The Power of Precision: 11 Reasons To Unlock Your Business Potential With Updated Bookkeeping
If there’s one thing all business owners, whether small, big, or well-established, can agree on is that bookkeeping is a crucial factor in a business’s success. But let’s be honest; not many of us are aware of how important this aspect is, especially when we often overlook it.
Like other areas of your business, bookkeeping is just as important because it gives you an overview of your business’s financial situation, helps us make informed decisions, and identifies areas for improvement. It’s the key to ensuring that the business is on a path to sustainable growth and success in the long run.
But for business owners to see and analyze their financial health clearly, bookkeeping records should be organized and updated. You cannot make business decisions if you don’t know the numbers in your business. You may qualify for a loan for a new piece of equipment, but if you don’t know your numbers, you probably won’t be able to take advantage of it.
So, to help you learn more about it, below are 11 compelling reasons why businesses need to prioritize updated bookkeeping.
#1 – Improved Payroll Audits
One of the things that businesses need to take into account is payroll audits. Payroll audits refer to the process of the Canada Revenue Agency (CRA) checking a business’s payroll records. They ensure everyone is paid correctly, correct deductions are taken from each employee and the business is remitting these deductions along with the employer contributions by the due date.
Employees keep a business running, and if workers aren’t compensated for their job, chances are they’ll resign and leave your company. Payroll audits are there to help ensure that business owners understand CRA’s payroll requirements.
We know that no system is flawless, and there will always come a time when errors are unintentionally made. But if we constantly keep our records clean and updated, supplying the CRA with all of the information requested for a payroll audit will be a breeze. If any problems are noted by the CRA during an audit, we can easily rectify them.
#2 – Compliance With HST Audit
Another reason you should have updated bookkeeping records is that it makes it easier to comply with HST audits. An HST or Harmonized Sales Tax audit is a process carried out by the CRA for businesses that have an HST account and file HST returns.
In this process, business owners are required to give the auditors the details of their HST submissions along with source documents such as receipts, and sales records. If your records aren’t organized, putting together this information for the CRA will be time-consuming and stressful. And as with all types of government taxes, there is no choice but to comply. Otherwise, your business may be put in hot water and have more financial obligations like CRA penalties.
The truth is, the only reason an HST audit would be a stressful activity is because of all the information that needs to be remitted. So, if we want to spare ourselves from the time and stress of it, having updated bookkeeping is the way to do it. That way, regardless of whatever document is asked of us during an HST audit, we can rest easy knowing we have an organized compilation of records.
#3 – Efficient WSIB Audit
A WSIB or Workplace Safety and Insurance Board audit is a detailed examination of an organization’s records to ensure that the company follows all necessary criteria for employees in Ontario. This includes reviewing payroll records, reconciling premiums paid, and looking over arrangements you have with sub-contractors that don’t have their own WSIB coverage.
This is crucial because it helps ensure businesses are compliant and able to access the WSIB’s assistance for your employee’s health and safety when needed. And so, as mentioned above, if we don’t want to make it a stressful situation for us, it’s best to have everything prepared and documented in our bookkeeping records.
#4 – Uncomplicated Corporate Tax Audit
Yes, you read that right; as a business owner, a corporate tax audit is another type of CRA audit you need to be prepared for. A corporate tax audit is the in-depth review of your business’s financial records to ensure the annual Corporate return filed for a specific fiscal year accurately reports your income, expenses and tax liability. The CRA will request additional details and source documents for specific lines of the return.
These types of audits are necessary because it helps maintain confidence among the public that Canada’s tax system is fair and honest.
It’s difficult to anticipate if or when the CRA might want to audit your Corporate tax records, but if you have up-to-date bookkeeping records, you can easily provide the information required by the audit. If any errors are identified by the CRA, they will be easy to sort out and explain to the CRA. In other words, as long as you have clear records to track your business activities, no type of audit should make you worry.
#5 – Organized Loan Applications
- For new equipment
- For cash flow
- For growing your company
Setting up a business is a financial risk, and you must be prepared for all the costs you will be incurring. Whether that be building your business, purchasing all the necessary tools or equipment, buying the ingredients, or hiring the right people to manage it, it will cost a lot of money. And that’s why loans can be helpful for businesses.
Loans help increase a business’ working capital and can be used for buying new equipment, increasing cash flow, and growing your company. However, applying for loans is not simple, especially since a bank needs to analyze first if a borrower is capable of repaying the loan. This is where updated bookkeeping records come in.
