5 Accounting Tips for Small Business Owners

Joyce Zhao
May 8, 2024
min read

Stay on top of your business’ finances and avoid common accounting pitfalls with our 5 helpful tips and tricks for small business owners:

1. Segregate Business and Personal Expenses

Establish a distinct business bank account to prevent confusion between personal and business finances. This practice simplifies the gathering and verification of business expenses for tax deductions. Additionally, keeping business funds separate helps mitigate the owner’s potential legal liability from business debts. 

Avoid using your personal credit card for business expenses and obtain a business credit card instead. This approach can address temporary cash shortages, build a business credit score, and safeguard your personal credit score from being impacted by your business’s financial activities.

2. Utilize Bookkeeping Software

Accurately tracking income and expenses is crucial for effective accounting. Bookkeeping and accounting software can automate many manual tasks, such as sending and tracking customer invoices, organizing expenses, and managing employee payments. Using software also helps minimize errors in accounting and financial reporting.

3. Develop a Budget

Small business owners should establish a budget for projected revenue and expenses, periodically comparing it against actual results. Budgeting assists small businesses in analyzing operations to enhance cost efficiency and identify potential cost saving and growth opportunities.

Businesses that create budgets typically report better financial outcomes, according to various government studies. On the other hand, those without a budget may not recognize financial issues until a cash shortage emerges.

4. Maintain Detailed Records

Accurate records enhance a small business’s likelihood of success and are crucial for tax purposes, enabling businesses to document tax-deductible expenses. Canada Revenue Agency (CRA) regulations stipulate that businesses must retain records for a minimum of six years, although accountants recommend retaining them for seven years.

To start, a small business can organize paper receipts into folders based on expense type, vendor, or supplier. Some business software services allow users to electronically scan receipts using mobile devices and categorize them within the business’s online bookkeeping system. Jixx Financial utilities such electronic software, saving you the hassle of tracking every paper receipt. 

5. Comprehend Sales Tax Regulations

Business owners must stay informed about sales tax laws in the provinces where they operate or sell products. 

Generally, if a business said to be “carrying on business” in a province, regardless of whether they have a physical presence, it may be required to collect sales tax. Online sellers operating in multiple provinces may or may not be required to collect sales tax, depending on whether they sell directly or through a fulfillment service like Amazon, which may handle the sales tax on their behalf.

Small business owners, especially those operating ecommerce businesses across multiple provinces, may benefit from consulting with an accountant to establish a filing schedule that aligns with each provinces’ requirements.