I have encountered several situations which cause financial difficulties during the course of my many years of dealing with entrepreneurs. I have summarized five common problems below.
1. Using Your Personal Bank Account for Business Transactions
Some Entrepreneurs use their personal bank account for both personal and business transactions. Mixing personal and business transactions can be very confusing when it comes to determining your business expenses and filing income tax returns.
Solution: Open a separate business bank account.
2. Using Personal Debt and Credit Cards for Business Transactions
Some Entrepreneurs use their personal credit to finance their business. Financing a proprietorship can be difficult, especially if you are a new business. Mixing personal and business transactions is confusing when it comes to determining your business expenses and filing income tax returns.
Solution: If you must use personal credit for your business, then use one specific credit card for all your business transactions. Do not put any personal expenses on this business expense credit card.
3. Not Reconciling All Bank And Credit Accounts
Your business will be out of your control if your bank and credit accounts are not reconciled monthly. Banks and credit companies only allow a short time to make corrections to errors in your account.
You will not be able to determine accurate monthly accounting of your success, or failure without accurate accounting. Your income tax and HST tax returns will not be accurate. And last but not least, you may not recognize the fact you are a victim of fraud.
Solution: Reconcile all your bank and credit accounts every month.
4. Paying Cash For Your Business Transactions
You are in business and must keep receipts for every transaction, both sales revenue and business expenses, for income tax and HST purposes so you will pay the least amount of tax.
Keeping receipts for everything is one of the most important activities your can do for your business. Cash transactions are not good in your business. However, if you must do business for cash obtain a receipt. You require a detailed documented record of all revenue and all expenses.
In business, you need to know how successful you are every month. Therefore, monthly accounting is mandatory. It would be a shame to work hard all year and not know if you had a profit or a loss until the end.
Solution: Obtain and keep receipts for everything.
5. Doing Your Business Bookkeeping Yourself
Many Entrepreneurs try to do their bookkeeping themselves. Most people don’t like administration or bookkeeping. Most people already have enough to do with family life, or their own career to understand accounting and what they should be doing, or how to do it.
Entrepreneurs are sales, product and service oriented people, not bookkeepers or accountants. Spouses or family members of Entrepreneurs may not be any better. They may not necessarily know enough about the business, and they are not accountants or bookkeepers.
Untrained bookkeepers will likely make errors and omissions. Your accounting results in your business reporting will be out of control leading to possible business failure whether there are a few errors, or many errors.
Inaccurate accounting records mean income tax and HST returns will be inaccurate or delayed, resulting in incorrect or late filing of income tax and HST returns, causing unnecessary penalties and interest charges.
Solution: Find, hire and use a Chartered Professional Accountant and save your tax money.
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