Running a small business is an exciting and thrilling endeavor. Aside from being your own boss, you get to chase after things you’re passionate about and create something that benefits people.
That said, entrepreneurship can also be overwhelming. As a small business owner, you may often find yourself wearing too many hats at once, especially during the first days of your venture. You need to oversee your team’s output and performance while also managing your own tasks. On top of that, you also need to write various business plans and find the right accounting method for your business.
Choosing the most suitable method for your venture is an essential task, but it can seem daunting at times. The good news for you is that you only have two accounting methods to choose from: accrual-based accounting and cash-based accounting.
To help you to make the right choice, we’ll break down the key differences between these two methods in the sections below.
In accrual accounting, revenues are recorded when they are earned, regardless of whether the money is actually received or not. In the same way, expenses are also recorded the moment a product or service is received, regardless of whether the amount is paid or not.
This method is more commonly used than the cash method as it allows owners to assess whether the business is performing well or not. It lets owners see sales and purchases as they happen, enabling them to make better financial decisions.
Benefits of Accrual-Based Accounting
Here are some benefits of accrual accounting:
- Easier Planning and Forecasting – This method gives owners a more realistic picture of the business’ finances during a particular period. With this, they can create budgets and sales forecasts that are more sound.
- Simpler Taxes – Accrual accounting lets owners issue invoices at the start and end of the year, making it less complicated to file taxes.
- More Favor in the Eyes of Investors – Investors view businesses using this method as more established than those that use cash accounting. If you are planning to enter a funding stage, this can help you get better results.
Unlike accrual accounting, this method does not recognize accounts receivable or accounts payable. Cash basis accounting only records revenues or expenses when money is actually received or paid.
As it is quite simple to maintain, this method is commonly used by farm businesses as well as small businesses that are not inventory-heavy. It tracks finances as they come in or out, enabling business owners to see how much their business has at any given time.
Benefits of Cash-Based Accounting
Here are some benefits of cash basis accounting:
- A Better Idea of Current Finances – One of the biggest advantages of this method is that it gives entrepreneurs a clearer picture of money going in and out. This allows them to understand where they are in terms of finances in real-time.
- Easier Tax Filing – In this method of accounting, taxes are only paid on money that has been received. This makes tax filing significantly easier.
The main difference between these two accounting methods lies in how and when sales and purchases are recognized. The accrual method mainly presents anticipated revenue and expenses, while the cash method recognizes transactions only when money is received or paid. The latter is simpler and easier; however, the former presents a more accurate picture of a business’ health. If you are not quite sure what suits your company the best, hiring small business accountants is a smart move.
If you are searching for the best accounting services for small businesses in Ontario, look no further than Measured Growth CPA. We are dedicated to helping your business grow through our expertise and client-driven service. Get in touch today and let’s start working together!
Bookkeeping and accounting are an integral part of any given business. Whether big or small, these companies need to record and monitor all their financial transactions properly. The ultimate goal of such practices is to maintain your company’s financial health and make sound decisions based on current and future financial status.
However, did you know that accounting is all the more critical for first-time entrepreneurs? They need this to set their finances on the right footing and help their startup grow and flourish over time.
In this article, we will share five essential accounting tips that every first-time business owner must know:
1. Assess current finance and set a financial projection
When starting a business, your finance is the most crucial consideration. Before taking the plunge, be sure to evaluate your current financial status and see how you’ll cover the capital outlay and all other related expenses. Then, you’ll need to set a financial projection for the next few months or years to ensure that it remains up and running even before it generates profit.
2. Draw the line between personal and business accounts
It’s easy for first-time entrepreneurs to mix their personal and company finances without knowing that such a practice is a major downfall in the business world. Be sure to consider your startup as a separate entity that must be set apart from you, even if you’re the owner. This step will help you properly manage your finances by avoiding a mix-up that will confuse you on whether or not it is earning a profit.
