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It is good to have your own business. It gives you a sense of independence. It is good to be the boss. But what about your salary? You have put in a good amount of capital investment, and your business has started running. The question on your mind now is how to pay yourself. Accountants Edmonton recommends a few tips to help business owners to pay for themselves.
Draw v/s Distribution
When paying yourself, there are various ways and factors to consider based on the nature of your of business. A sole proprietor generally takes a "draw" from the company revenue. As a sole proprietor, you cannot be considered as an employee of the company, so you do not get a salary. What you take is a part of the profits from the business known as a draw. The term "distribution" is used when the company has more than one owner.
Dividends are what shareholders earn from the business in relation to how much ownership they have in the business. A Return Program Account (RZ) with the CRA (Canada Revenue Agency) must be setup in order to pay the dividend.
Salary is what a sole proprietor can earn like any other employee. To get the salary, you need to set up a payroll account with the CRA. A deduction from the net income of the business takes place when you pay salary. This will be taxed as a part of your personal tax when it becomes your salary. To simplify the payroll process, you could outsource it to a payroll service providing firm.
Limits to How Much You Take
The other major challenge when deciding a salary for yourself is determining how much to pay yourself. You are the owner of the business, so you have the liberty to pay as much as you want. However, a wise entrepreneur calculates before using up the money for his personal needs. To make things easier, stick to paying a fixed salary to yourself from the revenue earned. If you have any expansion plans, then you may consider saving more. Therefore, based on your future plans, you need to consider the limit to how much you take.
Know the Taxability of Your Pay
It is difficult to determine how much tax you owe to the government when you run your own business. Self-employment tax is applicable in such cases. It is equivalent to a Federal Insurance Contribution Act (FICA) tax. The amount payable is based on the profits.
Understand how much is more and how much is less. It is difficult running a business. Managing finances on your own could add to your worries. To manage your finances better, without any worries, get in touch with the seasoned accountants Edmonton.
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The decision to start your own business is a big decision. You have to plan every aspect of your startup and manage your business finances. For a new entrepreneur, managing the cash flow properly can be a big worry.
Cash flow refers to the inflow and the outflow of money within your business. Managing cash flows is a big problem for startups. Here are a few tips to manage your cash flow.
Focus on the Cash Flow Stringently
While you might be busy focusing on business activities, do not ignore the cash flow. It is crucial that you keep an eye on the incoming and outgoing cash. It is necessary to maintain regular records of your cash flow in your bookkeeping. Missing out on one entry could lead to miscalculation of the funds available.
Maintain Emergency Reserve
Make sure you have kept aside a reserve of the cash for emergency expenses. There is no business which does not face a cash emergency at any point. It could be a small or big emergency. Having a reserve of cash will give you peace of mind in case you have to make immediate payments.
This is an important tip to consider. Accounts payable refers to the money you owe to others, and similarly, accounts receivable refers to the money others owe you. Keep a tab of the pending receivables and make sure you collect them on a timely basis. You could offer a discount to your clients in order to receive the money a little earlier which is also known as a rebate. Paying your pending payables on time saves you from the extra cost of attracting a penalty or interest rates.
Practice Smart Hiring
This does not directly affect your cash flow but has an indirect effect on it. Hiring manpower unnecessarily increases the number of employees you have to pay salary to. When the current manpower is sufficient to run your business, refrain from hiring more.
Do Not Over-stock
Before you plan on ordering raw materials, do an inventory control check. Make sure you need what you are ordering. If you already have stock of raw materials, do not order unnecessarily. A majority of your cash will be blocked in the stocks if you are unable to sell them quickly. Also, additional stocks will increase your warehousing costs, and there is always a possibility of wastage. Hence, you need to have a proper inventory control system in place to avoid any cash flow issues.
Take Technical Assistance
Maintaining your accounting ledgers has become much easier with the growing technology. Make use of technical accounting tools to ensure zero discrepancies. There are various free as well as paid tools available at your disposal. This will help you to keep a track on all your upcoming expenses and incomes. Thus, you can make the necessary arrangement of funds as and when the need arises without facing liquidity problem.
