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How to manage your business' finance?

on Sun, 07/28/2013 - 14:23


While you are running your business, you are actually one of the most luckiest people on earth as most of us won't get into something we don't like and run a business on, having said that, you are working on something you enjoy and lots of people (maybe you had that experience too), they hate their jobs…
You believe in what you do, and you do what you do best. Finance? Ugh! Not something everybody could be good at… So, what to do?
1. Keep business and personal separate
Most commonly mistake I see from small business owners is having their business and personal finances mixed together. Yes, all money on the business came from you personally, but you have to track all business expenses from your personal expenses. It does not matter the business is not making money, the idea is that you have been putting money into the business, and that is what you need to track. That will eventually becomes a "shareholder loan" to your business when you incorporate. If you have everything mixed together, it is VERY HARD to sort it out again.
2. Delicate a credit card on your business expenses
The easiest way to have your business and personal expense separate, is to delicate a credit card on your business expenses. You can either try to get a new credit card (even better a line of credit) or clear a card to track your expenses. If you can't "clear" a card, at least start from a day, all the expenses on that articular card will only be business related.
3. Open a business account
In fact, opening a business bank account is one of the first things you should do when you start a business. See "The advantage of a business account" to understand why you want a business account even though you may be only a sole proprietor.
4. Track your expenses
In order to make it easier to do your tax at the end of the year, please make sure you track your business expenses. I have developed a spreadsheet for that particular purpose, if you are interested, I can send it to you and help you set it up tailored to your business, that costs only $20. You will save a bookkeeper with this $20. Cross reference with this Personal Tax Planning Guide from the CGA to make sure you are deducting what you are eligible to deduct.
5. Do you need a bookkeeper?
Many business owners asked me whether they need a bookkeeper. My answer is: probably not. Only if you really hate to do anything related to numbers and data entry, you can get a bookkeeper by all means. Otherwise, since you are the only one knowing thoroughly what amount was spent on what purpose, it is more effective to track the expenses yourself, instead of having somebody else to track it for you. You can have a spreadsheet set up to do the tracking, or use any online accounting systems will do.
6. Do you need an accountant?
This is a definite answer of YES! Please spend some time to talk to a few accountants and interview them, to make sure they are in sync with you and your business. Show them the spreadsheet or get them help you to set up your tracking system. If you have a bookkeeper, make sure the accountant talks to your bookkeeper. An accountant is really important to your business as this is the person who can figure out different tax saving strategies for you.
7. Put away at least 20% from your income for tax due
Another huge mistake I see from lots of business owners is failing to put away money for tax due. A sole proprietor can start putting away 20% (on top of the HST you are charging for the government). If you are a sole proprietor, open a TFSA for the purpose so that the money is earning for you and that is not taxable. If you are an incorporation, open a Manulife Bank Business Advantage Account for that saving purpose, so that you do sit your money in a normal bank account and make no use of it yourself.
These are just business finance 101, if you need more precise advise for your business or need more details, please contact us to make an appointment so that we can tailor solutions to your need :)


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