Unless you’re a small business owner in the business of accounting, chances are you didn’t start your business with a tailor-made record keeping solution at the ready. Or perhaps even the know-how to set one up. Or even know what you needed!
There are several options available to the small business owner:
- The shoe-box
- The accordion file or folder system
- A spreadsheet or series of spreadsheets
- Accounting software
Here are some of the pros and cons of each option:
At the outset, this is certainly the easiest method. Just throw all of your receipts in a box throughout the year. The downside: you have no idea where you stand financially throughout the year. Also, someone is eventually going to have to sort and compile the receipts into a format ready for tax filing. If you pay for someone – whether it is a bookkeeper or accountant –to sort and summarize all of these receipts, this approach can become quite costly.
The accordion file or folder system
This approach can help cut down on some of the work encountered in the shoe box method as you are sorting the receipts as you put them into their respective folder or slot throughout the year. There can still be costs involved in tallying up the receipts at year end if you are unable to do so yourself. Again, similar to the shoebox method, you don’t have a system through which to assess how your business is doing until the time at which all of the receipts are totaled and income is summarized.
A spreadsheet or series of spreadsheets
This methodology naturally involves the use of computer software, often Excel, so it does require some computer knowledge. Once the template for a spreadsheet is constructed, however, the spreadsheet can be used year after year. We will sometimes be engaged by clients or consult with them on setting up a spreadsheet as there can be significant cost savings at tax preparation time if we have input into the layout.
With a spreadsheet, you can assess how your business is performing throughout the year with a few calculations. The other benefit of a spreadsheet is if you are an HST registrant and file more frequently than annually, a spreadsheet can help you extrapolate the necessary calculations for these filings throughout the year.
There are many software options on the market. Quicken is a cash flow software, but some proprietors may like this option as you can typically download your bank account transactions from your banking institution, which expedites the revenue or expense allocations. This software is not recommended if you need to track balances such as HST obligations, inventory, payroll etc.
Very popular accounting software programs today are Sage and QuickBooks. In recent years, QuickBooks appears to have become more popular, but both programs are fairly easy to use. There is a learning curve to both, however, and we would recommend taking a course to familiarize yourself if you are new to accounting. The old saying still holds true: garbage in, garbage out. If you purchase software like this and just start entering data without knowing exactly how things work, it could lead to significant problems.
One of the many benefits of using accounting software is the cost savings over the previously mentioned alternatives when it comes to tax preparation time. You would provide either a data backup or printed reports, which we would use to prepare your tax filings. Yes, it does require data entry, but you are able to assess what your income is year to date, track monies due from your customers, purchases you have to pay, HST and payroll obligations, inventory, your capital assets that you’ve purchased, etc. You can usually buy these packages for a few hundred dollars, but the level of information at your fingertips can help you assess areas of your business and grow with you.
There are several other software products available that have more complex capabilities, but for the small business, these options mentioned above are cost-effective and will work alongside your business as it grows.
Which option is right for you? Making the right decision at the onset is very important. We recommend to all of our clients that you come in and discuss all of the viable options available, as what might be the right choice for one business may not be appropriate for another. We pride ourselves on being able to guide the small business owner in making the right choice when it comes to record keeping.