Is bookkeeping as easy as the TV ads make it out to be? The truth is, it’s far from it. Those ads may be promoting user-friendly software, but don’t be fooled into thinking that’s all you need. In reality, bookkeeping requires a solid understanding of accounting principles and familiarity with the rules and regulations set forth by the Canada Revenue Agency. Many entrepreneurs, especially at the beginning stages of their ventures, attempt to handle the bookkeeping themselves or rely on a well-meaning friend. On the surface, it may seem like a simple task of tracking money coming in and going out. However, let’s delve into the specifics to see why it’s not as straightforward as it appears.
The B Word
Budget. Contrary to popular belief, budgeting is not something to be feared or avoided. In fact, having a budget can bring you peace of mind as you regularly review your finances to ensure you’re on track with your income and expenses. The element of surprise should be eliminated when it comes to annual renewals. You should be aware of when these renewals occur, whether they involve insurance, website hosting, or software subscriptions. By starting each year with a budget, you’ll establish a sense of accountability as your business grows. Moreover, it will help you avoid accumulating debt and overspending by comparing your actual financial reports (which reflect your current business state) with your budgeted expectations. A budget is essentially a projection for the year ahead. As long as you refrain from inflating your budget with unrealistic and overly ambitious income expectations, you increase your chances of achieving a healthy bottom line. Don’t forget to allocate a line item for miscellaneous expenses, so you can spend without feeling anxious about it. With time, budgeting becomes easier as you build a solid financial history through diligent bookkeeping.
The K Word
Knowledge. As the saying goes, knowledge is power. It’s crucial to understand the distinction between an accountant and a bookkeeper. Ensure that your accountant thoroughly reviews your financial records, explains tax advantages, and offers advice on strategies to enhance your business. If your bookkeeping is well-maintained, your accountant’s fees will be lower compared to handing over a disorganized mess of invoices and expenses during tax season. The bookkeeper, typically charging a fraction of the hourly rate of an accountant, diligently records and reconciles all your revenue and expenses as provided by you, the business owner. While bookkeepers are not advisors per se, we do share our knowledge with our clients on a customer service level.
The P Word
Profit. Let’s dive into the concept of profit. Merely tracking your finances isn’t sufficient to determine if you’re making a profit. It’s crucial for business owners to run reports on a monthly or quarterly basis to truly understand their financial position. It’s important to note that having cash in the bank doesn’t necessarily indicate a profitable position. Cash flow is a separate matter altogether. You may have a significant amount of cash on hand but suddenly find yourself facing a hefty tax bill. The bottom line, while important, is not the sole indicator that business owners should focus on. Take a closer look at your monthly expenses. What percentage of your income is allocated to wages? How much is being spent on optional expenses? Are there any subscriptions you’re still paying for but no longer need? It’s crucial for business owners to regularly set aside time to review their financial situation by examining reports and engaging in discussions with their bookkeeper. This practice allows for a comprehensive understanding of the overall financial health of the business.
The R Word
Reconciliation. It’s important to recognize that inputting income and expenses is just the initial step in a bookkeeper’s role. Utilizing software tools makes data entry relatively easy. However, the real challenge lies in reconciling all bank and credit card accounts, which is where questions may arise and missing expenses can be identified. Reconciliation constitutes the majority of the time spent on bookkeeping tasks. If clients co-mingle personal and business expenses, bookkeeping costs can skyrocket because extensive manual labor is required to separate each personal transaction from the business records and meticulously review each item on the statements.
If a business owner engages in expense tracking without reconciling the accounts, they run the risk of missing out on valuable credits and potentially leaving hundreds or even thousands of dollars on the table. Reconciliation serves as a crucial safeguard to ensure that no expenses go unnoticed and that every transaction is properly accounted for, minimizing the potential for financial loss.
The V Word
Value. It’s natural for everyone to prefer money coming in rather than going out. Outsourcing work and paying for professional services can often feel as burdensome as paying rent. Unfortunately, outsourced services are sometimes misunderstood, with a mismatch between the client’s request and the time it takes to fulfill that request. When business owners lack a clear understanding of the process, they may feel uncertain about whether their investment is truly paying off.
When it comes to bookkeeping, the task of organizing statements, receipts, and invoices for a bookkeeper can leave business owners feeling as though they’ve already done most of the work. However, it’s important to recognize that bookkeeping is a partnership. The best results are achieved when the business owner is organized, promptly answers questions when asked, and actively participates in the regular review of financial reports.
By fostering a collaborative relationship with their bookkeeper, the business owner can fully appreciate the value that professional bookkeeping brings. It ensures accurate financial records, provides valuable insights into the business’s financial health, and frees up valuable time and energy for the owner to focus on core business activities. Ultimately, the investment in a competent bookkeeper pays off by providing peace of mind and allowing the business owner to make informed decisions based on reliable financial information.
Over to You
At MYOB Inc., we take pride in our team of remote bookkeepers who possess extensive experience and expertise in various specialties. Our primary goal is to provide you with financial peace, enabling you to manage your business with clarity and intention. We understand the importance of accurate bookkeeping and its role in empowering business owners like you to make informed decisions confidently.
Whether it’s reconciling accounts, generating insightful reports, or offering guidance on financial strategies, our dedicated team is committed to supporting you every step of the way. We recognize that effective bookkeeping is a collaborative effort, and we value the partnership we establish with each of our clients.
By entrusting your bookkeeping needs to MYOB Inc., you can focus on what you do best – minding your own business.
Written by Jenna Pozzebon, MYOB Bookkeeper