How to Organize Business Finances (When You’ve Been Avoiding It)

Finances can be stressful for many small business owners. You wear many hats and conduct an orchestra of tasks to keep your business growing. In my experience, many business owners struggle with finding a practical, efficient way to organize and manage their finances. Sometimes they feel so frustrated and overwhelmed trying to figure out how to manage their company finances that they avoid dealing with it.

This creates problems for the future of your company. You may get red-flagged with government tax and company reporting agencies, pay NSF fees, and lose paying clients because they get tired of your disorganization. If this is happening with your company finances, guaranteed there are problems in other departments of your company. 

Instead, let’s create a new reality for you - where your money works for you. This is designed through strategy, automation, tracking and active decision making to help build those great big business dreams you have. We will take it one step at a time.

Let’s get started.

Why Getting Organized and Prepared Matters

Disorganization Costs You Money and Time

Being disorganized costs you money. If you take a pile of disorganized papers, with missing documents, to your tax preparer, you will be paying for hours of cleanup that a bookkeeper will be required to do. Discussions with accountants when you can’t answer their questions and produce the correct reports will take longer, and these are billable hours with an accounting firm. If you lose things, replace them, sign up for subscriptions for software you never use, spend your time doing work that could easily be handed to an assistant at a lower cost - these are just a few ways money is leaking from your company.

Sound familiar? 

There is no shame, only uncertainty, confusion, lack of time, and not having a simple, make-sense financial organizational system for your business. Here is a simple, step-by-step approach to getting things sorted out. It won’t fix all your money leaks today, but it is a powerful foundation to being able to address the other issues in your company.

5-Step System to Organize Your Business Financials

Step 1: Separate Business and Personal Finances

Corporate, partnership and sole proprietorships must have separate financial management from personal account transactions. If you are not sure what classifies as a business expense, check your government tax authority website, such as the Canada Revenue Agency or with your bookkeeper/accountant. Also, ask yourself - does this product or service expense help operate and grow my business, or is it more of a personal benefit?

Managing accounts:

• Use separate bank accounts, credit cards, cash envelopes and bookkeeping entries for business and personal

• Keep your receipts - scan them, download or print 

• Your government tax reporting agency requires you to keep business records retroactive to usually 7-10 years. Check for up-to-date requirements online or with your accountant.

Storing receipts, invoices and reports:

• Digital

  Create file structures for personal and another for business. If you have a sole proprietorship, yes, you will include your business income and expenses on your personal tax return, but managing and tracking the business needs to be separate. Sole proprietors still need to manage their business reporting as a separate entity.

• Paper

  Use an accordion file for business and another one for personal. Label each section to make it easy to file at a glance. Whether you prepare your tax return or send receipts to an accountant, you will be thankful you kept things organized along the way. 

Step 2: Clean Up Your Bookkeeping

• Use accounting software (such as QuickBooks, Saje or Wave) or hire a bookkeeper to do this for you.

  You can use a spreadsheet (such as MS Excel or Google Sheets) to manually track expenses and income. At some point, as your business transactions grow, you will want to transition to a software program to save time and reduce potential errors.
  

• Categorize income and expenses clearly

  Track recurring payments and outstanding invoices. Hopefully, your customers will pay their invoices on time, but you won’t know unless you keep track. Accounting software programs make this easy, as they will send you alerts.
  
  

Step 3: Organize Key Financial Documents

• Financial advisors, accountants, and tax preparers will typically ask for a profit and loss statement, balance sheet and recent company tax returns.

  These documents give an overview of your company's income, expenses and net worth, outstanding payables and receivables. A bookkeeper can help you prepare these reports if you do not know how.
  

• You can store and share these documents via paper or digitally.

If providing paper documents, I’ve found the accordion file method much easier than an envelope, box or bag, then drop off or ship documents to the tax preparer. If mailing - make a copy to send, then you won’t possibly lose your originals in the mail.

If using digital documents, you can save scanned copies in Google Drive or MS OneDrive, then share access with your tax preparer. 

