Sorry to break it to you, but if you own a business (of any size), you need to do your bookkeeping monthly. Without monthly bookkeeping, you have absolutely no idea about the financial health of your business. Here we’ll walk you through the three most common bookkeeping mistakes that can cost you money at tax time, why monthly bookkeeping is so important, what financial health is, and what you can do to become more financially healthy.

Let’s go!

3 Most Common Bookkeeping Mistakes

Your bookkeeping directly impacts your income tax return. It is the total sales and expenses from your bookkeeping that get reported to CRA each year and is the base for your taxable income and income tax payable. If you are not actively tracking your bookkeeping, you can understate your income (hello possible CRA penalties and interest) and miss out on tax deductions that can lower your taxable income - and total tax bill!

Here are the 3 most common bookkeeping mistakes health professionals make that cost them money at tax time:

1.Not checking the dates of invoices for items paid in January

If an expense relates to December, but you pay it in January, you can still add the amount to December as a write-off! This method is called accrual accounting, where you can even add your accountant fee to the prior year! As long as the expense relates to the previous tax year, make sure to add it as an expense to get an immediate tax payable decrease instead of waiting another year.

2.Not checking your receipts for GST/HST paid

While some think that the GST/HST program is a pain, this firm will always say that it is a program with the most opportunity to optimize! GST/HST paid on your purchases is taken as a direct 100% decrease to GST/HST collected - pretty great! This means that if you aren’t tracking GST/HST paid on purchases, you may have a lower income tax bill by taking it as a write-off, but you submit more GST/HST to CRA, and overall, your tax position is worse.

3.Not completing a final annual review of sales

Monthly tracking is great - but sometimes adjustments happen in your practice management software that is not reflected in your bookkeeping. An annual review of sales, GST/HST collected, and bank fees charged is the best way to make sure you report all your income to CRA to avoid future interest and penalties.

Why Monthly Bookkeeping?

How much money did you make in November?
What were your expenses that month?
Did the new practitioner you hired hit their sales target?
What is your slowest month of the year so you can take a vacation?
When are your annual membership dues paid?

These are really big business questions, and monthly bookkeeping gives you the answers! With monthly bookkeeping, you’ll see exactly when money is coming in, where and when it’s going out, and make proactive adjustments for your growing business.

Do You Need A Bookkeeper?

The size, type and needs of your health business will dictate whether your bookkeeping can be done in-house or if it should be outsourced. Choosing the right option can be easy if you know the key considerations.

Do you regularly do your bookkeeping? If not, outsource it.
Do you make mistakes in your bookkeeping often? If so, outsource it.
Do you have a corporation? If so, outsource it.
Do you want to gain back your time? If so, outsource it.

Not sure if outsourcing is the right choice for you? Book a free consultation, and we’ll help you make the best decision for your business. Book Now!

What Is Financial Health?

To me, financial health is the state where you know what’s going on with your finances. I’m not here to tell you that you should be stress-free when it comes to money; there is always some amount of stress around finances and security! But, you can have achievable goals and a solid understanding of your finances as you work towards your goals. Having financial health allows you to manage the stress and work through it to achieve your goals instead of having the stress consume or prevent you from succeeding.

That’s what financial literacy is all about!

But what does business financial health look like?

Having an overall positive cash flow,
Savings in your bank account,
Repaying your borrowings, and
Creating a financial plan

The Key Steps To Becoming Financially Healthy

Now that you know the components, here are the key steps to becoming financially healthy!

1.Understand where you are starting from

This foundational step to financial health is why bookkeeping is so important. Without understanding how your business has performed in the past, how can you make a good estimate of what your future will look like?
You need to regularly review your financial statements, expenses, transactions, accounts, invoices and reports to have a clear understanding of where you are. Monthly bookkeeping tasks help you stay on top of your financial transactions.
If you have employees and are considering hiring, it’s vital that you understand where you are financially before taking on the additional expenses and costs associated with hiring.

2.Tell your money where to go

Once you have your bookkeeping foundation, it is easier to

Know when large expenses are coming
Plan for leave
Estimate and save for taxes

Know where your money is actually going so you can make informed decisions about when, how and what expenses are not providing you value and whether you can cut them.
Your credit card bill and interest rate can catch up to you, so don’t avoid reviewing it regularly.

3.Review key metrics on a monthly basis so you know you’re on track!

For example, are you meeting your goal of retaining a certain number of returning patients and gaining a number of new patients?
Sometimes, we get caught up in making quick decisions about our business that we didn’t plan for (like a new coaching program we think will solve all the issues we currently face with getting new patients)

Having a budget and reviewing it monthly will help you see where you thought you would spend your money and make a more logic-based decision about these types of purchases
Updating your bookkeeping on a monthly basis also helps you to see if you really can afford the new program or if you should wait a few months and save before investing or taking on additional expenses.

Additional Resources:

If you are ready to expand your financial health, the first step is enrolling in Business Foundations: Bookkeeping Webinar - our foundational webinar to help you know where you are starting from.

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