Having come through another tax season, we witnessed some beautifully completed books that made our numbers-loving hearts so happy. But, we also saw some books that weren’t as organized as they could have been. And we’ve also observed the difference accurate records make to a business, and to the business owner’s peace of mind.
Seeing our fair share of books over the years, we’ve uncovered many “good” reasons why business owners can’t keep accurate records: it’s too time-consuming; it’s too expensive; it’s not very fun; it brings back memories of Grade 1 math class. But, at the end of the day, your records directly correlate to the profitability or the failure of your business. Here are six reasons why your records correlate to your business success.
6 Reasons Accurate Business Records Support Business Growth
You’re required by law to keep adequate business records
Any person who runs a business, files GST/HST, or is going to make an application for a rebate or refund must, by law, keep adequate books or records. If you do not, you could end up with additional costs, fines, or lost opportunities.
Aside from that, the Canada Revenue Agency (CRA)requires you to keep your records for a period of six (6) years from the end of the previous period. If you do not keep your records, there are potential penalties you could face should a regulatory body require them. That said, if you want to destroy your records before the six-year period, such as the business itself has closed, then you must ask permission of the CRA to destroy them. This allows you to destroy records safely.
Accurate records limit the pain of an audit
Currently, in Canada, we have a self-assess and report tax system where we pay our taxes based on the information that we give CRA. As such, it’s actually quite normal to get a request from the CRA for additional information. In fact, you should expect to be audited at some point. If your books are in good order, the auditor will finish whatever review process they need to complete and you’ll both go on your way. All in all, it can be quite painless.
The headaches and real stress come when your books aren’t in good order. We’ve witnessed people spend 20 – 40 hours simply responding to the CRA because their books weren’t in order. This didn’t mean they had incorrect numbers, it just meant the process took longer, was stressful, and more painful than it needed to be.
Note that an audit doesn’t necessarily always have to be from the CRA. If can be, for example, from a governing body if there is a labour dispute. By having your records up to date, you’re better equipped to more easily move through an audit of any sort.
Sloppy bookkeeping will lead to overlooking legitimate tax deductions
Tax deductions are the business owner’s best friend! If your records are a mess, you’ll lose receipts, possibly lose track of complex transactions, and so much more. Without these items, you cannot record the information within your records, meaning you could potentially be missing out on any tax deductions otherwise available to you.
On the flip side to, if the CRA does ask for additional information in an audit and you cannot provide it, they may disallow some of the items you’ve claimed simply because you do not have backup. And, trust us, they are very quick with this process.
Accurate records help in obtaining bank financing
No matter your business or industry, any bank will want to see standard financial statements when assessing financing for your business. These can include your balance sheet, statement of income, and cash flow budgets for current and prior years to name a few.
With clean records and a good bookkeeping system, you’ll easily provide these items. If you have to start from square one, though, you’ll slow down financing approval. Unintentionally, you could impact whether you’ll receive the necessary financing as disorganized records may plant doubt in the bank about in your ability as a business. This is especially true if you are a small business in its first 1 – 3 years. Banks are already hesitant to approve loans at this stage in a business. Build their confidence by having your books already organized.
Accurate records provide the right information to potential investors or buyers
You’ve worked hard over the years to build a successful business. You are now either: ready to sell it or take it to the next level with the help of investors. Regardless, there will be a detailed, data-intensive review period of your business to determine if it’s a wise investment. Whether a potential buyer or investor, they’ll want to see your history, including details of your customers, accounts receivable, and accounts payable.
Providing this data as efficiently as possible will often generate goodwill between yourself and the buyer/investor. In doing this, you could potentially get a better price or higher investment, as you’re highlighting the quality and value of the company by demonstrating that there are good processes and systems in place.
Real-time data allows for effective day-to-day business decisions
Without real-time data, your decisions won’t be as effective as they’ll be guided by potentially inaccurate data. To make effective decisions with greater impact, you need systems and accounting records in place that reflect what is currently happening in your business. If you don’t know your numbers, you could potentially make a wrong business decision or a decision with less impact.
Ultimately, accurate records support you in building a valuable and sustainable business. If you’re curious about how to keep your records accurate with proper systems, contact Priority Business Solutions today. Making your books useful is what we love to do!