When it comes to small businesses and solopreneurs, many often cut corners with professional bookkeeping services to slash expenses. What they don’t realize is that accurate, reliable accounting records help you save more than spend.
Ensuring that every dollar spent or earned is recorded in the ledgers, bookkeeping helps businesses maintain a healthy cash flow and smooth operations. Let’s look at the reasons why you should consider accounting and bookkeeping services today!
Here’s a quick overview to get you started:
| Benefit | Description |
|---|---|
| Legal Compliance | Stay compliant with CRA standards and minimize the risk of costly audits. |
| Finance & Resource Allocation | Understanding monthly financial statements allows you to allocate resources to the right segments and boost operational efficiency. |
| Risk Mitigation | Steer clear of financial losses by managing risks beforehand and taking enough insurance coverage for required business areas and assets. |
| Creditor and Investor Relations | More chances of winning loans, lines of credit and investor trust. Maintain healthy communication with investors and stakeholders through updated, accurate records. |
| Cash Flow Optimization | Keep your business financially healthy by staying solvent. |
| Investment Strategies | Develop promising strategies that align with the long-term goals of your business. |
| Long-Term Planning | Secure the future of your business with data-driven, reliable financial decisions today. |
1. Meeting CRA Standards & Avoiding Audits
If the central management and control of your business are exercised in Canada, your firm is considered a resident corporation as per the country’s tax laws. In this case, the annual income derived from all your business operations (worldwide) is subject to the Canadian corporate income tax (CIT) at a rate of ~11.50%. Also, you’re subject to various government regulations under the country’s head. For example, the financial statements your entity prepares must be in accordance with Canadian Accounting Standards for Private Enterprises (ASPE) — in the case of a private company, or International Financial Reporting Standards (IFRS) — in the case of a public company.
Bookkeeping keeps a detailed track record of your business expenses and income for the year, which helps companies support their tax filings. For example, if the CRA were to ever question why your business expense stands at $500K, your bookkeeper could quickly provide detailed records that justify every entry (office supplies, rent, or salaries), reducing the likelihood of an audit.
This record-keeping also helps you identify maximum deductions and tax credits, including:
- Business start-up costs and advertising expenses.
- Insurance, fuel costs, and interest charges.
- Accounting, legal, or other professional services.
- Property taxes, rent, wages, and office supplies.
Plus, staying on top of your books ensures that returns are filed before the deadline, avoiding costly CRA audits — which may cost up to a maximum of ~17% of your owed tax.
2. Finance & Resource Allocation
Keeping a detailed track record of a company’s finances, bookkeeping helps managers identify trends in their operations, facilitating a healthy cash flow. It also gives you a detailed picture of your financial health, which helps identify areas for cost control.
Do your financials indicate higher profitability in wooden stationary boxes than in glass ones? Reallocate funds to increase sales. Have an upcoming business expansion planned? Set up additional capital injections or loans in advance to cover the needs. Thus, bookkeeping lets companies improve their bottom line by directing resources to the most profit-making segments, resulting in maximum efficiency.
3. Mitigating Financial Risks
Maintaining a thorough and precise record of all transactions, accounting and bookkeeping Toronto helps you identify anomalies or discrepancies early. For example, a payment recorded for a non-existent invoice could signal potential embezzlement or fraud.
Keeping accurate books also lets you assess how different products and resources impact your bottom line, allowing you to manage risk by reallocating resources from underperforming areas.
A key part of your books, the cash flow statement, helps you anticipate and prepare for future risks like delayed payments or cash crunches, reducing financial risks.
Sufficient insurance coverage for vehicles, employees, business liabilities, and cyber security helps you avoid inevitable business risks and protect your venture.
4. Improving Investor & Stakeholder Relations
Are you seeking external capital, loan, line of credit from an investor, creditor or banker for your small business? Well, they’ll want to look at the financial statements of your company to assess your growth potential and financial stability. This helps investors determine how quickly your business will churn profits or double up their investment amounts.
Plus, detailed financial records help companies identify areas of financial risk, such as unsustainable cash flow situations or underperforming segments. This information helps stakeholders gauge their risk exposure and allows businesses to take measures to minimize these risks — boosting investor and stakeholder confidence in the process.
Good bookkeeping practices promote healthy communication between a company’s management and its stakeholders. This helps build a strong relationship because the creditors and investors feel involved and informed about the company’s financial position.
5. Optimizing Cash Flow
According to research, 91% of small businesses shut down before their fifth anniversary due to cash flow challenges, proving the long-term importance of financial management. Bookkeeping and accounting services Toronto help businesses get over these problems by helping them keep a record of money coming in and going out.
This, in turn, helps you identify trends, like increased sales during summertime or higher spending during the Dec-Jan period. With well-maintained records, you can predict when you might run out of cash and need to arrange for more (like a short-term loan).
They also help you manage accounts payable and receivables, keeping track of when the money’s coming and going out — to maintain good credit and steer clear of late fees.
6. Investment Strategy Development
If you know how much money is coming in and going out, and how much you owe, you have a better idea of how much you can afford to invest and in what segments. Besides, since bookkeepers work on historical records and financial trends, they’re adept at predicting the future trajectory of growth for your business, helping companies make crucial investing, financing, and operating decisions.
7. Long-Term Financial Planning
Considering that 82% of companies close their doors due to cash flow issues, it’s more important than ever for businesses to have a high liquidity ratio. This proves the importance of accurate bookkeeping and financial planning, which helps businesses address cash flow challenges.
These historical records allow businesses to spot over or under-performing segments, answering questions like:
- Which department should be subject to cost reduction?
- Should we invest more resources in marketing or R&D?
- What will our cash flows look like in 6 months from now?
Using the resulting budget, you can then prepare a financial roadmap for your company to plan any future expenses and allocate resources to cover them. This helps keep any cash flow crunches at bay.
Conclusion
Accounting and bookkeeping services Toronto are a staple for small businesses, helping them with optimum allocation of resources and long-term financial planning. Plus, reliable and accurate financial records help you assess the health and well-being of your business, and steer clear of risks that may bolster your growth. However, staying on top of your books is not as easy as it sounds, especially considering the tax regulations in Toronto.
This is where Transcounts comes in. As experts in small business bookkeeping services in Toronto, we know how to help companies like you steer clear of CRA audits while improving their profit margins. Handling everything from payroll to bookkeeping, we work with you to improve your cash flow, ensuring a better credit score and financing options
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