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What Needs to be Done for Small Business Bookkeeping in Canada

Even if you plan to outsource your bookkeeping to a bookkeeper, I think it’s important to know more about what they’re actually doing and why.

The process below I’ve outlined is more for Canadian service-based entrepreneurs. Keep in mind these will vary from province to province for specific requirements.

Bookkeeping requirements and how the work is done in Canada and the US are different, so this speaks more to Canadians. There’s so much content out there that’s American-based, that it can really skew the depth of what needs to happen for bookkeeping for Canadian entrepreneurs.

I built a successful financial coaching business working with clients from 8 different countries and had a bookkeeper for my own business for three full years before diving in and becoming competent at properly doing my own bookkeeping. I’m a very financially savvy person who really understands how to run a profitable business, but even I didn’t know the depth of what needed to take place for bookkeeping tasks and responsibilities. And the differences between what a bookkeeper and an accountant should be doing.

Bookkeeping Tasks

• Process & categorize transactions

1. 1. Receipt matching to transactions (really important if you’re a Canadian and you need to charge sales tax, this helps to make sure Input Tax Credits are correct and that you’re not overpaying in sales tax, this also provides an audit trail as the CRA does require you to keep receipts for 6 years. Credit card statements do NOT count as a receipt). Some bookkeepers use Dext or Hubdoc (a receipt management software) for their clients just forward their online and physical receipts, so they can document their sales tax properly & tie their expense transactions to their receipts (audit trail) in their accounting software.
   2. Reconcile accounts (the purpose of this – It ensure that your financial records match the actual transactions in your bank statements, reducing the risk of errors in your books – this is how things like double transactions, missing transactions, improper labels of transfers, etc can be caught).

• GST/HST, PST sales tax filing & reconciliation (frequency specific to your business)

1. Providing financial reports (like a P&L – Profit & Loss Statement, Balance Sheet, etc)
2. There may be more depending on the specifics of your business.

Your Responsibilities as a Client

• Upload receipts for your expenses – for proper sales tax reporting and an audit trail for CRA (most of the time uploaded to a system like Dext or Hubdoc)
• Download monthly statements (ex: business checking account, credit card, tax savings account, any loan/LOC statements, etc) and upload them to your client folder – your bookkeeper needs these in order to do the reconciliations. With bank security settings, this is something you have to do as most Canadian banks don’t allow for accountant view-only access for your bookkeeper to do this for you.
• Answer your bookkeeper’s questions about unknown transactions so they can properly categorize them
• All of these need to happen in a timely manner so your bookkeeper can get to work, finish your books for the previous month, and provide you with timely financial reports

Want more helpful tips for running the behind-the-scenes and financial side of your business? Join me on Instagram @intentionallywealthyco!

Mistakes I’ve Seen Clients Making When Doing Their Own Bookkeeping:

• Not tracking sales tax properly – Input Tax Credits aren’t correct and you’re overpaying CRA in sales tax. If you only need to charge for some of your services or clients for sales tax, I often see when you go to file your sales tax, entering in the numbers incorrectly (which is a big red flag for the CRA)
• Not taking into account payment processor fees (depending on the size of your business, this could easily be $2k+/year you’re missing out on as a deduction, meaning you’re paying tax you shouldn’t be because your expenses are showing as less). Depending on the system you use for invoicing and how your income hits your accounts, sometimes the payment processor fees need to be added back in otherwise they aren’t accounted for

To give you a visual above – For some people, they can have quite a lot in merchant fees and if not added back in, that’s a BIG deduction you’re missing! (This is what it looks like when it IS accounted for)

This is what some of the payment processors that are directly depositing into your account look like (below) (if you don’t have the payment processor hooked up to automatically pull into your accounting system, this can be easier to hook up with American banks than Canadian banks), it only shows what it deposited, not the breakdown including their fee they took. For most Canadians, that amount needs to be added back in.

• Improper categorizing of transactions
• Duplicate transactions, overstating income
• Not sure how to handle transfers from one account to another (ex: transfers to pay your credit card or transferring to/from a tax savings account)
• Not reconciling accounts (something that can also make this difficult is often statements don’t run from the 1st – the last day of the month, many credit card statements especially run really odd days, so this can make it more difficult when figuring out your reconciliations)
• Personal and business commingling and getting mixed up, some personal being deemed as a business (hello red flag)
• Listing tax payments or money they’re transferring themselves as business expenses
• Payment processors don’t often integrate seamlessly with your bookkeeping software, so figuring out what reports to pull in and how to format that data to upload it so you can match it with payment deposits, can be difficult and not straightforward and therefore result in incorrect reporting of income and/or expenses

