Accounting & Tax Dos and Don’ts: A Practical Guide for Small Business Owners

When setting up or running your small business, it can be hard to know what the dos and don’ts are — after all, there is already so much going on. That’s why we’ve put together this Dos and Don’ts list as it relates to your accounting and taxes. While this is not a complete list for your business, it provides a good insight into things to keep in the back of your mind.

Do:

• Understand your specific business and find an accountant who suits your needs. For example, if you have tax questions, look for an accountant who specializes in tax, as some accountants focus only on certain niches.

• Discuss your income tax and indirect taxes (GST, PST, HST) with your accountant. Being offside can be extremely punitive.

• If you want to prepare your own tax return, do your research. Especially if you’re self-employed or have more complex tax situations than others.

• Ensure you have access to your CRA My Account. It contains important tax information and is necessary both for your own use and to authorize a representative to assist you.

• Know your tax filing deadlines and other filing obligations. These dates are critical to avoiding penalties and ensuring compliance with regulatory bodies.

• Keep and digitize all your receipts. Maintain them for at least seven years.

• Keep your receipts and records organized. This will make it much easier if you’re ever asked to provide them to the CRA or other authorities.

• Choose an appropriate accounting framework. Most small businesses use ASPE. If you’re doing your own bookkeeping, know the rules — banks and regulatory bodies, including the CRA, care about this.

• Plan your business structure and legacy early. Whether you want your kids to take over or plan to sell the business, early planning can help you avoid future issues, especially if you’re considering incorporation.

• Understand the risks of being a sole proprietor. Know how lawsuits or losses could affect your taxes and personal assets.

• Be cautious when pricing your inventory. Fixed costs can add up, and you might unknowingly sell at a loss.

• Implement controls over your cash handling. Proper procedures help prevent theft or fraud by employees.

• Establish a process for extending credit to clients. While it can boost sales and build relationships, make sure you can collect payments before offering credit.

• Build strong relationships with existing vendors. They can act as references when you seek credit with new vendors.

• Carefully vet new vendors. Check their name, business details, reviews, and confirm their emails are legitimate to avoid scams.

• Have a solid HR policy and understand your payment obligations. Managing employees is challenging, so clear rules and timely payments are essential.

• Learn the steps for employee terminations, layoffs, and various leaves. Whether temporary or permanent, proper procedures matter — the labour board does not have a sense of humour!

  
  

Don’t:

• Ignore any communication from the CRA. These can be extremely important, and delays may result in penalties and interest.

• Assume that failing to withhold enough tax for employees is only their problem. You can be held liable as well.

• Overlook taxable benefits. Many businesses have faced severe penalties for incorrect reporting.

• Fall behind on your required instalment payments to the CRA. This can lead to penalties and interest. Always consult your accountant before adjusting payment amounts.

• Skip reviewing your financial statements and key business information. They can reveal vital insights about your business health and help you avoid trouble.

• Run your business without regular accounting and record reviews. It’s like driving a truck without brakes — fine uphill, but dangerous on the first downhill.

• Ignore payment terms in your sales and purchases. For example, if clients pay in 60 days but you pay your vendors in 30, you’ll always be waiting on cash flow. (No, this isn’t what Trump refers to as a trade imbalance!)

• Ignore covenants on your business loans. Lenders often have rules about debt levels, spending, adding new loans, and more.

• Overlook government programs. Grants and loans can offer extremely favourable terms to help grow your business.

• Try to do everything alone. Build a strong support system, including an accountant, lawyer, and mentors. Running a business takes a team.

• Hesitate to seek advice. Many professionals offer free initial conversations that could save you time and money.

• Avoid hiring professionals as your business grows. They can help you scale faster and avoid costly mistakes.

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Note: This list is intended as general guidance. For advice specific to your situation, always consult a qualified accountant or tax professional.

Need professional accounting guidance? KLV Accounting is here to help. Contact us today to enhance your financial strategy and drive business success!

For a free consultation, call us at 403-679-3772 or email us at info@klvaccounting.ca.