3. Set aside for the future
There’s no denying that the future is uncertain as we don’t know what lies ahead. No matter how robust your business has jumpstarted, you are clueless about future occurrences that may get in its way. As with any pursuit, preparation and planning make all the difference in your efforts. It’s best to set aside an emergency fund or savings as well for your business so that if some financial challenges come along the way, you are better prepared to rise above them.
4. Take advantage of accounting tools
As far as proper accounting and bookkeeping are concerned, gone are the days when you have to rely on a manual recording. Today, there are various accounting tools and applications readily available in the market; you only have to choose the appropriate one for your business. It’s wise to take advantage of these resources to perform your accounting tasks as seamlessly and efficiently as possible.
5. Get an accountant
The most crucial point to consider is to hire a professional accountant because you can expect them to have the knowledge, skills, and experience to handle and manage finances. Let this expert assist you in every step of your business journey! At the same time, you must only hire a highly reliable and experienced accountant that can help boost your business.
At this point, you now know how to handle your accounting as a first-time entrepreneur. As discussed above, all it takes is to assess your finances and set a financial projection, separate your personal finance from your business account, set aside money for the future, use accounting tools, and hire an accountant. By doing all these, you’ll put your startup on the right footing that will kick your business up a notch!
Here at Measured Growth CPA, we provide tax and accounting services in Toronto, Ontario, for solopreneurs and small businesses. If you’re looking for an expert accountant for entrepreneurs, schedule a meeting with us today to learn more about our service offerings!
Proper accounting practices are an integral part of any business. Whether you’re a small company wanting to expand or a big-scale business hoping to thrive, managing your finances and ensuring your financial health can make all the difference. It is all the more necessary to set a solid accounting practice in place if you have a startup. This is where hiring an expert accountant comes into the picture.
It’s important to understand that hiring an accountant is more than just recording your financial transactions and handling your tax-related matters. In this article, we will share the importance of getting an expert accountant for your startup. We will also discuss all you need to know about their roles and responsibilities during the initial business set up and when it’s up and running:
1. Initial business set up
Starting a business isn’t a walk in the park because you must make many considerations to set your startup on the right footing and help it grow over time. During the initial stages of setting up your business, your hired expert accountant will:
- Identify the fittest structure for your business (sole proprietorship, partnership, or corporation).
- Assess your initial finance, such as capital outlay, in consonance with your business plan.
- Identify the accounting software or tool best suited for your startup.
- Assist you in opening a business bank account.
- Help set accounting guidelines according to the government regulations.
- Ensure that you separate your personal and business expenses.
2. Daily business operations for tax-related matters
Once your startup has started running, the experts will go on with their day-to-day operations. One crucial task is dealing with tax matters. In dealing with these matters, they will:
- See that all your independent contractors are categorized by the IRS.
- Inform you of the predicted tax payments required to pay the entire year.
- Accomplish sending 1099 forms and W2 to the appropriate agencies.
- Compile your taxes and all other necessary paperwork and file them to the appropriate department.
3. During the actual business growth
For the most part, your hired accountant is tasked to maintain your business’s financial health, apart from mainly tracking your financial transactions and filing taxes. This stage is to ensure that your books are kept in order so that financial growth is achieved. On a more specific note, here’s what your accountant will accomplish daily:
- Identify the areas of opportunities susceptible to growth.
- Offer insights on inventory management, cash flow patterns and business financing.
- Advise you on equipment and property leasing and purchase.
- Prevent your business from getting audited by the IRS. In case of an audit, however, they’ll guide you through the process.
- Provide financial predictions for better and informed decisions.
- Create a worthy financial budget to support you and help you achieve business goals.
At this point, you now know the importance of setting proper small business accounting and how hiring an expert accountant helps your business every step of the way. From the initial company set up to dealing with taxes down to your actual business growth, hiring a business accountant for your startup can make all the huge difference. If you do not have a capable in-house accountant, do not hesitate to outsource this need before you face financial issues!
