Small business accounting tips, basics and more

Blog | January 21, 2022

Reading time: 7 min

Running a small business can be both time-consuming and stressful. Business owners are often faced with the difficult task of balancing their work, family and personal lives. To make matters worse, many small business owners don't know how to handle their finances, leading to expensive mistakes or even bankruptcy.

Accounting is the language of business and one of the most critical aspects of managing a small business. While it can be tedious and time-consuming, the following steps can help you simplify the process and get it done without any hassle. Whether you're a start-up or established company, accounting is the key to understanding how your business operates and where you stand financially. Below, we’ll explore some of the most popular accounting and bookkeeping methods for small business owners.

What is small business accounting?

Small businesses, much like larger ones, have numerous accounting needs, from creating charts of accounts to paying taxes. In addition, small businesses often need to take care of the day-to-day financial tasks and accounting, such as recording revenues and expenses (such as credit card purchases, inventory purchases, and salaries), paying taxes (including income tax, sales tax, payroll tax) and more. These records are needed to make informed decisions about growing the company.

Accounting for small businesses can be a challenging task. There are many different aspects to consider, such as understanding the balance sheet and income statement and knowing what taxes and other financial responsibilities you need to pay and plan for. However, many methods, organizational techniques and online resources can help you with this process.

Professional woman in home office using laptop

How to do accounting for small business

Accounting is a crucial part of running a small business as it involves managing the finances and calculating profit or loss on various projects undertaken by the company. The main objective of accounting is to provide information to decision-makers about past, present and future performance to make better decisions. The information provided by accounting can also be used for making comparisons between companies, industries, countries, etc.

Below are a couple of the most popular methods you can use to track your business’s finances: 

  1. The first and most popular method is cash-basis accounting. Cash-basis accounting is a simple method of tracking your business income and expenses. This type of accounting records everything spent or earned in a specific period, such as a month. This method includes three primary phases to a business cycle: assets, liabilities and equity.
    Assets: Assets are things that a business owns that have a monetary value. Assets include cash, accounts receivable, inventory, prepaid expenses and other tangible assets such as property or equipment.
    Liabilities: Corporate liabilities can include the cost of providing benefits to employees, such as salaries and healthcare insurance, lawsuits, taxes and more.
    Equity: Company equity refers to various shares, securities, and other investments in a company. It can be common stock, preferred stock, bonds or any other form of investment.
  2. The second and less popular method is accrual-basis accounting. This method requires that companies track the cost of items as they are incurred. The item's price is then recorded as an expense on the company's financial statements. Accrual-basis accounting is often less popular because it requires more work and knowledge to use correctly, but there are benefits to it as well.
small business accounting three primary business cycle phases

How to organize small business accounting

Organizing accounting for small businesses is not an easy task. However, it is necessary to keep track of its expenses, income and transactions. It is also essential to know how to manage the business's finances. Keeping your accounting organized and up-to-date is one of the most important things that a small business owner can do to stay on top of your finances. This includes managing your receipts and invoices, having a reliable system for tracking expenses and cash flow and paying your taxes on time.

While organizing your small business accounting can be difficult when there are so many other things to focus on, there are numerous ways that small business owners can stay organized, including using spreadsheets, software, paper and pencil or a combination of methods. You can use accounting software or hire someone who specializes in this field. There are many benefits of hiring professional accountants for small businesses. They can help you with tax preparation and provide you with valuable advice on how to improve your financial management skills. Regardless of the method you choose, it is essential to establish a system that works for you and your business.

Do I need accounting software for my small business?

If you’re a small business owner, you might be wondering if you need accounting software. Unfortunately, small businesses are often overwhelmed by the number of accounting tasks they need to complete every day. The good news is, there are many tools and services available to help manage these tasks. In addition, businesses of all sizes use accounting software to streamline their finances and small businesses are no exception. 

Accounting is time-consuming. It's essential to have the right tools to keep your business on track and to remain compliant with U.S. GAAP. You deserve an accurate and trustworthy accounting system that saves you time and money as a small business owner. 

Accounting software is a must for any small business owner who wants to maintain an accurate record of their finances. It can automate bookkeeping tasks, which will save you time and money. The right accounting software can help you organize your finances, reduce errors by automatically calculating tax and payroll contributions and even help with your taxes. This enables you to provide accurate records on your finances at all times, monitor cash flow, manage your cash and ensure that you’re not missing out on any opportunities or losing money unnecessarily.

Man reading top 5 benefits of accounts receivable automation on tablet in office

Bookkeeping methods for small business

Bookkeeping is a necessary part of running a small business. At one time, it was enough just to be able to add and subtract, but that's not the case anymore. As a result, the bookkeeper's job has evolved to include more than just basic math calculations. The bookkeeper must also understand a company's financials and how revenue and expenses affect the bottom line. Below are a couple of the most common ways companies stay on track of their bookkeeping:

Full-time accountant or bookkeeper

Accountants and bookkeepers are vital to the success of many companies. They create financial reports, manage finances and maintain financial records. Unfortunately, hiring a full-time bookkeeper or accountant for small business owners can be a difficult task for small business owners. They often have an extensive amount of experience and knowledge, but it's hard to find someone who fits your company's specific needs and is within your budget. However, if this is an option for you, a full-time accountant or bookkeeper can prove to be an asset, especially with regards to accounts receivable bookkeeping.

Automated web-based accounting software

With the introduction of automated web-based software, accountants can now work remotely and save time by automatically importing data from bank accounts and credit card statements into their accounting software. This enables them to focus on more critical tasks such as analyzing data, writing reports and providing other valuable inputs to their clients. In addition, many web-based accounting software applications automatically download transactions from the bank account or credit card statement into the software for businesses and provide accounting and financial reporting.

Final thoughts on small business accounting tips

Bookkeeping is an intricate process that, without the right tools, can take a lot of time and energy. The majority of small businesses cannot afford the cost of a full-time accountant or bookkeeper. This is where new technologies come into play, such as accounting software that can automatically import data from bank accounts and credit card statements into the accounting software. Thankfully, there are plenty of online resources and apps to make it easy to keep your books balanced and your accounts receivable process modernized. Regardless of the method you choose, it's vital to select a bookkeeping method that ensures accurate and efficient finance tracking!