Top 6 Accounting Tips for New Business Owners

Starting a new business is exciting, but the financial side of things can quickly become overwhelming. Proper accounting practices from day one can save you time, money, and stress down the road. Here are six key accounting tips every new business owner should follow.

1. Hire a Lawyer to Incorporate

Incorporating your business provides legal protection and tax advantages, but doing it correctly is crucial. A lawyer can ensure your incorporation documents are properly drafted, help you understand shareholder agreements, and guide you through regulatory requirements. While online incorporation services exist, professional legal advice can prevent costly mistakes and compliance issues later on.

2. Get a Bank Account and Credit Card Under the Corporation’s Name

Once incorporated, open a business bank account and apply for a corporate credit card. A corporate credit card also helps build your business’s credit history, which can be beneficial when applying for loans or financing in the future.

3. Choose an Accounting System

An accounting system is essential for tracking income, expenses, and financial performance. Popular choices for small businesses include QuickBooks Online, Xero, and Wave. Cloud-based systems offer advantages like real-time data access and integration with banking and payroll services. Choosing the right system early on ensures accurate record-keeping and simplifies tax filings.

4. Determine If You Need to Register for GST or PST

Depending on your revenue and the type of business you operate, you may need to register for Goods and Services Tax (GST) or Provincial Sales Tax (PST). In Canada, businesses earning more than $30,000 in revenue over four consecutive quarters must register for GST. Some provinces also require PST registration. Understanding your tax obligations early helps you avoid penalties and ensures compliance with government regulations.

5. Keep Your Personal and Business Expenses Separate

Mixing personal and business expenses can lead to bookkeeping headaches and potential tax issues. Do not use your corporate cards for personal expenses. Instead transfer funds to your personal chequing account and use your personal debit and credit card to cover living expenses. Clear separation of finances makes tax filing easier and provides a clearer picture of your business’s financial health.

6. Determine How to Pay Yourself: Dividend or Salary

As a business owner, deciding how to pay yourself is an important financial decision. You can take a salary, dividends, or a combination of both. Salaries provide predictable income and contribute to the Canada Pension Plan (CPP), but they also come with administrative burdens such as submitting payroll on time, payroll tax withholdings and remitting to the CRA, and issuing wage statements. Dividends, on the other hand, have less administrative work but do not contribute to CPP and are taxed differently. Consulting a CPA can help you determine the most tax-efficient and practical strategy based on your financial goals and business structure. Try using our free tax calculator to estimate the difference between non-eligible dividends and salary.

Final Thoughts

Strong accounting habits from the beginning can help you build a financially sound and compliant business. By following these six steps—incorporating properly, setting up a business bank account, choosing the right accounting system, understanding tax obligations, keeping finances separate, and determining how to pay yourself—you’ll set yourself up for long-term success. If you need help, consulting a CPA can provide valuable guidance tailored to your business needs.