Accurate and up-to-date financial record-keeping is fundamental to building a successful business, and you must develop the discipline to do it. This enables business owners to:\n\n assess performance and health of the business\n manage cash flow effectively \n exercise control over selling and purchasing decisions \n minimize audit cost of financial statements for business loans\n comply with tax obligations and simplify tax audits by Canada Revenue Agency\n develop goals and budgets for growth\n\nThe following elements are helpful for establishing an effective accounting process:\nChoose an effective accounting software\nThere is a variety of accounting software available, ranging from classic desktop accessible options to internet-based offerings which, in some cases, are accessible via Android and/or Apple applications. QuickBooks, Sage, AccountEdge, Wave and Kashoo are commonly used packages for Canadian small businesses, they offer various account templates.\nIt is recommended that you choose the program that best fits the profile and specific needs of the business, rather than the most comprehensive option. Consider such factors as cost, ease of use, customer support and compatibility with the business’s incumbent IT system.\nAlternatively, consider bookkeeping services provided by qualified firms.\nSet up a business bank account\nIt is essential to keep your business and personal bank accounts separate for the following reasons: \n\n professionalism: Maintaining a business account helps build your business brand and establish a professional image to your customers and suppliers. \n legal: It protects your personal assets from business liabilities. \n efficiency: It saves significant time when you do not have to distinguish business income and expenses from personal transactions ex post facto. \n cleaner records: In case of an audit (financial statements or tax), it is easier to provide evidence to satisfy auditors' queries. \n\nIncrease the use of cheques and online transfers when possible. This improves the security of transactions, as opposed to cash operations, and provides evidence of occurrence should disputes arise.\nReconcile your bank account transactions\nBank transactions should be recorded on a daily basis to ensure that records are accurate and up to date. This includes recording a cheque when it is issued and entering a deposit when money is deposited. A monthly bank reconciliation helps verify accounting records against bank statements for accuracy. It may detect accounting errors and even fraud in the event of unusual transactions.\nMonitor accounts receivable\nAccounts receivable (AR) records are used to monitor outstanding invoices that the business has issued to its customers for goods sold or services rendered. If a company has receivables, it indicates that the customers are allowed to make payments at a later time from the date of sale. As the volume of transactions grows, owners should constantly monitor receivables through an accounts receivable aging report – a snapshot of amounts owed by customers.\nThis report helps the business to stay on top of collections and to follow up on overdue amounts, and thereby maintain a healthy cash flow. Accordingly, accurately entering sales invoices into your accounting software as they are issued plays a critical part in the AR management process.\nTrack accounts payable \nThe opposite of accounts receivable, accounts payable tracks unpaid bills from suppliers for the goods or services the business has purchased. It represents obligations/liabilities that the business must fulfill. Constantly tracking payables through an accounts payable aging report helps the business to utilize cash flow and meet payment deadlines. Undoubtedly, this also builds proper credit for your business. \nNow that you are aware of key accounting components for your business – choosing suitable software, separating personal and business bank accounts, and keeping your bank, accounts receivable and accounts payable records current – what about tax (HST, payroll and income tax)? Stay tuned for part 2.\nKeep the conversation going\nWhat has been your experience in starting and growing a business and, in hindsight, would it have been smoother if you had started with a more rigorous financial record-keeping process? Share any insights and tips that you have.\nDisclaimer\nThe views and opinions expressed in this article are those of the author and do not necessarily reflect that of CPA Canada.\nThis article is provided for information purposes only and does not constitute an offer or solicitation to buy. The information contained in this article is believed to be reliable, but cannot be guaranteed. Readers are urged to obtain professional advice before acting on the basis of material contained in this article.