommended that one establishes a method for organizing receipts and other similar documents. Shopify recommends ShoeBoxed for starters. Keeping these records is a great habit to get into and offers a phenomenal reference point for tracking the development of a business. There are several receipts that you should keep particularly good track of and those are: meals and entertainment, out of town business travel, vehicle related expenses, receipts for gifts, and home office receipts. These can add up quickly and are certainly eligible for tax returns. In addition, understanding how personal expenses such as gas or cell phone bills are deducted is important for tax breaks but you will have to keep organized records.
3. Introduce bookkeeping
Bookkeeping is not quite the same as accounting. Bookkeeping is the daily ritual of jotting down all transactions, categorizing them, and adjusting bank statements. You can start as simply as an Excel sheet or use simple software like Quickbooks. There is also the option of staffing someone to do the work, perhaps even as a casual or part time employee. This work can easily be out-sourced or cloud-based too. Early on, your business will also have to decide whether it will be using the cash or accrual path of accounting. The cash method refers to expenses & revenues that are recognized at the time they are actually received versus the accrual method which recognizes them when they are in transaction. The latter involves tracking receivables and payables. Canadians are required to use this method but a business can use the cash method during the year and make a single adjusting entry at the end of the year for the outstanding receivables & payables (for tax purposes).
4. Consider a payroll system
If you are considering hiring any kind of staff or freelance contractor, you will need to distinguish these individuals as an independent contractor or official employee from the get-go. Employees will require a payroll schedule and tax forms that you will need to withhold correctly. In regards to contract or freelance work, recording a worker’s fees and payments is important to track records. It is highly recommended to keep some information like their name, contact info, and address on file too.
5. Understand Tax Procedures & Determine your Tax Obligations
Tax regulations went into a state of limbo when ecommerce began flourishing. It can still be confusing due to the lack of physical locations that Shopify businesses occupy. Although the store is essentially floating and the customers may from all corners of the globe, charging taxes can still mandatory. A Canadian store owner will need to start collecting GST/HST when they have revenues of $30,000 or more in a 12-month period. International customers do not need to be charged taxes as is the case with tangible stores in Canada.
The legal structure of your business will determine your tax obligations. Self-employed individuals will claim business income on their personal tax return. Like other employees, they will need to withhold taxes from their income. Corporations will fill separate tax forms and be taxed independently.
Accounting as a Strong Foundation For Your Business
Building a strong foundation for your business through accounting will be highly advantageous in the long run. The common theme in this piece is to stay organized, on top of your expenses and taxes, and to record everything in a timely, systematic manner. Not only will it keep your business in tip-top shape from an organizational point of view, but it will also allow it to grow in a sustainable way.