Are you looking for accounting services for your small business or startup? You’ve come to the right place! Our experts at Measured Growth CPA offer accounting services in Toronto, Ontario, along with various packages that are tailored to your needs. Schedule a meeting with us to take our service offerings!
As a small business owner in Ontario, you have probably already come across the term HST, or harmonized sales tax. You may be wondering if you need to charge it, what do you charge it on, when do you need to remit, and so on.
It can be challenging to understand all of these details, aside from the fact that you already have your hands full with running a business and managing operations daily.
To help you understand it better, we’ll be answering the most essential questions when it comes to HST in the sections below.
What Do Business Owners Need to Know About HST in Ontario?
It was in 2010 when Ontario joined the program to apply the harmonized sales tax. Aside from it, five other provinces use HST at present: New Brunswick, Nova Scotia, Newfoundland, Labrador, and Prince Edward Island. The tax rate in these provinces is 15% except for Ontario, where it is 13%.
Ontario charges this tax on most supplies of goods and services made in the province. This impacts businesses which are either located in the province or are shipping goods into it.
What’s important to note is that Ontario HST consists of a federal tax of 5% and a provincial tax of 8%—however, this is listed on invoices as a compounded 13%. Doing so allows businesses to reclaim the entire amount of sales tax.
It is your responsibility as a business owner to collect and remit HST. If your business makes $30,000 or more per year in total revenue, then you must register for a GST/HST account through the CRA. If you are a small business making $30,000 or less annually, you are not required to register for HST but may do so voluntarily. You may utilize this to recover any HST paid on business purchases or expenses.
What Are the Exemptions of HST?
HST does not apply to the following items:
- Basic groceries which are necessary for dietary needs (e.g. meat, fish, poultry, dairy products, eggs, vegetables, coffee, tea, cereals, and the like).
- Health, medical, and dental services provided by licensed practitioners
- Child care services
- Prescription drugs
When Should You Charge HST?
For goods or services which are not exempt from HST, the first factor you must look into is their place of supply. You must determine whether a supply is made inside or outside a participating province, and there are specific rules you can apply to do this.
The rules for supplies of tangible goods, personal property and real property remain unchanged. However, supply rules for intangible personal property have changed significantly.
Generally, the place-of-supply rules are based on the address of the recipient of the service in the normal course of business, but there are exceptions. For a more thorough list of requirements and examples, you may consult the Canada Revenue Agency.
Understanding HST and how it applies to your business is a challenging endeavor. This is because while it applies to most products and services, there are exemptions and conditions that you must take note of. The good news is that there’s a way for you to stay on top of CRA’s requirements easily yet effectively. Enlisting the services of experienced accountants in Ontario might be just what you need to sail smoothly in this area—and even go beyond the agency’s requirements!
If you require accounting services for small businesses in Ontario, we have got you covered! At Measured Growth CPA, we make everything simple for you and advise you with our expertise. Get in touch with us today to learn more about how we can help you keep your business activities running smoothly.
Handling tax has always been a complicated aspect of any business, but it’s especially challenging as a sole proprietor. While it’s easy to overlook until the tax season approaches, keeping up-to-date with the tax deductions your business is eligible for can impact your revenue in more ways than one.
Tax deductibles can make the difference between paying more to the government versus saving hundreds of dollars on taxes. While tax deductibles help any business owner, the list below can help solopreneurs can cut back on costs and dedicate more to your growth in the long run.
1. Automobile Expenses
For home-based, sole traders, using your vehicle to find the optimal spot for your work is considered part of your daily business expenses. This means you can save on the added taxes in automobile costs such as the following:
- Licensing and registration;
- Supplemental insurance for businesses purposes;
- Accident repairs
2. Property Taxes
Seeing as you work from home, your living space is also accepted as a legitimate workplace where your business can thrive. In that regard, you can easily claim your mortgage interest so long as your residence is the primary place of your daily operations.
