Deciding to incorporate can be difficult for many small business owners. There is a lot of conflicting information out there and with a lack of experience, it can be difficult to determine which facts are relevant to your situation. Only the internet can answer so many questions. Talking to an expert can be helpful when starting a business, but ultimately the decision is up to you.
Once you decide to start a new company, there are a few best practices you should put in place to make sure your business runs smoothly right from the start.
Keep all your company incorporation documentation, either physically in a file folder or scanned into your computer’s accounting/company folder. This will be very helpful when your business partners or credit rating agency ask you for business documents, company numbers, etc. regarding the company). The answer is that you don’t need to have an official registry. The content of the minutes (dividend declaration, corporate resolutions, etc.) is important. The form itself can simply be a text document stored on your computer or, if you prefer things more formal, you can certainly use a notebook.
Always read any documents you receive from the government to see if further action is needed. If you don’t understand them, there is usually a phone number on the document that you can call for more information. Avoiding government alerts won’t solve the problem (although we fervently hope it will), and delays in responding usually make things worse.
Accounting and bookkeeping
For many small companies, there isn’t much to do tax-wise. In the beginning in terms of accounting, sales tax, or corporate income tax, as deadlines are often months long. However, it’s a good idea to set up an accounting system and find an accountant as soon as possible. This will ensure you are not rushing to meet deadlines at the last minute and avoid errors and/or penalties. It can take time to develop a relationship with an accountant, and it often takes time for them to respond to new clients.
If you join or register for payroll, you usually have to file monthly, at least initially. It is important to understand deadlines and pay employee payroll deductions by the due date. Otherwise, the interest and penalties for late payment are high. There are a number of payroll services that will make this process easier for you.
Determine how you will be paid, whether by salary or dividends. If you decide to borrow money from the company early on, make sure you have the plan to pay it back within a year or declare it as a salary or dividend. If not, the CRA will treat it as income, which will result in unnecessary taxes (and interest and penalties, of course).
Keep all source documents: receipts, bills, expenses, and invoices. Ideally, you’d set up a paperless office, and scan your papers into a filing cabinet (using whatever organization system works for you, like alphabetical or by category.) so you have easy access to your papers. Alternatively, a physical registration system is also fine. Most accounting software will also allow you to attach source documents to the transaction record. Talk to accountants near me who can guide you with corporate accounting and income tax filing for your business.
Make sure you have enough funds in the company to pay your taxes. Once you’ve signed up for GST/HST, remember that you’re simply a CRA agent. You collect these amounts on their behalf and pay them by a certain due date. These funds should not be used as cash flow in the business unless you are sure you can repay them. It may be helpful to open a separate savings account into which to transfer the estimated sales tax owed; this also allows you to earn some interest.
Be aware of tax deadlines, even if you have an accountant, and be sure to respond to your accountant’s inquiry as quickly as possible so they have enough time to prepare and file your tax return. Talk to accountants near me who can guide you with corporate accounting and income tax filing for your business.
Be disciplined in your business banking. Ideally, you should use your merchant bank and credit card accounts for most transactions. Using personal bank accounts, with the exception of a few transactions, can lead to problems with the CRA. If you use personal bank accounts for multiple transactions, create an expense report within your accounting system and ensure record keeping.
When requesting expenses, make sure they are reasonable and business-related. There are a number of “soft” expenses such as travel, car expenses, food, etc. which should be accompanied by detailed documentation (such as a receipt with the business object of the transaction). Large amounts of spending can raise red flags for the CRA, which can then lead to ongoing (and deeply unpleasant) audits.
Understanding accounting and tax terms
Most accounting and tax terms related to small business corporations are fairly straightforward. Because you know your business better than anyone, it’s helpful to understand these concepts to best assist your decision-making process. If you have any questions, your accountant should be able to provide some information.
When incorporating your business, talk to accountants near me who can guide you with corporate accounting and income tax filing for your business. Incorporation is something that comes with its pros and cons. A qualified accountant will be able to help.