Tax time – the 5 W’s

In part 1 I talked about the 3 different business types and CRA’s (tax) requirements of each, including what financial reports you need to prepare for the T1 and T2 returns.

But you may have other “external” users requesting your reports. They may include banks, partners, current and potential investors, award committees, board members, etc.

Before I begin, when using accounting software there are an abundance of reports available, in fact, it’s almost overwhelming. We often review report options with clients to help them determine what best suits their needs. And a reminder when referring to “the financials” this includes the Balance Sheet and Income Statement (aka Profit and Loss, or shortened to P&L.)

So, what are these external users looking for? Most owners and managers focus on the P&L, because it shows the “bottom line” so one can focus on how much they made and what expenses were incurred to make that happen. Certainly, this is an important report, however at the end of the year it resets to zero, so it’s important that you understand and learn the key components to its sister report, the Balance Sheet. This report includes, your Assets (what you own), Liabilities (what you owe) and Equity (your company worth, determined by current and previous year’s activity).

A savvy reader will be looking at both reports with more attention paid to the Balance Sheet, including assets vs liability ratio and the equity of the business.

With that, it’s important that you maintain your records to ensure the reports you need are available. A sole proprietor and partnership (SP & P) with no external needs may use an excel spreadsheet, or equivalent method. Whereas, a Corporation (or SP & P) with external requirements will need to use something more sophisticated and detailed. Popular accounting software for small to medium size businesses include QuickBooks and Sage. If choosing an online version, ensure you understand what it can and can’t do. It’s also worth mentioning that some industries have specific software designed for their accounting that tie into other elements of their field; again, be sure you understand everything before committing.

There is no rule in how often you maintain / update your bookkeeping records, but obviously if you have HST or other deadlines, you should ensure the necessary documents have been entered. Popular choices: for our smaller clients with minimal requirements, we recommend at minimum, quarterly. For our clients with payroll and regular payables, we recommend they match the payroll schedule, therefore twice a month, or every two weeks (this is the most popular).

Next, who do you need to hire to help you out? Hire a “professional” bookkeeper. Make sure they have experience in your field and on the software of choice. A lot of experience! More than 10% of our business is from companies that need a clean-up, as their previous bookkeeper was not equipped to handle all requirements. So, don’t use your neighbours’ nephew’s girlfriend because she’s cheap. In accounting, you get what you pay for!

CPA’s are more expensive than bookkeepers, so ensure you use them when needed, and not when you don’t. When you meet with a professional, they should tell you what they can and can’t do and offer you options so you can make your own decision to suit your needs and your budget.

At accountrain, we offer bookkeeping on an as per needed basis, we come to you or can work remotely. Our services include training, consulting and taxes. For our smaller clients we can help set them up, train them on things they can do themselves to save money while we fill in the gaps and ensure everything is in order at yearend. As the client grows, our role may change.

In closing, be clear on internal and external needs, know what you need and hire accordingly. Most importantly, don’t be afraid to ask for clarification, after all, it is “your” business!