The Role and Importance of Bookkeeping for Small Business in Canada
August 11, 2020 | Written by: Sohail Afzal
It doesn’t matter what type of business you operate; it is essential to know how bookkeeping ensures the proper functioning of your business. Bookkeeping is the backbone of the entire accounting system and it is highly important to make sure that your bookkeeping generates accurate, error-free, and up-to-date results. If it is intimidating for you to learn the art of bookkeeping, you can outsource this activity to a CPA firm that will not only take care of your business’s bookkeeping issues but will also prepare the financial statements, and file your business taxes with the CRA.
Bookkeeping is one of the elements of accounting that is mainly concerned with the collection, recording, and organization of invoices, receipts, bill statements, bank & credit card statements, payroll records, and tax documents. This is how important bookkeeping is as it provides important baseline figures to an accountant that will help him prepare financial statements for your business. By following proper bookkeeping practices and process all the financial data through bookkeeping, your accountant would be able to track the profitability of your business. This can be achieved by calculating different profitability ratios such as Gross margin ratio, net profit margin ratio, return on capital employed.
If you operate a small business in Canada, it is important for you to track all revenue streams and business expenses to make sure that you have enough cash on hand. Maintaining proper financial records will help you analyze the financial state of your business. With proper bookkeeping, you can prepare the CRA taxes and also able to see the patterns and draw comparisons on the current year and the last year’s financial figures. In this way, you would be able to identify areas where you can reduce costs. The data comparisons on different cost elements of your business will help you re-strategize and make adjustments to ensure you stay on top of your business. Moreover, keeping financial and tax records is mandatory by law for at least six years. Archiving corporate financial records both on paper and in digital form can have additional security.
In Canada, business owners can get a claim for their business expenses from the CRA under tax deductibles such as Meals & Entertainment, Insurance Fees, Property Tax, Accounting Fees, Travel Expense, and Supplies, etc. That is when you recognize the importance of being organized for the bookkeeping. Bookkeeping doesn’t have to be very complicated as it is mainly the art of organizing receipts, vouchers, and bills. Once you are organized with your financial documents, half of your worries to prepare financial statements and the CRA taxes will be minimized. When your bookkeeping is error-free and financial figures are updated; you can estimate the amount of your CRA taxes provided that you have consistent revenue streams and stable profits over a few years span. You may also have an idea of how much you’ll need to set aside a budget each year for taxes.
If you are spending too much time on your business’s bookkeeping and losing important insights of your business or you want to accelerate the pace of your company’s bookkeeping, then I would suggest you contact us at GTA Accounting. There will come a point when you realize that outsourcing the bookkeeping activity will make more sense and you can then focus on more valuable activities of your business.
Sohail Afzal, CPA, CMA, MBA
Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.