*Use caution with emailing documents; talk with your tax preparer about maintaining data security and encrypting emails. Your tax documents provide all of your identifiers - social insurance number (Canada), address, birthdate, income sources and investment accounts. You don’t want those getting into the wrong hands!

Step 4: Clarify Your Business Goals and Financial Plans

• Help your advisor understand where your money comes from, your plans for business growth.

  Depending on your advisor (eg. an accountant, business advisor or financial planner), they will help you minimize risk, grow your assets, and navigate the complex government taxation system

• Have a rough budget and cash flow projection ready.

  Your advisor will be able to give you a holistic point of view and make recommendations that support your goals.
  
  

Step 5: List Your Financial Pain Points

• Be honest about what’s confusing or stressful.

  A trusted advisor will listen, explore options, and make recommendations to support your success, on your terms. If you feel judged or shamed about your circumstances, with no support for your dreams, they are not the right advisor for you. Even if you feel like you don’t know enough about finances, trust your gut with who you hire to help you.
  

• Common challenges at different points in business can include: inconsistent income, high expenses, no savings, and tax surprises.

  Part of facing your finances is being honest with yourself and your financial advisor. When you are informed, you can make healthy decisions that feel right to you.
  
  

Where to Get Help With Your Business Finances

Dealing with finances when you feel confused, unsure and overwhelmed calls for help from knowledgeable, experienced professionals who practice with patience, kindness and compassion. 

Research service providers - their specialties, certifications, professional values and cost of services. Know what you need help with and trust your gut. If they speak over your head, they are not the right fit - you must feel comfortable and confident working alongside your financial advisors. 

Key Service Providers for Small Business Finance

*Note: These are standard definitions of basic financial management advising and supporting roles. They are not inclusive, and each role brings a breadth of different experiences and niches. 

Bookkeepers

• Provide data entry for your invoices and receipts, prepare reports for accountants, close out year-end and do journal entries.

• Install and maintain accounting software for tracking income and expenses

• Will ask you questions and send you reminders for the due dates of financial documents

• Find them in private practice, online and in accounting offices

Tax Preparers

• Take the reports provided by you or your bookkeeper for the fiscal year and prepare your tax return to be submitted to the government tax authority

• Sometimes they work in private practice with you to complete your personal and corporate tax returns, or work in accounting firms preparing tax returns for an accountant to review and advise their clients

• Find them in private practice or a tax preparation office

Accountants

• Assess what has been happening in the past (primarily the past year) and the current financial status of your company

• Provide expert advising on tax preparation based on reports prepared by you, a bookkeeper or a tax preparer

• If bookkeeping is not organized, they will have a bookkeeper prepare the documents

• Prepare formal financial statements (for corporations and individuals)

• Often have bookkeepers and tax preparers, junior accountants working in their firm or as strategic partners

• Invested in their career with rigorous standardized financial education and examinations 

• Find them in private practice or working for mid to large corporations

Financial planners

• Help you plan for the future - using investing and insurance strategies, assist with tax planning for your investments long term

• Find them in private practice (check their credentials), or for large investing corporations and banks

Conclusion

Learning how to manage money in your business, track expenses and income, and plan for expenses is a skill on its own. You may not have the time, interest or training to deal with the comprehensive nature of business financial management. Still, it is crucially important you are involved in monitoring your company financials, even if you are not involved in the day to day tracking. 

Using the 5 Step System gives you a framework to get organized, which helps you know what is going on in your business and reduced costs when hiring advisors. It may take time to get your company finances in order, especially if you are starting from scratch, but it will give you a long-term foundation and system for success. Remember, there are service providers who can help when you need it.

Do you have business receipts, invoices, old tax returns scattered throughout your office or home and feel overwhelmed thinking about sorting it?

I offer a FREE 30-minute consultation to answer questions and help you figure out what YOU need to prepare before you hire a financial professional or file your own taxes. 

Clink the link HERE to get started!