I was having lunch with my friend Alex, and we got to talking about running our own businesses. Alex is a blogger who creates content to showcase to her readers and followers, and in sharing war stories about the world of back end business matters, we decided that this managing business finances blog post had to happen!
I used to be the person who hated to think about finances, and the thought of digging into my accounts gave me serious anxiety. I wasn’t known as the frugal one in my house, actually I had quite the reputation of being horrible with money (half true). Credit card debt, missing payments, and ignoring bills were my way, and this was always just because I figured they would go away if I ignored them (yes, sooo silly!).
As I’ve matured, so has my outlook on finances. I’ve had to become comfortable with managing not only my personal finances, but my finances with my husband, and my business. I have learned SO much along the way about running my business on the back end – I’m talking invoicing, taxes, expenses, incorporation, and did I mention taxes? This can all be super stressful, and create quite the cluster if not handled properly. Now that I’ve set up my business flows and systems, I actually look forward to dealing with this stuff, and get excited to look over my numbers.
Here are 5 tips on managing business finances (Canadian!) I want to share to help you stay on top if it as much as you can, because when your finances are in order, you are empowered. Just dealing with it removes the stress and guilt from it, I promise. These are realistic (no, I’m not going to tell you to skip your latte’s or that you can’t buy that amazing pair of shoes) tips with solid information you can put into action, whether you’re a business owner, make money from your side hustle, or are managing your day-to-day accounts!
Note: this is from my own personal experience, and is an opinion piece that should not supercede or take the place of advice from your accountant or lawyer. Please seek your own professional council on business matters.
Using Freshbooks to manage client invoicing makes things so much easier than implementing your own system. I pay $20/mo, and can create invoices, set up re-occurring invoices, accept credit card payments (there is a fee for each transaction, so I prefer to keep this minimal), send overdue notices and the like. Having this system in place has taken a weight off my shoulders, and it keeps me super organized in collecting payment from clients.
MY TIP: Don’t mark an invoice as paid until the money is deposited into your account to avoid any confusion on what has been actually paid.
I have my own accounting workbook on my hard drive that breaks down on a different sheet month by month and it includes clients, subtotal payment, GST (in Canada), and final total payment. From there, I break down total taxes and income. Then, I have line items for sub-contractor payments, how much I paid myself that month, and how much was left in my business account that month. From month to month, this gives me an at-a-glance look at what I’m making (showing me how I’m doing), and I can easily calculate yearly totals come tax time. This is an essential component for tax time, and I record anything that comes into the business so that I have an accurate reporting at the end of the year.
MY TIP: Create spreadsheets for upcoming months so you can project your income, and adjust your client load/workload as needed.
Bookkeeping and accounting are two different things. To avoid a huge service bill from my accountant, we take care of bookkeeping in-house. Expenses include anything from office space, office supplies, equipment, your car lease (leasing is better than buying come tax time if you’re a business owner), health expenses, internet, phone, gas, meals (over $20 before tax or parties of 2)… the list goes on. Your total expenses for the year are deducted from your income, so you do not pay taxes on the income used to pay for expenses. This is termed a “write off”. You should discuss with your accountant to make sure you’re getting all the write-offs you can! We keep all receipts, and input these into our expenses Excel workbook at the end of every month, and then keep the receipts filed by category in envelopes. It’s all about keeping things organized, and my accountant has told me that we are the most organized clients she has. Music to my ears (and my bank account, because it means that they are not billing me for simple data entry we can keep on top of here).
MY TIP: Keep every receipt, and input the data into your workbook at the end of every month so you don’t fall behind and have piles of paper everywhere come tax time!
Once you have a business, it’s best (and essential) to have a business account that your money filters into. This keeps things separate and clean. You will need your company documents to open an account, and if and when you incorporate, you will require your government filings with you to open it. Many business account fees are waived with a minimum balance. You should also get a business credit card, and all expenses should be put through on this card, paying it off monthly with an e-transfer from your business account. For a paper trail, writing yourself a cheque for salary keeps things easy breezy for tax time, and as my accountant says, e-transfers from your business account to your personal account is frowned upon by the government.
MY TIP: Make sure you get a credit card with an air mile program attached so you can reap the benefits of spending on your corporate credit card. Set up reminders for when your balance is due, so you don’t have interest payments.
STEPPING TO A CORPORATION
Once you hit a certain threshold income-wise, you will want to go from a sole proprietor to a corporation. What this means, is that you need to incorporate your business, and you will pay corporate tax (13% in Canada) on money you make under the business, plus, personal income tax on money you pay yourself from the business (plus, you get to put a fancy Inc. after your business name). This means you’ll have two tax filings, plus one for GST you’ve retained. Your accountant will walk you through this process and hold your hand. There is quite a bit of red tape to transition, and come tax time each year, but I promise that if I can do it, so can YOU. One thing to note is that your account fee as a corporation increases substantially, and your yearly service fee can range anywhere from $1200 – $3000, but this is a totally normal cost of doing business!
MY TIP: Don’t spend all of your income because you will have a tax bill at the end of the year to pay. Although it’s tempting, that money isn’t yours, it’s the governments’! Keep as much as you can retained in your business account to cover your income taxes and GST.
EXTRA TIP: If you make over $30/K in a year, you need to charge clients GST (service tax) of 5%, keeping this GST to pay the government at year end.
I hope this was all super helpful. Do you guys like these kinds of posts? Tell me in the comments! And if you’d like a referral to my accountant, please send me an email!