If you have up-to-date financial statements, you can easily show any bank that you have the capacity to repay the loan you’re applying for, making the process swift and effortless. And your accurate records and well-managed credit cards might help you qualify for preferred interest rates!
#6 – Better Cash Flow Projections
Many businesses have certain times where their cash flow is more challenging. This often happens with retail stores when they need to stock up on inventory a few months prior to their busy sales season. The ability to roll through these lower cash flow seasons will give your business the edge that makes us stand out from your competitors. You need to be able to easily prepare a cash flow forecast. With updated bookkeeping records, we have a clear picture of where your money is going. And with this information, it’s easy to project the cash surplus or deficiencies.
Our businesses have lots of competition out there, and we need a competitive edge to stay ahead. The ability to project cash flow can give you this edge because it allows you to formulate important strategies for your business.
#7 – Improved Decision-Making Process For:
- Hiring more employees
- Raising employee pay rates
- Giving employees group benefits
- Starting a group RRSP plan
Finalizing decisions are essential duties of a business owner. And we can all agree that it is never a simple black-and-white task because of everything that must be considered. Decisions are what stand between a business’s success or failure.
So, if there’s one thing that can make this part of the job a little easier, it is ensuring that all financial statements and transactions are kept orderly. Your bookkeeping records serve as a guide for your business’s financial roadmap. That way, you can make decisions aligned with your resources and your overall business objectives, whether that is hiring more employees, raising employee pay rates, granting more benefits, or starting a group RRSP (Registered Retirement Savings Plan).
#8 – Easily Identify Problems Like:
- Cash theft
- Too much spending in one area
The main goal of establishing a business is to generate continuous revenue. And the only way we know for sure that our business is earning is if we’re making more profit than we are actually spending.
Establishing a business is a financial risk, and if you aren’t careful enough, you may overlook some signs of cash theft or even spending too much in one area. The best way to identify these problems immediately and stay on top of our business expenses is to ensure they’re tracked and stored in an easy-to-read financial system.
#9 – Easier Facilitation Of Government Subsidies And Grants
Running a business can be rough, especially with the fluctuating economy, and because of that, there may be instances when a business will need monetary assistance. The good thing about our government is that they provide this assistance through subsidies and grants.
Government subsidies allow businesses to offset some of their costs through the form of a cash payment or tax reduction. Grants are essentially donations businesses can use for defined purposes.
But for businesses to access them, they must first ensure that their records are complete and organized. Otherwise, it’ll be difficult for businesses to demonstrate their financial viability and prove their eligibility for these types of monetary assistance.
One example was the Canada Emergency Wage Subsidy implemented during COVID. It forced businesses to have clean records. Businesses had to provide detailed Sales (current and historical) and Payroll information to the CRA each month to qualify for the wage subsidy. Businesses that didn’t have this data available to them were not able to apply for the monthly subsidies.
#10 – Accurate Budget vs. Actual Reports
Organized bookkeeping also plays a vital role in helping businesses acquire accurate budget records and reports. Managing a business is all about understanding the fluctuating numbers of your business operations, which wouldn’t be possible without updated records.
When your financial transactions or records are organized in an accounting system, it’s easy to develop an efficient budget. Because you know where your money goes, it’s easy to decide which part of your funds can be allocated to areas that will help your business grow.
In short, accurate budgeting decisions are only made possible by actual organized records.
#11 – Ability To Sell Your Business
A business should be run so that it could be “sold” at any point in time. To be “sellable”, it needs to be easy for a buyer to walk in and take over. The bookkeeping processes need to be steady and reliable, as they create the foundation for all of the financial data. Your data needs to show that the business works and makes $ for the owner. The bookkeeping system also needs to run smoothly and independent from the business owner.
With solid bookkeeping records and processes, you will be able to sell your business quicker and for a higher price.
In essence, having updated bookkeeping records is the overarching key that helps you assess your business’s financial health. It’s the complete analysis of your financial situation that affects all business decisions and projections you’ll be making moving forward. Bookkeeping is not an optional task but a mandatory obligation every business owner must do to achieve their business goals.
So, if you don’t know where or how to do it on your own, don’t worry because we’ve got your back! Let us help you have accessible and streamlined financial information for your business by scheduling a call with us today!