One of the most often asked questions by people opening up a small business are "what software should I get?" Most accountants have a preference towards the software that they know best but that may not be the best for you, the client. Deciding factors should include your level of computer experience, bookkeeping experience and degree to which you will be using the information generated to make business decisions.
A small business can be a multi-level marketing business, a consulting service business, a product sale/manufacturing business just to name a few. In most businesses, some of the important factors from an accounting perspective would include who owes you money, who do you owe money to, and are you charging enough to cover your costs and time. If your business is such that you know exactly who you owe or owes you money and you feel confident that you are covering costs and paying yourself well, then full blown accounting software may not be necessary.
When you file a personal tax return as a proprietorship business, the information needed by your accountant does not require formal financial statements. In fact, your accountant will only need to know what your total income is and what you spent on business expenses. Although a software program gives you this information, it is also obtainable by keeping all your receipts, filing them by category and then totaling them up at year end. I refer to this as the "living room floor method of accounting". Picture yourself sitting on the living room floor with a box of receipts in front of you and then sorting those receipts into piles by category. Gas over here, office supplies over there, etc. When you are finished sorting the receipts, then you can add them up. I recommend an adding machine with a tape for this as key punching errors can be more readily noticed. The end result is that you can list your totals on one sheet of paper from which your accountant can prepare your return.
The danger with this process is that if you are missing a receipt, it will not be detected and thus you could be paying more taxes that are due. The other issue is that if your business is registered for GST, you may be required to add the same receipts twice, once to get the total and once to total the GST. However, if you have a small volume business, this method of bookkeeping works well.
In order to avoid the pitfalls of the above method, accounting software is your answer. The most common names are Simply Accounting and QuickBooks. Both have their own strengths and weaknesses and over the past 15 years since I have been in practice, I have seen many changes to both programs. Our firm recommends that if you are planning to use particular software for your business, do not try it on your own. There are several software specialists that represent and are sanctioned by the software developers who can help you set up the program properly, answer your questions and even give you a short tutorial. The consultants do charge for their time but I have yet to hear one of my clients say they wasted their money on one. In fact, they usually say the opposite; the consultant saved them so much time and money that they would recommend them in a heart beat! Setting up a business is challenging, stressful and can be overwhelming so remember that if you do what you do best, and let others do what they do best, you and your business can only profit in the end.
This article was written by Gabrielle Loren -- a partner with Loren & Company, CGA's located in North Vancouver, BC and can be reached at email@example.com, at 604-904-3807 or check out their website at www.loren.bc.ca