Accounting Tips for Entrepreneurs

How small business owners can take advantage of the tax system
By: 
Meredith Dault
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Entrepreneurs know their business like nobody else. That intuitive knowledge is what makes them effective at dealing with the ups and downs of running an enterprise.

But there’s one thing many owners don’t know that much about: Taxes. Survey after survey of small business owners proves that point. For example, an RBC Ventures poll found that two-thirds (66 per cent) of small business owners say they haven’t taken advantage of tax benefits they may be entitled to. Two-thirds also say they find filing their company taxes confusing.

Erica Pimentel understands the headaches that small business owners face but says there are steps they can take to understand—and take advantage of—the tax system. Pimentel is an assistant professor of accounting at Smith School of Business. She previously worked as an accountant for clients ranging from small nonprofit organizations to tech start-ups, large privately-held firms to publicly-traded ones. She was inspired to pursue an accounting career by her grandfather, an entrepreneur who ran an apparel manufacturing business in Montreal. Here, Pimentel answers three questions about taxes for small business.

What is your main piece of accounting advice for entrepreneurs?

I think too many entrepreneurs see the taxman as an adversary. But sometimes they can be helpful. For example, the pandemic presented many tax opportunities—like rent subsidies, wage subsidies and loan guarantees. Entrepreneurs need to do their homework to stay on top of opportunities as they become available. This does not mean that they need to become tax experts. It just means keeping up on the financial news or tuning in to major tax announcements so they can be in a position to ask their tax accountant the right questions.

With tax rates in the 20 to 30 per cent range for small- and medium-sized enterprises (SMEs), taxes can be one of the biggest costs for businesses, so it is important to be informed. Think about it: If you have one line item on your financial statement that eats up 20 to 30 per cent of your profit, wouldn’t it be a good idea to understand that number and find out how to optimize it?

What advice do you have for entrepreneurs who are keeping their own books?

Hire an accountant! I know that it can be tempting to save money by keeping your own books, but I don’t recommend it. I always use the phrase ‘you don’t know what you don’t know’ when it comes to accounting and taxes.

As an entrepreneur, you might think you have the right invoicing system, tax returns and remittances all compiled. But then there may be a new tax rule that just came out or a new program that you’re not applying for correctly. When that happens, you can be hit with major interest fees and other penalties from the tax authorities that will ultimately outweigh the savings from doing your own taxes and accounting.

At a minimum, you should have an accountant come in and check your books annually. This can be an opportunity to discuss some of the opportunities that are out there and to make a plan for what you’re going to apply for in the coming year. 

What should small business owners understand about hiring an accountant?

Your relationship with your financial advisor is like any other relationship. It must be based on trust and mutual respect. This means having an accountant who is competent. You can evaluate this based on certifications, like a certified public accountant (CPA), or through word-of-mouth recommendations from other clients. I certainly would not recommend simply choosing a financial advisor out of the phone book. I would try to find someone who people at the same stage of business are also using. And find someone who knows your sector. If you’re a tech startup, find someone who has expertise in that area and who is plugged into the industry. If you’re in real estate, you’ll want to find an accountant who has other clients in that business and who has links to bankers in that sector.

Your accountant should also understand your personal goals. For entrepreneurs, the lines between personal and business are blurry. Oftentimes, an entrepreneur’s business is also their retirement plan. It can be hard to separate the business’s goals from the owner’s goals. An advisor must understand and respect your goals and support you in pursuing them. This could mean an early exit via sale or merger or by bringing family members into the business. You want to be able to trust that your advisor always has your best interests in mind.

Smith School of Business

Goodes Hall, Queen's University
Kingston, Ontario
Canada K7L 3N6

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