As a business owner, it's really important to track your income. Keeping tabs on what comes in helps you stay aware of what exactly is making you money, and gives you an idea of what you're able to spend in order to further your business objectives.
You may have multiple income streams (or multiple products or services which compose part of a single income stream), and determining which of these is performing well for you (or underperforming) is vital to a successful business operation.
So how do you track your income? The best way is to use a software that counts everything for you (an inventory management system integrated with your POS software is a great way to do this). However, you should still sit down and manually review all of your income monthly so you can stay in touch with what's happening in your business-what's working, what's not, and how your revenues are progressing.
Of equal importance when it comes to running a business is tracking expenses. Once you know how much you have, you'll need to determine how much you're willing to part with to help you achieve your goals. Expenses can be in the form of salaries, rent, utilities, software, or anything else that costs you money and contributes to your business operations.
The basics of tracking expenses starts with something as simple as saving your receipts. Alternatively, in today's electronic world, digital bank statements can easily be accessed at any time for your review.
This goes without saying-but when it comes to income and expenses-having a business bank account that is separate from your personal account is of the utmost importance. That way, you know that every dollar going into your account and going out is associated with the business, and a quick look at your statement can tell you where the money is going every month.
A basic profitability calculation is a very simple one. Take how much money is coming in, and subtract how much is going out. The integer you're left with (hopefully it's a positive one!) is how much money you are either making or losing.
While you might not be a bookkeeper or maybe don't have one that works for you, good bookkeeping is imperative. Bookkeeping is simply using software to sort your income and expenses into their respective buckets, so that you can monitor how much you are spending in each category of expenses, and how much you are making in each category of income. If you do this and try your best to leave notes and descriptions as to what each item is, when it comes time for your year-end, your accountant will be able to help you with the rest (and thank you for making their job easier!).
Dealing With Taxes (CA)
Maybe you're a whiz with numbers and don't have an accountant you regularly work with; however, you should still talk to a designated professional accountant to find out more about dealing with taxes as a business owner. Here's a few quick tips to get you ready for working with an accountant and keeping up with your taxes:
- If your business is very successful, then you may owe a substantial amount of tax at year's end. In general, it's better to manage your cash flows by paying tax installments throughout the year, so that you don't have a huge tax bill at the end (talk to your accountant and they will give you an estimate as well as tell you how often to pay).
- If your business is not incorporated, your income will be taxed personally (on a calendar year basis from January to December of each year), and you'll have to provide ALL records of income and expenses to your accountant when you prepare your personal tax return in March/April. Your tax will be calculated at that point in time.
- If your business is incorporated, you should get your income and expense information to your accountant as soon as possible after your fiscal year end (this is the reporting period that you can choose when you incorporate your business, which could be January to December or any other 12 month period that you choose).
- It's always better to do things legally. Tell your accountant everything you know and provide them with all of your records always. If you end up doing something illegal while attempting to avoid taxes, you could face fines with the CRA and end up with a higher accounting bill than if you had just done everything above board.
Keeping track of income, expenses, revenues, and profits are key to running a successful business. Even if it feels like you don't know where to start-start somewhere. Many business owners wait until it's too late to pay attention to how much is coming in and how much is going out. If you want your business to survive long-term, keep an eye on the books so you can make the money-savvy decisions that will help it thrive well into the future.