How To Start Your Small Business Bookkeeping Off Right

Starting a small business is an exciting endeavor! You’ve come up with a great idea and now you’re ready to get organized. Follow these 10 steps to success to get your small business bookkeeping started on the right track:

small business bookkeeping

  1. Register for a business name and numberOne Stop Business Registry
    • You will want to make sure that your business name is not already in use so that yours will be unique in the market.
    • You don’t need to see a lawyer to start a sole proprietorship business. When you register your name online for a business account number, you can also register a GST or Payroll account at the same time, if necessary. (See Steps 4 & 10)
  2. Get a business bank account
    • Separate all your business banking from your personal banking. Do not use the business account to pay for your personal expenses and vice versa.
    • Try to avoid withdrawing cash from this account – if you need some money for personal use, write yourself a cheque from the business and call it a “shareholder draw” in the memo. If you need to add more funds to the business account, do an online transfer or write a cheque from your personal account and write “shareholder loan” in the memo.
    • Try to avoid using cash to pay for business expenses as this is harder to track.
  3. Determine if you need a business credit card or business loan
    • Speak with your banker about financing options with a low interest rate.
    • As above, only use your business credit card for business expenses.
  4. Find out if you should be charging GST
  5. Find out if you should be charging PST
  6. Create sales invoices
    • A sales invoice just needs to have the following info (as a minimum): Your business name, the customer’s name, date, invoice number (must be unique and should be sequential, ie. Inv#1001, Inv#1002), a short description of the product or service with pricing, and total.
    • If you are charging GST or PST on your invoice be sure to separate out these charges on the bottom before the final total.
    • A simple carbon copy invoice book from any office supply store will do just fine. You can get fancy if you want with computerized versions with your logo and special fonts or invoices prepared from software and emailed directly to your clients.
  7. Use a bank deposit book
    • Resist the urge to make ATM deposits as this makes it difficult for you or your bookkeeper to match up deposits to sales invoices.
    • In your business deposit book, write the last name of the customer and cheque number beside the cheque amount.
  8. Keep all business receipts
    • Keep all your business receipts in the same spot! A folder or a box would do fine. If you really want to impress your bookkeeper, separate them into envelopes by expense category (e.g. gas, supplies, meals).
    • Yes, all of your expenses should be displayed on your bank or credit card statement, but this is not enough backup should your business face a CRA audit. Also, technically, you are not allowed to claim back the GST on expenses if you don’t have the physical receipts.
  9. Track expenses
    • Hire a bookkeeper or learn to do it yourself. I recommend cloud-based accounting software such as QuickBooks Online. Contact Alicia for monthly bookkeeping service package rates that include discounted QuickBooks Online subscriptions.
    • Another option is to track the expenses in an excel spreadsheet. You will need to include the date of purchase, vendor name, description of the item, and the amount. At the end of the day, all you really need is a total for each expense category during the year.
    • If you are registered for GST, you will need to separate the GST amount from the expense total (i.e. your final total for “Supplies” should be the cost of supplies before GST). However, you do include any PST paid in the expense total. This is easier to do using bookkeeping software.
    • Be reasonable about “Meals & Entertainment” expenses. Many small business owners know that the expense category “Meals & Entertainment” is 50% tax deductible and so they start using the business bank account to buy lunch for themselves on a regular basis. Unfortunately, CRA does not accept this as a legitimate business expense. The official wording is that it must be “expenses you incur to earn income from your business“. This is a bit of a grey area, but some commonly accepted expenses would be: restaurant meals that were business meetings with clients (you should note the client’s name on the receipt), a staff meeting with your employees where food was provided, or meals while out of town to attend a business conference.
  10. Determine if you will be hiring employees
    • Understand that you are legally required to follow Employment Standards rules for payroll. You can learn to do the payroll yourself, but with complicated rules, it is much easier to have an experienced Payroll Administrator do this for you.
    • Learn about your responsibility for payroll source deductions. See my related post The Basics of Source Deductions.
    • You are also required to register for and pay WCB premiums.

Here is another great resource – a checklist to follow from Small Business BC which covers some non-financial steps as well! Small Business BC Starting Your Business Checklist

Until next time!

-Alicia Loewen, Coastal Tax


4 thoughts on “How To Start Your Small Business Bookkeeping Off Right

  1. Pingback: How to File Your Taxes Without Leaving the House in 5 Easy Steps | COASTAL TAX AND ACCOUNTING SERVICES

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  4. I never considered getting a separate bank account for business. I have multiple savings accounts for personal things, but nothing to account for what I receive for my business. Thank you very much for the article and the tips on how to be a better book keeper!


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