Bob Gauvreau explains why accurate bookkeeping matters: it prevents surprises by revealing liabilities and cash outflows before they hit. He walks through concrete examples like Canada's 12.2% small business tax rate, GST/HST input credits, and payroll deductions that businesses need to track to prepare for what they actually owe.
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So the importance of bookkeeping in your business is really what I like to think of as the sleep test. When you know what's going on inside your business, there's no surprises that can come up. So one of the things it does when we go through and we do reconciliations, we keep up to date information. One thing it does is it helps us ensure what liabilities we have are very well matched and keep are kept up to date for us so that we can see them and that we're not going to be surprised by something. So an example is one, if we are earning a lot of money inside our business, we know there's going to be tax liabilities. We understand that whatever country we're in, specifically in North America, if we're earning taxable income inside our business, we can better prepare for what that tax liability looks like. So for example, in Canada, as a small business corporation, 12.2% corporate income tax rate. When we're looking at our financial reports, we can be estimating what that tax liability looks like. Another example is any of our sales tax, whether it's gst, HST or an applicable state sales tax. Wherever it is that we're located in North America, when we're tracking our sales and any of the respective expenses that we can get input tax credits from, it shows us exactly what those liabilities look like. Same goes for our payroll and source deductions. If we're paying employees, we're withholding income tax or any sort of pension contributions, it's going to be showing up there as a liability and shows how much we owe. So again, the importance of bookkeeping is to have this accurate information where we can see a true picture of what's happening in our business so that we can essentially sleep at night and know exactly what's coming down the pipe when it comes to any liabilities or any cash outflow that we have to make it.
