Scotia Accounting

Many business owners do not like doing the paperwork. Some of you probably leave it in a pile until someone starts requesting it and you do what you have to do to get them to stop asking.  You are busy selling products or service. Marketing and advertising.  The more exciting stuff in life.

However, regular bookkeeping, no matter how much of a nuisance it can be, is important for the following reasons:

1/ THE MOST IMPORTANT REASON- It provides feedback as to your business performance.  Have sales gone up ? Have they increased enough to cover increased expenses and more? Where are my problems areas? Where can I cut costs without sacrificing quality ? Am I incurring unnecessary costs or penalties with government returns simply because my books are not in order?

2/ Budgeting - In conjunction with receiving feedback about the performance of your business, another reason for regular bookkeeping affects your ability to plan. Look back. Should you be adding another employee in production? Look ahead.Will news of a new competitor in the area affect your sales? Some try to prepare budgets for the coming year without even looking at their past year peformance or knowing where it ended up until months down the road. It's like taking a stab in the dark and many are guilty of it. Be proactive and plan for cash flow shortages or price increases. Economic outlooks should be considered so that there are no unexpected problems coming up after it's too late to act on it.  This is where competition can gain an upperhand by being prepared when you are not.

3/ When you are seeking financing from a bank, the banker will normally request past and current financial statements including balance sheets, income statements and budgeted projections showing the impact of requested funding on the business.

4/ When additional capital is required beyond bank financing - as with the bank, any other potential investors or partner will have questions about financial performance and outlook.  In addition to past and current financial statements, information regarding day to day transactions may be requested to make sure that the business is being run in a professional and well organized manner. 

Compilations ("Notice to Readers"), Reviews and Audits  - What's the difference ?

 As a business owner, you have probably heard the above terms being used by other business owners, by financial institutions, investors and by your accountant.  But what is the difference between them and what do you require when your financial statements are prepared?

With a compilation, the accountant will generally use the figures generated by you and arrange them in a financial statement. This is the least expensive of the three.  However, the use of these financial statements by external users is limited. 

A review requires more work by the accountant to verify that the financial statements are correct and are reported according to Canadian generally accepted accounting principles. This level of service is more expensive than a compilation. 

Whether you will require a compilation or a review for your creditor, for example, will often depend on your level of borrowing and the nature of your business.

An audit requires extensive testing of balances and transactions. This is the most expensive of the three, but is not generally required for small business.