Starting a business isn’t easy and there are probably a ton of different things floating through your mind. On top of all of that, you have to handle your accounting and probably have a bunch of questions about that too.

Business Startup

How should I structure my small business?

When you're starting out, you must choose whether to operate as an unincorporated sole proprietorship, incorporate your business federally or incorporate provincially with the relevant authority.

Should I open a separate business bank account?

We always advise people to keep their personal finances and their business finances separate. This means a separate bank account for deposits and withdrawals and a separate credit card for business expenses if possible.

What are common business financing options?

Not every aspiring entrepreneur can afford to start their business, but there are always options. You can borrow funds in the form of a business loan, business line of credit, credit card, or general bank loan. You can also look for investors, but they will likely request a portion of business equity or control in your company. Lastly, perhaps you have friends or family who can help you out.

What accounting terms should I be familiar with?

Cost of Goods Sold (COGS) - an expense that represents how much it costs you to produce your offerings. COGS is a crucial factor when determining your business’s profit.

Inventory - includes the raw materials in storage, items in the production process, and finished goods available for sale.

Assets - your business’s physical (tangible) or non-physical (intangible) property that adds value to your business. You can have current assets which can convert into cash within one year. And, you can have fixed assets that don’t convert quickly into cash.

Liabilities - Money that your business owes. You can have both short-term liabilities that are due within one year and long-term liabilities that are not due within one year.

Equity - your business value after subtracting liabilities from assets.

Revenue - the amount of money your business brings in from sales.

Setting Up and Managing Your Books

How should I record transactions?

You can record transactions by hand, hire an accountant, or use accounting software.

Recording transaction by hand is the most inexpensive and time-consuming method.

Hiring an account is the most expensive but least time-consuming method.

Accounting software lets you track your money and organize your books. You can automate your bookkeeping, then hand it over to your accountant to do your tax preparation.

Should I use cash-basis or accrual accounting?

Cash basis accounting is a simple way to manage your books. You only record transactions when you physically make or receive a payment.

With accrual accounting, you must record money whenever a transaction takes place, even if you don’t physically give or receive money.

How do debits and credits work?

The purpose of “debiting” and “crediting” accounts is to increase one account and decrease the other. Debits increase asset and expense accounts, increase liability, equity and revenue accounts. Credits do the opposite. They also decrease asset and expense accounts.

What is the difference between accounts payable and receivable?

Accounts payable is the money you owe to vendors, or a liability. Record accounts payable when you purchase something without paying right away. Accounts receivable is money owed to your business, or an asset. Record accounts receivable in your books when customers purchase something on credit.

Sales

Do I need to create invoices?

Invoices are bills that businesses send customers to request payment. You must create invoices if you provide goods or services to a customer without demanding immediate payment. To create an invoice, include information like the date of the transaction, customer, seller, and product information, the amount due, payment terms, and an invoice number.

How do I get customers to pay me on time?

If you extend credit to customers, your business success may depend on when customers pay you. To encourage payments on time, set clear payment terms, reminders, offer an early payment discount, and offer to set up a payment plan.

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Your Accounting Questions...Answered