Small business owners wear many hats. Many switch between marketing campaigns, customer relations, accounting, and everything else the company needs to thrive.
Does this sound familiar?
While small business owners are often in a league of their own, the more hats you wear and the greater your growth, the more critical efficiency and organization become. This mindset is particularly vital for money management and accounting practices.
Unfortunately, the data shows that one in five businesses fail within the first year. By year five, approximately 50% close. The number one reason businesses fail is because they run out of capital. Nearly 40% of companies fail because they run out of cash or cannot secure additional capital.
To survive, small business owners must prioritize financial management, and part of that is financial reporting. This article tells all.
What is financial reporting?
Financial reporting involves documenting your financial activities and performance within set periods – such as a monthly or annual report. These reports help business owners organize their accounting data so that it's easy to see the company's financial status.
Examples include a statement of cash flow, retained earnings, income statements, and your balance sheet. The report you focus on will depend on your objective. For example, your earnings report will be critical for investors, while your income statement and balance sheet will be of primary interest during tax season. Staying organized and using the right software will help you automate this process so you can focus on the bigger picture – your company's growth.
The importance of maintaining organized records
Keeping organized records will help you in several ways, including the following:
- By maintaining detailed, organized records, you can identify income sources. This process will help you determine whether you should charge GST/HST.
- When you keep complete, organized records, you benefit from greater tax savings. You could forget some of your expenses if you do not document transactions.
- If you are audited, organized records will simplify the process. If information is missing, auditors may use other methods to establish your income or GST/HST net tax – which could cost a lot of monetary and time-related resources.
Financial reporting keeps you informed about your business's financial position and value. It allows you to better determine business trends, prepare budgets more effectively, and communicate your company's financial health to investors.
Choosing suitable accounting software
Online accounting software and bookkeeping services make staying organized easier than ever. These tools help simplify the financial reporting process and keep your records organized for your accounting partner.
Here are some of the top accounting software options, and ones that we have selected for the Enkel technology stack:
- QuickBooks Online is a cloud-based accounting software that lets you keep all your financial information in one place, including expenses, transactions, and invoices. Customize your reports to see your company's profitability, operating expenses, cost of goods, and other critical accounting numbers.
- Dext Prepare is an excellent tool for tracking and managing expenses. Eliminating manual data entry for invoices and receipts ensures a more accurate, detailed audit trail and a more streamlined experience.
- Payworks is an optimal solution to improve payroll management. This tool will ensure accurate payroll-related documentation if your business is growing and you have hired employees or contractors.
The best software for your business will depend on your needs and industry. Explore options for greater customization or invest in all-in-one solutions like Enkel, leveraging the top bookkeeping and accounting software packages.
Understanding basic financial statements
Collecting data and having access to it is one thing – being able to read and understand it is a different beast.
Despite that, understanding your company's financial health is one of the most critical skills you can have as a business owner or entrepreneur. This knowledge will help you identify potential opportunities while reducing risk, resulting in more strategic decisions over time.
Whether you want to increase accuracy for your taxes, are seeking financing, or are presenting to investors, you'll want to prepare and understand the following:
- Your balance sheet is your company's "book value," focusing on assets, liabilities, and shareholder's equity. Since this is a snapshot, it won't provide information on trends, but it does provide a statement of financial position. Discover more about balance sheets.
- Your income statement will help you review operations/profit and losses within a certain period, like a quarterly or annual report. Discover more about income statements.
Staying on top of your cash flow statement will help determine your company's ability to operate in the short and long term based on how much cash is going in and out. This statement will focus on operating (revenues and expenses), investing (real estate, equipment, business acquisitions), and financing (debt and issues shares). Discover more about cash flow statements.
Seeking professional assistance if needed
Accounting and bookkeeping software has advanced greatly, helping small business owners manage their financial reporting needs more efficiently. However, the ins and outs of business finances are still complex. There is a lot to consider, and what's best for one company isn't always what's best for another – especially for taxation purposes.
While many small business owners manage their bookkeeping, other priorities could result in neglected books and incomplete records. Eventually, these businesses seek help from a professional to better manage their cash, make realistic plans, and stay focused on running the business.
Complying with tax obligations
Tax obligations can be overwhelming, especially as your company grows.
Detailed records are critical whether you're dealing with income tax obligations, GST/HST obligations, CPP contributions, or all of the above. Use your chosen software to track the amount of tax you collect, the expenses that can be claimed as input tax credits (ITCs), and the tax you must remit.Again, talk to a professional if you're unsure about what your business is obligated to do this upcoming tax season or if you'd like assistance every step of the way.
Enkel can help
Are you a Canadian business owner or nonprofit that needs bookkeeping and accounting support?
If so, Enkel will help you automate and streamline workflows to increase efficiency. Custom solutions make Enkel different, thanks to a combined client-centric, technology-powered approach.If you want to partner with an experienced professional you can count on, contact us today.
How We Select and Evaluate Our Recommended Software
We thoroughly research and test the apps we include in our regular workflow for Client bookkeeping services. After deciding on criteria for evaluating the software and then researching the app itself, we tested the app, noting its strengths and weaknesses. We then work with the app for at least a few weeks before deciding whether to recommend it to our readers. We use the software as it was designed for its intended tasks. For a detailed walk-through of how we select and evaluate software, please see the details of our process.
Enkel receives no consideration or compensation from software publishers for featuring their software in our blog articles.
