Why is Good Bookkeeping Important?
You have taken the plunge and started a business or are considering starting a business. At this point, you should seriously consider how your business’s bookkeeping will be accomplished. There are two options for this:
- Hire a bookkeeper/accountant
- Do it yourself.
Either option works well for a business. Many people would rather spend their valuable time concentrating on work that is directly relevant to their business; they hire a bookkeeper or accountant to perform their bookkeeping on a routine basis. Some people prefer to perform the bookkeeping themselves and this works well for them.
However the bookkeeping currently is or will be performed for your business, I cannot emphasize enough how important good quality and up-to-date bookkeeping records are to your business and its operations.
Good Bookkeeping Records
Your records are the financial foundation which your business stands on. Well organized and up-to-date bookkeeping records allow a business to operate smoothly and efficiently. Here are some specific examples of the benefits of good bookkeeping records for a business:
- Regulatory filings are on time and correct – Obligations to the federal and provincial governments such as payroll remittances, GST and PST will be able to be filed quickly and you can have the peace of mind that the underlying bookkeeping numbers support the numbers you have filed with the government. On-time filings will prevent the incurrence of late-filing penalties, which can add up to be a significant cost, especially for late payroll remittances. Late filings also raise red flags with the CRA, which will increase your chances of being audited.
- Government audits are a breeze – From time to time, CRA, BC Ministry of Finance or any other regulating organization such as WCB will select a company for an audit. An audit is where they check your records to make sure that what you filed with them (it could be for GST, PST, payroll, or even your revenue and expenses for an income tax audit) is correct. If your bookkeeping is organized and clearly backs up what you filed, then there is a much better chance that the audit will be relatively quick and the government will leave you alone.
- Management and Business Owner Information is Readily Accessible and of a High Quality – Organized and up to date bookkeeping records are able to produce a large variety of information reports that the business owner or manager can use to better run the business. For example, a report can be run that would show how much profit is brought in by each product sold so a focus can be put on the product which brings in the most money. The more established bookkeeping software products such as Quickbooks, Simply Accounting (now called Sage 50) and Freshbooks just to name a few, have a number of useful reports already built into the software. The only catch to using these reports effectively is to keep your bookkeeping up to date and accurate.
- Employees are paid on time and correctly – Employees can be very particular about mistakes on payroll and this is understandable because we are all this way about how we are paid. Accurate bookkeeping records will ensure that employees are paid properly and that the correct deductions are taken off their paycheques. This also leads to accurate T4 slips being easily produced at tax time.
- Vendors are paid on time – The bookkeeping records will provide a list of bills and their due dates. This way you can ensure that suppliers are paid on time and that you avoid having to pay interest on late payments.
- Customer invoices that are overdue are brought to your attention – The invoices you charge out to customers are kept track of. Any sales invoices which are unpaid and late can be brought to your attention so you can follow up with the customer about paying the invoice.
Executing a high-quality and timely bookkeeping process takes time and can cost money, but the benefits of doing this ‘properly’ outweigh the costs. If a business avoids investing in good bookkeeping on a regular basis, they can run into issues with a government agency. The cost of either fixing problems, paying penalties to the government, or even both, can far exceed the cost of having proper bookkeeping from the start.
I would recommend hiring an accountant or bookkeeper for your business. This will help ensure the bookkeeping is performed correctly. Another, and less costly, option is to perform the bookkeeping yourself. This is definitely an option if you have the time and knowledge.
Are you wanting to master the art of bookkeeping? I have trained clients in the past on Quickbooks so that they could perform the day to day bookkeeping themselves. This minimized the cost of hiring an accountant or bookkeeper.