Top 3 Accounting Tips When Starting A Business
Updated: Mar 7
You've got a great business idea. Maybe you've already quit your job and you're taking the leap of faith! Maybe you have a full-time job but you think you can do better than your employer or you have a more innovative way to do the work. Either way, our impulsive human nature usually takes over and we just go for it without really getting our ducks in a row. In my honest opinion, you will never be 100% ready, but being prepared can make the transition a lot smoother. So, here are the top 3 things you should know when starting your business.
1. Choose Your Business Structure
Choosing the right structure from the beginning can save you and your business time, stress and money. There are 3 types of business structures in Canada:
Sole proprietorship - the basic and most simple business structure for individuals
Partnership - this is a sole proprietorship with multiple partners
Corporation - a legal entity
Sole proprietorships and partnerships are the structures with the lowest start-up costs. Corporations have a higher start-up cost because of the incorporation and legal fees associated with the incorporation process. Accounting standards and reporting requirements also differ between sole-proprietorships/partnerships and corporations.
Which leads to the next tip.
2. Consult An Accountant Or Bookkeeper
A good friend of mine once told me that she always outsources two services and one of those is accounting. Accounting is a complicated profession and can take a long time to learn, which means time away from your business (if you decide to do it yourself). Getting things wrong with accounting could also lead to future complications or worse, large penalties.
First, you should know that there is a difference between the two.
holds a degree in accounting or a professional designation (CPA)
highly technical and analytical
strong understanding of tax law, accounting standards, and financial analysis
strong understanding of revenue and expenses and how to post journal entries
familiar with sales tax, and other administrative tasks related to accounting
I recommend using a designated accountant for tax return preparation and filing, financial reporting and complex tax and/or accounting advice. Outsource your daily bookkeeping tasks to a bookkeeper. Not to throw accounting firms under the bus, but if you are a small one-man/woman show you will have a hard time communicating with them, usually deal with someone different and pay higher fees then you should be.
If not you're not sure where to find an accountant or a part-time bookkeeper, ask a friend you trust if they would recommend someone. Some great resources include:
UpWork - the hub for freelance accountants and bookkeepers. Also great if you need a one-time project completed.
Quickbooks - if you're planning to use Quickbooks Desktop or Online and need a bookkeeper/accountant, this is a great resource to find a QB ProAdvisor near you.
3. Consult A Lawyer
Doing business will always have its legal risks. So, it is best to consult a lawyer to find out what those risks are in relation to your business. Some common advice to seek out a lawyer on are:
Incorporation - I've never been through the incorporation process myself, but I do know it can be pricy. However, the investment is worth it because you will know that your business structure and setup will be ironclad.
Engagement letters - a legally binding letter that outlines the terms and conditions between your business and your clients.
To sum up, put in the work to understand the best structure for your business, seek out an accountant and/or bookkeeper to learn what your tax obligations are and to get your books in rockstar condition from the start, and reach out to a lawyer so you can legally protect yourself and your business.