Starting a small business is an excellent way to earn money while working independently on something aligned with your passions and interests.
Small businesses are also critical players in the Canadian economy. Nearly 98 percent of employer businesses in the country are small businesses, which employed 8.2 million people in 2021. That year, small business employees comprised over two-thirds of the country’s private labour force.
While starting a new business can be fun, especially in an industry you like, it also entails some responsibility. One of these responsibilities is handling your finances well to ensure your business stays profitable.
Here are five helpful tips to help you better manage your small business’s finances.
1. Choose the Right Business Structure
The legal structure of your small business can significantly impact how your finances will work. Different business structures can have varying implications and effects on liability, taxation, and assets.
The most common types of structures for small businesses include the following:
- Sole proprietorship
Studying each structure is essential to choose one that suits your business goals and protects your assets.
2. Create a Budget
Budgeting for your small business can be tedious and might take some time. However, this practice helps you spend your money wisely. Make a list of your projected revenue and expenses, whether annually or monthly.
Creating a budget enables you to make sense of your cash flow. The more you do it, the more accurately you’ll assess your financial situation.
Budgeting and taking time to make educated income projections helps you plan more effectively and address problem areas promptly. As the year goes by, compare your budget to your actual costs and earnings to help improve your accuracy.
3. Monitor Your Books
Even if you have a bookkeeper on your staff, spending some time daily, weekly, or monthly reviewing your books is crucial. This practice helps you familiarize yourself with your business’s daily financial transactions. It also alerts you to potential problems or malicious actions or parties.
Several accounting software tools can assist you if you can’t afford to hire a regular bookkeeper.
4. Manage Your Taxes
Businesses of all sizes must pay their taxes as an obligation to the government. It’s essential to educate yourself on these processes before starting your business. Conduct proper tax planning each year to ensure you don’t miss anything.
Aside from filing your annual tax returns, reviewing previous ones is also a good habit. You may qualify for the Canada Revenue Agency’s Voluntary Disclosures Program (VDP) if you have found any errors or omissions in your earlier returns.
The VDP allows you to alert the CRA of these inaccuracies and avoid legal trouble. If you’re unsure how to apply for the VDP, you can consult an experienced accountant from Faris CPA.
5. Work With a Professional
Handling small business finances can be challenging, especially as your business grows and you get more responsibilities. Adding a bookkeeper or accountant to your staff helps ease the load when handling your finances.
Their specialized knowledge can help you get a better grasp on managing your assets and finances effectively. They can also keep you out of legal trouble and provide advice on critical matters.
Running a small business entails a lot of work, especially regarding financial matters. However, good financial practices help you grow your business and succeed in your chosen field.