Recently a friend asked my advice on whether or not to hire an accountant as she starts her new business. She provides a high end service as a usability expert. Here is my response:
You probably only have a dozen large clients the first year, so your invoicing is limited. Your expenses are fairly small and there’s no staff. The book-keeping itself isn’t hard, and frankly, it’s a good idea to do it to learn the real cost of doing business. Set aside 2 hours a week, scheduled, for the task.
Track all of your expenses and keep the receipts.
Tips: don’t bother with the car expenses unless you travel a lot. You must keep odometer readings and you must not make any personal side trips while using the car for business.
Check the city by-laws to find out the maximum part of your home that you can use for business. It varies by municipality. Make sure there is nothing personal in that space. GST will likely audit you the first or second year and personal stuff/use is one of the things they check for. GST and federal taxes are handled and audited by different organizations and the rules are different for both regarding what is fair use. Be conservative, and you will be okay.
Before deciding about an accountant consider your legal setup.
*Are you incorporated?* It’s a good idea, and easy to do online, because you reduce your liability. If someone sues you because they claim your work/advice was flawed and they lost money as a consequence, you want to be insured against the claim and you want that claim to be against the company, not you personally. As a director, you are still financially liable, but incorporation and insurance will help.
*If you are a sole proprietor* DIY. Buy a tax program with a business expenses module. They cost about $75/ann. If you have been tracking your expenses, it’s just like doing your usual tax return.
*If you incorporate,* remember that the company is a different entity and keeps its own records. You will have to decide if you are paying yourself a salary or taking a shareholder return. You can do an annual reconciliation where you and the company work out how much you owe each other, but it must be on the books. The tax return, isn’t difficult, just /really /different from a personal tax account. I would call in a tax expert or accountant to go through it with you the first year so you can learn what’s what. Then year 2, try to do it yourself.
Why DIY? Because it will make you painfully aware of costs and earnings.
Year one: Let an accountant walk you through the tax return so you know how to do it.
Year two: if life is busy, hire a really good, recommended book-keeper and do your taxes yourself, so you know how it is done.
Year three: hire someone, if your earnings warrant it. But now you understand what they are doing and when you sign the documents, you know what you are signing. Remember, having an accountant does not protect you from errors or responsabilities. Your signature is at the bottom of the return, and the government assumes you checked and verified the information. If you don’t understand the return, you leave yourself open to embezzlement, fraud, incompetence, and error.