Mistakes I’ve Seen Bookkeepers Make 

(which is why it’s important they have a formal intake process, ask a lot of questions about your business before agreeing to work with you, walk you through the scope of work to be completed, and you sign an engagement letter/contract outlining the scope of the work)

• Not properly tracking sales tax (likely not requiring clients to submit their receipts) and the input tax credits are lower than they actually are (therefore the client is paying MORE in sales tax than they need to be)
  • More US companies are now charging sales tax for Canadian clients on their expenses (ex: subscriptions). So if a bookkeeper isn’t having their client upload their receipts, they are likely not listing the sales tax that was paid, and again, a client is paying more in sales tax
• Not properly filling out sales tax for clients when filing & showing all income as taxable sales, when their client actually has some of their income as non-taxable sales  (this doesn’t look good from CRA’s perspective, it’s a big red flag and they might contact you about this)
• Not filing sales tax for their clients
• Missing adding the payment processor fees “back in” & the client missing thousands in deductions
• Not reconciling accounts

I will also say, don’t expect great work if you’re paying someone $25/hour to do your bookkeeping.

Way more mistakes are made when the person is being paid less. At $25/hour they are not profitable and they’re actually losing money doing your books, so when they come across something more complex or different, it makes it really difficult for them to reach out for help or ask a mentor because they’re already losing money at that rate and can’t afford to pay for insight or additional education or to further their skills.

When entrepreneurs told me that their bookkeeper didn’t do a very good job, I asked more questions about their bookkeeper and there were definitely patterns.

Common Patterns of Not Being Happy with Your Bookkeeper:

• Weren’t required to fill out an application form ahead of time
• Didn’t have a free discovery call to ask lots of questions to get to know them and their business
• Paying them under $250/month
• Didn’t require you to upload receipts (this is specific to Canadians)

There’s a lot more that’s manual for Canadian bookkeepers than for American bookkeepers. Currently, Canadian banks have really high-security systems that are often breaking the connection to accounting software meaning auto bank feeds to automatically pull in your bank feeds, which are very difficult to maintain. So it requires more communication to clients reminding them to refresh their bank feeds, so we can even do our work. It’s also quite rare that we can get accountant view-only access to your business bank accounts to download your monthly statements for you, so that also needs to be done by the client. Which again means reminders each month and waiting until the client has uploaded this.

Other Great Blogs You May Like:

• Documents to Give Your Accountant to File Your Taxes as a Sole Prop in Canada
• Questions to Ask When Hiring a Bookkeeper
• The Process of Working with a Bookkeeper
• Questions to Ask When Hiring an Accountant

You Pay for What You Get

For your bookkeeper to go the extra mile, they need to be able to actually pay their bills and keep their business afloat, which means charging more than $100-$215/month.

So keep this context in mind when it comes to how much you think you’ll need to pay for a quality bookkeeper. When your bookkeeper is properly compensated for the depth and complexities of the work they’re doing, they are more invested in your success and there is the ability for sustainability for them to serve you over the long term. Which is what you want, a bookkeeper who can work with you for years, and grow with your business.

Another thing is if you’re underpaying for a bookkeeper, they aren’t able to provide the best quality of service to you. There’s really neat software that bookkeepers can pay for that helps with quality control to catch potential mistakes, but again they have to be charging enough to be able to pay for this software, which does make for a better client experience.

It can cost more for a clean up of your books if you try and DIY them in an accounting system or have a bookkeeper who you’re not paying very much, than hiring a quality bookkeeper to do them to start with. 

When it comes to doing a “clean up,” they aren’t just doing the regular bookkeeping tasks, they have to look at everything and figure out why it’s incorrect, then redo it. It simply takes more time, energy, and resources to fix bad books after the fact.

Another reason why it’s so important to hire a competent and quality bookkeeper is because it gives you more space to focus on the other financial tasks that are harder to outsource.

• Managing your cash flow
• Making transfers to your tax account
• Analyzing your income, expenses & KPIs (key performance indicators) so you can make better business decisions and increase your profitability
• Figuring out what your personal pay from your business actually needs to be (I actually help entrepreneurs with this)
• Have greater peace of mind that you don’t just “have” a bookkeeper, but that you have a quality bookkeeper that you can rely on is taking care of everything properly for you

Ps here’s an example of what I mean by managing your cash flow, you being on top of allocating where that money is going specifically.

From maintaining accurate financial records to ensuring compliance with tax regulations, the role of a bookkeeper is indispensable for the financial health of any business. It keeps you afloat as an entrepreneur too, offloading tasks that open bandwidths for other personal or business matters.

Understanding the responsibilities of a bookkeeper not only empowers you to make informed decisions but also plays a pivotal role in minimizing tax liabilities. However, navigating the bookkeeping complexities can be daunting, especially for busy entrepreneurs juggling multiple responsibilities.