Three Common Mistakes People Make When Starting A New Business
Starting a new business can be exciting as you finally get to follow your passion, make all the critical decisions, and give yourself the potential to grow exponentially. However, many new enterprises struggle due to not understanding basic accounting, which can prove detrimental.
So, to help you avoid some basic accounting errors that could prove costly, Vizhen Books Inc. has put together a list of the most common mistakes people make when starting a business.
1. Wearing all the hats including bookkeeper’s
Due to limited funds and resources, new business owners try to juggle between multiple roles and end up doing bookkeeping for the business themselves. The perception is that they cannot afford the bookkeeper at the early stages of the business. However, bookkeeping services are available at a reasonable cost and can save business owners thousands of dollars.
Entrepreneurs should also consider hiring a bookkeeper to save valuable time as they could use the extra hours to build their business or spend with their loved ones. They need to understand that the value of their time is much higher than bookkeeper’s.
2. Failing to remit sales tax/ income tax payments to CRA on time
Many business owners don’t realize that the sales tax they are collecting from their customers is not their business earnings and needs to be paid to the CRA on a monthly/quarterly basis, after adjusting any Input Tax Credits from the taxable purchases.
However, many business owners use this cash to fund their working capital needs. Unfortunately, it causes cash flow issues down the road when the CRA comes knocking on their door to file the sales returns and pay the taxes. It also results in interests and penalties that could get avoided with appropriate cash planning.
The same mistake gets made with the non-payment of advance income tax. Business owners use all the cash earned from operations without setting aside the annual income tax payments. At the end of the year, they end up with a large tax bill that they find challenging to pay.
To address these issues, entrepreneurs should seek help from an accountant to prepare cash flow forecasts. It will help improve their working capital needs and enable them to pay sales tax and income tax at regular intervals.
3. Not using technology to automate and simplify business processes
Business owners are not experts in choosing the right tech stacks, and they don’t have the resources to receive help in the nascent stages of starting up. The reality is that there are many tech stacks available, and the cost to implement them has decreased drastically over time.
By investing in the right tech stacks at inception, business owners can set up processes to scale faster. As a result, to gain the most benefit, they should consult with the right accounting partner who is tech savvy and can guide them to grow cost-effectively.
To avoid these and other mistakes, reach out to the trusted experts at Vizhen Books Inc. As an accounting firm in Toronto, ON, our team of CPAs, bookkeepers, controllers, and financial advisors is committed to helping you run your business efficiently.
Our services include cloud bookkeeping, payroll, resolving CRA matters, payment processing, invoicing and collections, sales tax filings, controllership, budgeting, forecasting, and technology consultation.
We serve clients across Toronto and the Greater Toronto Area, Montreal, Vancouver, Calgary, and Edmonton.