Tips to keep your small business financials in order

Andrea Armitage – Partner at Manning Elliott Vancouver & Sheryne Mecklai – Partner at Manning Elliott Vancouver

Many first-time small business owners can often overlook essential details to keep their company running smoothly.

“I think for a small business owner, there’s a lot of moving pieces,” says Andrea Armitage, Manning Elliott partner. “Having your finger on the pulse at any given time takes a lot of organization and understanding.”

Cash flow management

Maintaining healthy cash flow in your small business is a top priority, regardless if it is flourishing or struggling.

“It’s important for small businesses to bill regularly,” says Armitage. “Get your billing out every 30 days, and even if it’s before 30 days, make certain you’re sending those invoices out regularly to keep the cash flow ongoing.”

Knowing how much money is flowing in and out of your business is crucial. If there isn’t money coming in, your business won’t be sustainable.

It’s essential you send out accurate and regular invoices, but it’s also important to maintain your accounts payable. Manning Elliott partner Sheryne Mecklai points out owners should be mindful of constantly deferring payments.

“If necessary, you can negotiate discounts as opposed to collection terms. We recommend negotiating a discount upfront rather than delaying payments. A line of credit is a good idea, which gives you the ability to draw funds when needed. You don’t have to keep your funds locked up; you can be liquid by way of borrowing if you can structure it upfront.”

You should allow yourself some flexibility and security in case of unforeseen costs to keep you afloat through a crisis. Armitage advises keeping three to six months of cash flow operations on hand to cover any unexpected situation.

Separating personal vs. business expenses

One of the most common accounting missteps is to combine personal and business expenses. It’s a risky practice and can often land you in a grey area; it can also trigger a CRA audit.

“It’s important when you’re starting up your small business to fully understand that even though you’ve incorporated your business, the money in the business account is not yours per se,” explains Armitage. “You can’t use those funds for personal expenses, and if you do, they will need to be appropriately separated and accounted for.”

Moreover, the CRA could audit your expenses if they are claimed incorrectly,” adds Armitage. “If they’re not deemed to be business expenses, there can be punitive measures.”

“If you’re trying to put personal expenses into a corporation, the negative impact could be a pretty significant tax liability,” reveals Mecklai.

Mecklai also points out if you have an expense that is part business, part personal, you can deduct a percentage: “If you have a home office, for example, then a portion of that should be charged through the business.”

Maintenance of accounting records

Small business owners have to consider whether or not to take on accounting duties or outsource the services to an external accountant or bookkeeper.

“It is a time-consuming process, which can be daunting to people who may not be financially literate and understand how things need to be reported,” says Armitage. “Owners should focus on what they’re good at—growing their businesses. We recommend they hire somebody for their bookkeeping.”

When you have someone else doing your bookkeeping on an ongoing basis, you generally have information ready you can make decisions on,” says Mecklai. “It’s important not only to maintain the accounting records, but to review them with your accountant at least quarterly, at minimum, but ideally every month.”

Tax due dates and filing requirements

The CRA sets strict deadlines for tax returns and payments, and failure to meet them can result in interest, fees, or penalties.

“Keep a calendar of your tax deadlines and payment dates,” suggests Mecklai. “Deadlines for payroll, sales tax and income tax really depend on volume, which in turn, affects your filing frequency.”

For reoccurring monthly payments, such as your corporate tax installments, set them up through your financial institution and don’t worry about missing a payment.

“It’s something you don’t have to think about again until your installment payments are revised for the following year,” says Armitage.

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Manning Elliott is a CPA firm with offices located in Vancouver, Burnaby, Surrey, and Abbotsford, BC. They provide personalized accounting and business advisory services to companies operating within a wide range of industries in seven major practice areas: tax, private company, public company, NPOs, business advisory, valuations and specialty.

Maintaining healthy cash flow in your small business is a top priority, regardless if it is flourishing or struggling.


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