So long as it contributes to your business income and can be a place where you can conduct meetings with possible vendors, clients, customers, patients, and other consumers, your mortgage interest or property taxes are tax-deductible.
Keep in mind that the Canada Revenue Agency (CRA) will have to take into account the amount of time and space usage dedicated to your business before calculating the tax deduction.
3. Office Expenses
If you are planning to invest in office supplies – be it straightforward organizational accessories such as paper clips to costlier equipment like laptops, printers, filing cabinets are tax-deductible. However, simple office supplies like pens or stamps are claimable anytime, depreciable assets like bigger devices can only be claimed as a portion of its initial cost.
The Bottom Line: Tax Deductibles That Benefit Sole Traders And The Self-Employed
Preparing for the yearly tax season is a complex and stressful ordeal for different industries, affecting start-ups and larger-than-life organizations alike. Leading corporations have a dedicated team of bookkeeping professionals and CPAs to ensure the company is compliant with the ever-changing tax regulations, so it’s no surprise that dealing with all things involving tax feels double the trouble for sole traders.
How Can Measured Growth CPA Help You
Understanding the factors and expenses that are tax-deductible for your business is a crucial part of building your income, which can be tricky to identify without the proper knowledge. With a professional accountant by your side, they can help you apply all the applicable tax deductibles to lower your taxable income.
Speaking of which, our Toronto-based accountants offer premium accounting and tax services that can guide solopreneurs and small businesses alike navigate the complexities of taxing in the workforce. Get in touch with us today and see how our client-driven team can help move your business forward!
Three Fundamental Business Financial Reports to Prepare
Small business accounting is a rudimentary component of company growth. By monitoring results, decision-makers can better inform external financial partners, keep the company on track, and plan for the future. However, you can’t translate the same information into a single financial statement. Instead, these three standard financial reports use comparable data to serve different purposes.
External Party Financial Report
Most financial parties will request that an outsourced accountant prepare a financial statement to present a reliable and objective perspective on how well your company is performing.
In particular, bankers will zero in on whether your business is generating enough profit to service your debts comfortably. They will take a closer look at reasonable performance metrics and how efficiently you’re generating wealth.
On the other hand, an investor will take an in-depth look at whether the capital they’ve deployed into your company is generating an adequate return. While also interested in your business’ profitability, investors will also want to know the growth rate of your revenue. If your profits are growing faster, it’ll indicate that you productively contain costs. If your revenue is rising, it may be a cause for concern.
Projections and Forecasts
A financial forecast will equip you with sufficient information to craft an operating budget and plan around resource requirements. A method of improving and growing your business, economic projections give operational managers something to shoot for.
Though hardly a literal prediction of the financial future, forecasts provide a useful starting point in indicating how much in sales businesses need to make to break even. Tracking against your forecast will allow you to pinpoint where you’re falling short and may need to cut back on costs. Overall, they’re a practical tactic for ensuring you don’t end up in the red.
Management reports are far more detailed than an external summary. A marketing breakdown, for instance, might correspond to spending on various channels to give teams a better idea of what expenses need redirecting or adjustments.
A granular management report should isolate sales and expenses according to business lines and products. From here, you can track performance by geographic location or customer profile.
Take note of financial ratios, making sure to align them with the appropriate key performance indicators. Separate internal forecasts by business segment, formulating a workable budget for each. As results begin to funnel in, you can more accurately determine whether they’re tracking on plan. If not, you can quickly make adjustments in the early stages of the month.
Within a business, money hardly ever follows a linear path. Intertwined with dozens of moving parts, categorizing financial statements to satisfy various goals can provide you with a clearer understanding of how well your operations are performing, how you’re earning money, and where it’s going. Along with an internal breakdown of business economics, you’ll want to keep external partners informed promptly and in detail.
At Measured Growth CPA, we equip our Ontario accountants for entrepreneurs with a client-focused mindset and open line of communication. By making what is important to you equally as important to us, we take every opportunity to grow your business.