At a recent Business By Referral meeting, Jeff Brown, Chartered Professional Accountant and Partner at Bouris Wilson LLP, shared practical advice for business owners on managing finances and provided business accounting lessons, avoiding common accounting mistakes, and making better use of their accountant throughout the year.
With over 20 years in practice, Jeff has seen what helps businesses stay financially healthy — and what tends to create problems.
Keep Business and Personal Finances Separate
One of Jeff’s clearest recommendations was also one of the simplest: keep personal and business spending separate.
Using personal bank accounts or credit cards for business expenses may seem harmless, particularly when there are rewards points involved, but it can quickly complicate bookkeeping and create unnecessary issues if CRA ever reviews the business.
Even sole proprietors can benefit from maintaining a separate account and card exclusively for business use.
The cleaner the records, the easier it is to understand what is happening in the business.
Revenue Isn’t the Same as Financial Health
Business owners naturally focus on sales, but Jeff emphasized that revenue alone doesn’t tell the whole story.
A business can generate impressive sales numbers and still struggle if expenses, debt and cash flow aren’t being managed properly.
One of the biggest risks Jeff sees, particularly with newer businesses, is growing too quickly through borrowed money before the business has proven it can support that spending.
Debt used to purchase productive assets such as equipment may be reasonable. Continually borrowing to fund normal operations is far more concerning.
The same applies to advertising and expansion. Spending more can accelerate growth, but owners need to pay attention to whether that investment is actually producing a return.
Business Accounting Lesson – Not Everything Is a Write-Off
Owning a business does not make every purchase deductible.
Jeff noted that business owners can create problems by trying to run personal expenses through the company simply because they believe they can “write them off.”
Expenses still need a legitimate business purpose and proper documentation.
When in doubt, asking the question before claiming the expense is much easier than trying to correct it later.
Good Bookkeeping Makes Better Decisions Possible
Bookkeeping isn’t just something done for tax purposes. It gives owners the information they need to understand how their business is actually performing.
Jeff also cautioned against focusing only on the income statement.
Revenue and profit are important, but the balance sheet tells an equally important story by showing what the business owns, what it owes and where it stands financially.
Reliable information makes it easier to make decisions around hiring, equipment purchases, expansion, debt and future planning.
Consistency Matters More Than Perfection
Jeff also offered a practical tip for anyone preparing information for their accountant: be consistent.
A consistently categorized transaction is generally much easier to correct than records where the same expense has been treated differently throughout the year.
Better organization also saves accounting time.
Providing summaries, organizing receipts and sending complete information at once can reduce the time accountants spend chasing documents or sorting through records — which can ultimately reduce costs for the business owner.
Your Accountant Can Help With Much More Than Taxes
While many people associate accountants with personal tax season, Jeff explained that much of his work throughout the year involves businesses.
That can include corporate tax returns, financial statements, compilation engagements, tax planning, restructuring, business purchases and sales, succession planning, and working alongside lawyers and other professional advisors.
Business owners should consider involving their accountant before making major decisions rather than after the fact.
Whether someone is considering incorporation, purchasing another business, bringing in a partner or planning an eventual exit, early advice can make a significant difference.
What Is Your Business Worth?
The conversation also touched on business valuation.
For situations requiring a formal and defensible valuation, a Chartered Business Valuator may be required. However, that level of valuation can be expensive and may not make sense for every privately held company.
For smaller businesses, an accountant can often help owners develop a reasonable understanding of value using earnings, industry multiples and other financial information.
That can be especially helpful when beginning conversations around succession or sale.
Know Your Numbers
The biggest takeaway from Jeff’s presentation was that accounting should be viewed as a business-management tool, not simply a tax obligation.
Keeping clean records, managing cash flow, understanding debt, reviewing financial statements and involving professional advisors early can all help owners make better decisions.
The more clearly you understand your numbers, the better positioned you are to build a stronger and more sustainable business.