Taking tough yet smart decisions when it comes to managing your finance is the key. Making use of these easy tips, you can manage your cash flow better. To ensure smooth functioning of your business finance, maintaining proper records of your financial accounts is a must. To get assistance in managing your accounts, consider availing Edmonton bookkeeping services from a professional accountant.
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Many small business owners get confused whether they should manage bookkeeping on their own or seek help from public accounting firms Edmonton. If you are also one of them, here are a few pros and cons of doing your own accounting that can help you in making the right decision.
Pros of Doing Your Own Accounting
While conducting your own accounting, you are saving the fees that you would’ve paid to the accountant. The cost of hiring an accountant can be saved and used for other business purposes.
When you do your own accounting, you know what is happening with your business. You have an in-depth knowledge of all the income and expenses of your organization. You don’t have to rely on anyone to know the important numbers of accounts of your business.
Make Better Plans
By knowing the accounts of your organization yourself, you can try and cut down on various unnecessary expenses, plan your business strategies, and make the best use of company’s resources. You are able to make informed decisions sooner than later when you have access to your business accounts.
Cons of Doing Your Own Accounting
Doing your own accounting or bookkeeping can be a time-consuming process. It demands a lot of your valuable time. Furthermore. if you fail to provide enough time to accounting, your balance sheets will look out of order, and several mistakes and confusing entries may occur.
Distraction From Work
When you are a business owner, your primary focus should be running and growing your business efficiently. However, if you take up accounting in your own hands, your attention will be divided, and you will also have to focus on managing your books of account. This way, accounting on your own is a big distraction.
Lack of Knowledge
There are chances that you may not be aware of all the codes, laws, terms, processes, and method of accounts. If you do not have accounting knowledge, you can make a serious mess of your business accounts.
It is always recommended that you hire a professional accountant to take the best care and manage your business accounts. There are several public accounting firms Edmonton that offer transparent accounting assistance that can help you in understanding your business accounts and make decisions faster.
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Bookkeeping and keeping a track of all the incomes, revenues, and expenditures of your organization are an important part of every business. Bookkeeping Edmonton provides you the current financial position of your organization and plan for future business projects. If you are planning to start with bookkeeping by yourself, then here is a step-by-step bookkeeping process for you.
Step 1: Create an Organized Structure
Before getting started with bookkeeping, you first need to establish a well-defined structure. This structure must include the kind of system you will use for bookkeeping, say automating the process with the help of an accounting software or doing it manually with the help of spreadsheets. Once you have a system in place, make sure you follow the same system for bookkeeping in the future.
Step 2: Select your Accounting Method
There are two types of accounting methods - cash and accrual. In the cash method, revenues, and expenses are only recorded when the amount is actually received or paid. And, in the accrual method, incomes, revenues, and expenses are recorded when the transaction takes place, even if the amount is not received or payment is made on a future date. The best accounting method for small businesses is the cash method as it gives an accurate representation of the balance of the organization.
Step 3: Record Every Transaction
Make sure you record each and every revenue, credit, and expense to avoid confusions. You can either follow a single-entry bookkeeping or double-entry bookkeeping system. A single-entry system involves recording the income and the expenses only once. Whereas in a double-entry bookkeeping system, there are at least two accounting entries that need to be accounted for each transaction.
Step 4: Create Separate Accounts for Transactions
The best way to make bookkeeping easier is to separate the transactions into different accounts within the ledger. Separating the accounts can give you a clearer idea of all the incomes and expenses for various purposes. You can separate the transactions into accounts like cash, inventory, payroll or wages, owner’s equity, accounts receivable, accounts payable, etc.
Step 5: Update and Check Regularly
Make sure you record the transactions on a regular basis to avoid any confusions or misrepresentation of the information. The best way to do it is to regularly record the incomes and expenses as and when they take place. Also, make sure you check your accounts and records on a regular basis to see if there is any mistake or any missing record.
Bookkeeping is an easy process if done correctly and regularly. But, if you think that managing bookkeeping Edmonton on your own is a difficult task, you can outsource the task to a reliable accounting and bookkeeping firm in Edmonton. They will manage your accounting without any errors and in an effective manner.