In part one of our satirical look at how to pay more for bookkeeping services, we looked at the danger of not giving your bookkeeper adequate and complete information. You can read this blog post by clicking this link.
In part two of our blog post, we looked at how to leave everything to the last minute and how this ultimately costs you more. Part three examined how to use your business as your piggy bank. You can read that blog post here.
Part four looked at how to make things unnecessarily complicated, and the final parts of our blog post series look at not paying taxes and abdicating responsibility.
5 – Don’t Pay Your Taxes
The biggest mistake we regularly see is people not paying their taxes because “I don’t want to pay until I know what I owe” or “The money does more in my pocket than in the government’s.”
This usually means they are playing catch-up with their financial responsibilities, including bookkeeping, filing late and making late payments that incur unnecessary penalties and interest.
It is, hands down, the number one way to pay more tax than you need to pay and create a mess for your bookkeeper to clean up (oh, and these penalties and interest are NOT tax-deductible!)
The argument that “I can earn more on that money than I’ll pay in CRA interest” is a fallacy. You won’t. We’ve heard this from several people, and every time the numbers are evaluated, they come out losers.
Most often, it’s because they didn’t do anything with the money – or worse, spent business funds on personal fun.
In addition to paying extra tax, when you pay your taxes late (or don’t pay your taxes,) your bookkeeper needs to keep track of all the interest, penalties and payments resulting in more fees.
Often, late payments are sent to the wrong place at CRA, resulting in payment change requests (which can take months to process) or other unnecessary complications. Unfortunately, CRA doesn’t make it easy. The information in CRA My Account or CRA My Business Account can be challenging to interpret. It takes a skilled bookkeeper to be able to reconcile CRA program accounts. Hopefully, you have one, and this task doesn’t fall to the accountant at a much higher charge-out rate.
Most importantly, not paying your taxes or paying late shines a spotlight on you and your business.
Do you like getting audited? Do you like paying accounting and bookkeeping fees to assist you with a review or audit from CRA? Do you like paying unnecessary extra tax? These are the things that will happen if you pay taxes late. If you’re working with a professional team, you’ll need to pay them more to get you through the situation. If you’re doing it yourself, you’ll need to spend the time to do the work, and you’d better hope you get it right.
Taxes owing can pierce the corporate veil and allow the government to go over your personal assets. Business in TV shows is not the same as in real life. It’s better to pay the minimum by keeping your books current, filing and paying on time.
I have seen families ruined by non-payment of corporate-related taxes. Don’t let it happen to you!
(PS – Check your tax returns for installment payment amounts and dates; CRA charges interest on those!)
6 – Abdicate Responsibility!
Just because you hired a bookkeeper doesn’t mean you’ve done your bookkeeping. You must provide the information the bookkeeper needs to do their job.
After they’ve taken the information you’ve provided, they’ll almost certainly be asking you questions. Without the information they need, the bookkeeper can’t do their job, and the tax accountant may not be basing their work on accurate information. As the saying goes in the accounting world, “Garbage in equals garbage out.”
We often hear phrases like, “It’s just bookkeeping,” but it’s far more than that.
Thinking of the books differently will help businesses understand the importance of what they represent. Your financial records are the history of your business. It is your data. It is the lifeblood of your business. If you don’t care about the data generated by your business, you should reconsider running a business; you’re probably just building a future headache.
What happened and when it happened can be used to help figure out why it happened. Then, the business can adapt or pivot in tune to a changing market. When the pandemic hit, those who kept good books and records could request funding appropriately and receive it quickly. Those who didn’t have good bookkeeping were forced to look for “emergency support” to get their books up to date and get in line for bookkeepers who were already stretched to their limits with their existing customers and probably pay a premium rate.
Maintaining good books regularly will help you understand what’s going on in your business and make adjustments when you need to. Requesting lending or investment without up-to-date information makes it look like you don’t know how to run a business.
There are three main ways of looking at bookkeeping:
- It’s a necessary evil, so I’ll look for the cheapest solution, hope it’s right and find out how I did 3 to 6 months after the end of the year (The worst way of looking at bookkeeping, considering only the past);
- Books and records need to be kind of up to date so we can understand what’s going on in the business and adapt as needed (Not a bad way of looking at it, considering the present and past);
- Bookkeeping is vital to the business’s future success and is the foundation of our financial planning, including financing, marketing and sales strategies. (This is what ongoing and established businesses do, considering the entire business lifecycle.)
As a director of a corporation you are responsible for the books and records. This includes the bookkeeping system but also your corporate record book. This is all your responsibility. Hiring a bookkeeper or an accountant does not remove this responsibility.