Why Bookkeeping Is Important for Business and Personal Finances
Have you ever tried to find something in the dark? Even if you are in your own home and trying to locate an item in the dark, chances are, you are going to stumble around a little bit, maybe stub your toe, and still not find what you were looking for. In contrast, when there is good lighting, it is much easier and quicker and likely with no pain!
Same thing applies when you are trying to make financial decisions without good bookkeeping information. Having good timely bookkeeping allows you to stay on schedule and see exactly what is going on with your numbers. Having bad or no bookkeeping information is a dark recipe for debt.
Income Tax, CRA & Bookkeeping
On occasion we meet with self-employed people who are having income tax problems with Canada Revenue Agency (CRA) to the point where there is a garnish on their income or their bank accounts have been frozen. This is usually the result of late or non-filed income tax returns or GST returns.
When CRA does not receive a scheduled tax return they may arbitrarily assess the tax return. That means they will guess at what the amount is and also apply interest and late filing penalties. Once issued, CRA can then start applying the collection pressure.
We often think it is unreasonable for CRA to expect a talented self-employed person to be put all that energy into earning a living and then still be faced with the challenge of learning and keeping up to date with bookkeeping. It only takes two or three missed tax returns for the penalties and interest to grow the tax debt so fast that the balance becomes too large to catch.
One solution to this situation is to file the outstanding tax returns which may reduce the principle balance to the actual amount but the damage may already be done. The better solution is to connect with a solid bookkeeper who can keep you on schedule with filing your tax returns, paying on time, and even making your instalment payments for next year’s tax return. Bookkeepers do charge a fee but generally that cost is very reasonable especially for the amount of headaches that can be avoided.
In addition, receiving timely business information can help the self -employed make better business decisions based upon data as opposed to hunches. If you already have a bookkeeper, feel free to keep asking questions until you understand the numbers. In addition, a good bookkeeper will be willing to teach you how to provide them with the initial information in the most efficient manner in order to keep your costs down.
Family Member as Bookkeeper
Another common bookkeeping problem that we see is when a spouse or family member is tasked with the role of bookkeeper in order to create them a job. As with any job, there is often more to it than what initially appears and bookkeeping is no exception. If a spouse or family member is going to take it on it would be wise to insist upon the completion of a bookkeeping course and to keep a close eye on the results until you are satisfied that the bookkeeping is being done correctly.
Having good bookkeeping skills is also important on a personal level. Most people have not put together a realistic monthly budget which requires the tracking of actual income and expenses for several months. By tracking your actual expenses you can then confidently budget into the future and start making plans.
No formal bookkeeping course is required; simply start writing down or tracking where your money is being spent. We recommend writing it down each day because it only takes a few days to pass before you forget where your money went. Keeping track of your personal expenses also makes it more difficult to run a monthly deficit which over time causes the buildup of debt.
Why Bookkeeping Is Important
Good bookkeeping provides clear, timely, accurate information which leads to good decision making and helps to avoid debt. If you are not comfortable doing it yourself then it is the right move to spend the money to hire one. We can recommend several excellent bookkeepers who are worth their weight in gold.
If you are already facing a critical mass of debt a change to your bookkeeping might not be enough to reverse course. However there are federally approved programs for debt help that can reset your finances for a fresh start. As a Licensed Insolvency Trustee we are federally approved to file and administer Consumer Proposals and assignments into bankruptcy which both provide immediate debt relief including income tax debt. Please take advantage of our free initial assessment by contacting our office for an appointment. You will be glad you did!