Key Internal Controls for Small Business Owners

Written by on November 7, 2008 | Accounting Best Practice

  1. Open all the mail!  This is often a quickly relinquished responsibility and it really shouldn’t be!  Awareness of key documents include tax notices, tax assessments, payables, bank statements, cleared cheques, customer payments and legal notices… all need the attention of the owner even for 5 seconds!   Tax notices highlight late payments which might be an indicator of untimely bookkeeping, cleared cheques should be checked to ensure they are all valid, bills need to be inspected for fraud or errors, and customer payments or lack thereof need to be monitored for deposit prioritization or follow up.  You don’t need to spend a lot of time- just open, check and hand off to bookkeeper… or scan/fax using QCDocs of course.  Also consider using QCMail services whereby you receive your mail by email… kills several birds with one stone.
  2. Sign all the cheques!   This is rarely not in effect as it is pretty obvious.  I would point out that you should make a habit of requiring the back up documents to support cheques which is often skipped (ideally the voucher – PO, Packingslip, Invoice).  Also note that dual signatures is always the best unless you are the sole owner/shareholder!  What if you’re out of the office a lot… then get QCDocs Systems so you can do all this online!  
  3. Monitor online bank accounts and general business activities.   Monitoring controls are very important as they ensure that you are aware of unusual transactions and unusual behaviors.  Trust in your accounting/bookkeeping staff is tremendously important and you should hire accordingly but it isn’t a control!  Fraud occurs when owners are just so trusting that opportunities arrise and we hear about those stories every so often in the press.  Monitoring controls… ie. just taking an interest, requesting reports, reviewing documents, inspecting files on occassion is key to shutting those opportunities down!
  4. Segregation and access controls-  Control of cheque stock is critically important. Do not place reliance on your signature and the bank review.  You need preventable measures to watch for fraud and identity theft these days so control your cheque stock.  Also monitor online bank accounts and make sure you can identify transactions- EFT’s (“Electronic Funds Transfers/online payments, etc) are being coming more and more common but they don’t provide enough information to understand nature of payments sometimes.  Also control access to payroll systems (ADP control pretty much gives person ability to write a cheque to themselves by creating and paying a fictitious employee) so monitor this closely.  Those big lump sum autowithdrawals need to be monitored for unusual fluctuations and tied out to payroll reports. 
  5. Timely, involved review of monthly financial statements and bank reconciliations.  This one is rarely done and poorly understood.   On the 15th of every month you should have received a 3 month trended balance sheet, 3 month trended  P&L, a budget to actual, a G/L for the the month, bank recs, AP, AR and fixed assets listing .  Get them if they are “ready” or not! and get some perspective on where you’re numbers are at.  If you don’t understand them go through them with your accountant and get them to give you some perspectives on them and what you should be looking for specifically- or I’ll save that for another blog.

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Top 10 Tips for Bootstrapping a Tech Startup in Canada

Written by on September 11, 2008 | Technology Startups

  1. First and foremost be building technology that qualifies for SR&ED (Scientific Research & Experimental Development Credits”!  Let’s just say you’re building something that all you’re buddies with comparable technical backgroundwould be impressed with ie. “Peer test”  How this works is you do the qualifying work, pay the developers/scientists, file your corporate tax return (T2) and up to 6 months or so later (for first time filers), you get a cheque in the mail from CRA (Canada Revenue Agency) even though you may not have even generated any revenue yet… sweet!  Several caveats so see my Top 10 things you need to understand about SR&ED!
  2. All nice but you have to pay everyone first and wait 6 months after you file…need some working capital!? Well, given that you’re doing, or think you’re doing cool, qualifying tech- go hammer on the door of NRC-IRAP (National Research Council- Industrial Assistance Program).   If you get through their sniff tests you can get typically 50-75% of your developer/scientist salaries comp’d (employees get higher % so plan accordingly!!).  A cheque will come every month following the month after you incur the costs!  They audit you so get a good bookkeeping system going- we recommend QCDocs!  See top 10 things you need to know about NRC-IRAP Programs! 
  3. Okay now things are looking hopeful!  With NRC contract (actually NRC will want to see this first so timing needs to be perfect!) in hand go talk to Mom and Dad or your rich Uncle, also known as a Friends & Family round!  Treat them just like regular investors and you’ll go a long way! Now hopefully you’ve got enough cash to get a development program started!
  4. Now enroll for GST with quarterly filing!  While you’re losing money guess what- you get your GST back for everything you pay GST on- ie. Legal fees, cellphone, mileage, meals & entertainment (only 1/2 though!), office supplies, etc.)  File each quarter and get your cheque!
  5. Now you need some space- work from home!  (Note: rent is backed out of SR&ED proxy so getting swanky office in Yaletown not good for Bootstrapping!)  Alternatively find a good incubator- I recommend Bootup Labs for obvious reasons!  Danny, Boris and Jordan have it going on so try to squeeze on in!  SFU Time Centre is good as well across the street at downtown campus!  Part-timers use Workspace in gastown!
  6. If you work from your apartment where you’re paying rent/mortgage interest then apportion a reasonable amount of space out and get some of that rent, utilities, etc. deductible!  Some tricks here so see my top 10 Tax tip links
  7. Telephone- oh my dear god don’t get me started!  Get a cheap Rogers home phone plan with call forward! Get 1 or 2 cellphones and start the juggling act or better yet get skype and never leave your desk!  Whatever cell phone plan you do get call every 3-6 months to find out what discount they are offering that they don’t volunteer until you call…baaah!? 
  8. Health Benefits- MSP is what it is so no help there…pay your monthlies personally to minimize T4 taxable benefit pains at year end!  Hook up with www.vipmd.ca and get low cost insurance for risky stuff- ie. long term disability, AD&D, critical illness and life insurance ($12-$25/month) plus a Personal Health Spending Account (PHS) for $25-$50/month.  The PHS program is cool as it allows you to pay using after tax dollars for utilization items like prescription drugs, dental work, contact lenses and everything else covered by the tax act with no “deductibles and restrictions” often bundled with insurance packages.  You just go online, enroll, set your thresholds up for your employees and they just log in and submit their receipts and get reimbursed.  You’re company gets billed monthy and builds up a trust account that you can pull back into the company if you don’t use it all!  Sweet!
  9. Bookkeeping- Do it yourself using excel and a shoebox!  If you believe your time is better spent building your technology/core competency and you don’t want an outrageous year end tax bill that grinds your SR&ED refund then think twice!  Guess what, technology is fixing this problem too!   Shameless self promotion for our sister firm Tandem Accounting Group Ltd.  powered by QCDocs!  Point your mail to PO Box # and receive all your mail by “email” while simultaneously having all your bookkeeping requirements maintained in QuickBooks.  All your accounting, HR and legal docs are filed online for your ease of reference with a virtual A/P setup and maintained through your own QCDocs Portal! Each month you use QCDocs to manage your expense reporting using CSV uploads from your online credit cards where you put all your startup expenses so you can maximize your air miles or cash dividends!  Developers log their time in QCDocs timetracker to document time for NRC-IRAP and SR&ED compliance requirements.  The lovely and talented Tamara, Lindy and Gail take care of the rest spitting out your cheques/payroll when and where you need them and firing you investor ready financials each month.   Cash management Monday reports keep you bootstrapping along!  Negotiate partial pay in equity… the owner is a bit of an entrepreneur himself!
  10. Bank with Vancity or Coast Capital to minimize egregious bank charges  – see top 10 list of recommended banks.

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