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| Financial |
 Financial
Closet - Decluttering Your BooksBy Debbie Patterson, owner of Odessey Business Services Ten times smaller than your closet, but ten times messier. That box, file, bag or pile of financial paperwork that represents all of the hard work you’ve been doing, also represents the hours of dreaded work you don’t want to get to. It’s all part and parcel of the small business outfit; playing the business planner, financial officer, secretary, labourer and finally, the bookkeeper. Of course becoming all of these people isn’t easy and a lot us choose not to wear all of the hats. So whether you are book savvy enough to tackle your own finances, or have hired someone to help you out, here are a few ideas to help get that organized mess into shape. Whether you are a proprietorship or an incorporated company, it is important to keep business purchases separate from personal expenditures. By this I mean the actual mode of purchase. Debit, credit card or cash. The personal portion of purchases is used in the calculation of owners equity, which is a critical number for an incorporated companies financials, as well as, a very important piece of information for a proprietorship should they decide to sell or incorporate. It is advisable to get a separate bank account for your business, and if credit cards are used, a company card or totally separate personal credit card is a good place to start in your organization efforts. This just makes that line much more visible between personal and business use of funds. Any loans and lines of credit can be associated directly to the company even if you are a proprietorship, and then there is no confusion as to the validity of any interest being written off. If your company is incorporated, a company credit card or line of credit also goes a long way to establishing a credit rating for your business. To apply for and maintain a line of credit requires a detailed set of books as the financial institution requires monthly financials to justify their risk in lending to you. If your books and finances are done on a regular basis, monthly or quarterly, receipts and bank statements can be kept in monthly labelled files or envelopes, split, of course, into business and personal purchases. If you hide from your finances throughout the year only to pull them out at tax time, it is easier for everyone concerned to just separate them once into categories on a yearly basis rather than a monthly system. Two systems per category, one for purchases made by company funds, the other for company expenses paid for by personal funds. Many people over categorize. On a monthly basis this is not a problem. Yearly, this just results in a lot of time spent separating, re-separating and re-combining. The most important category is ASSETS. These are single big ticket purchases over $200. Items such as large tools, electronics, furniture and automobiles are not used as a 100% expense, but are depreciated for wear and tear as of the purchase date. These purchases should be kept separate from regular expenses so they are easily accessible at tax time. Some other categories to create separate files for on a yearly basis are as follows: •Cost of Goods Sold (major expenditure of your company such as product materials.) •Freight or delivery expense. •Advertising (includes tradeshow props and presentation materials.) •Office expenses (this can include postage, ink cartridges, etc.) •Business taxes, fees, licenses and permits, professional fees. •Promotion (which is not travel and is also NOT personal meals. Meals or gifts for clients or staff can be consider promo.) •Travel (includes any expenses incurred for seeing a client more than 40kms from your home base - does NOT include vehicle expenses.) •Rent, utilities, telephone, internet (these are directly company related, not business use of home expenses.) •Vehicle expenses (split again into categories such as gas and oil, repairs, insurance, lease payment, etc.) •And finally, business use of home expenses (relating to the business portion of a personal home such as insurance, utilities, rent, mtg. insurance and condo fees.) With daily or weekly upkeep, your finances become nicely organized so if you need to know your financial position at any time other than tax season, it can be available very quickly. Debbie Patterson, owner of Odessey Business Services, specializs in income tax. Visit www.odesseybusiness.com for more tax tips or contact her directly at 403.816.5098 |