Small Business Accounting Tips

Accounting is a critical aspect of small business ownership, but it’s an area that can pose a challenge for many small business owners. The same accounting practices that apply to and are employed by the largest, most successful companies in the world also apply to small business owners. In order to succeed, accurate financial record keeping and analysis are critical aspects of ownership. Not only will these necessary business management tasks help you monitor business expenses, but they can also stay on top of tax obligations and discover new ways to grow.

More than Just Credits and Debits

Although it is certainly important to monitor the credits and debits of the business, accounting goes far beyond this basic task. In fact, accounting practices often impact every area of the business and every decision made by the owner. For example, establishing a detailed budget allows you to pinpoint and eliminate inefficiencies. When you’re monitoring the sales revenues or vendor costs, you’ll stay on top of any sudden changes, which may indicate a shift in your industry or on a larger scale.

It’s also important to monitor all accounts very closely, which allows you to identify behaviors and trends among customers. If you have customers who always pay late, you may be able to cut marketing and advertising costs by avoiding specific campaigns that target these customers.

Separate Accounts

One of the first steps to take as you focus on the accounting for your small business is to separate your accounts. A business account is vital to keeping accounts and transactions separate, and it will make tax season much easier on you. Although it’s required to have separate business and personal accounts when you operate under certain business classifications, it’s still smart to separate even if you have a sole proprietorship.

When the time comes to tally up the deductible business expenses, you’ll be glad to have all transactions in one place instead of trying to remember and split out which expenses were business-related and which were personal. A business account also helps you keep tabs on current and upcoming expenses. If you need to purchase major equipment or big orders of supplies, you can watch the cash flow within the business account and make a decision about when to buy, helping to avoid a cash crunch.

Reviewing the Company Goals

Accounting should be a key part of your company’s overall strategy for growth and success. Financial goals are a key part of this since it’s impossible to grow if the business doesn’t have enough cash flow. Whether you operate a sole proprietorship or you have employees on your payroll, the survival of the company depends on these financial objectives. One of the top reasons a business goes under is a lack of cash flow, but proper accounting procedures can reduce the risk of financial struggles. A strong financial strategy combined with efficient record keeping will improve the chance of success.


A critical part of accounting is keeping track of taxes. Between business taxes, which vary depending on a number of factors, payroll taxes and other required taxes, keeping track of what your business owes can pose a challenge. However, failure to comply with tax laws, both on a federal and a state level can result in stiff penalties and fines. A small business that fails to pay its required taxes could incur a fine high enough to wipe out any positive gains.

Keeping on top of required tax documentation throughout the year can help reduce this risk and maintain a steady course for your business. Most small business owners opt for quarterly or monthly financial statements, which are necessary for filing taxes. You’ll also need asset, income and cash flow statements for the business. If you’re not familiar with tax laws and regulations, bring in a tax accountant to handle these tasks for your business. Although it may seem like an unnecessary expense, you could save quite a bit of money and hassle by employing an expert.

Tracking Metrics

If your spouse or a friend of the family is “doing the books” for your business, you may want to think twice about this option. Although it’s often cheaper to hire a friend or family member to handle bookkeeping, accounting goes far beyond just tracking credits and debits. This person might not have the experience necessary to help plan the financial goals of the company or come up with a plan to achieve those goals in a reasonable time frame.

Small business owners also need to track metrics to ensure achievement of financial goals. If you make a list of goals and ignore the financial statements until the following year rolls around, it’s highly unlikely that any of those goals will be reached. In fact, you could end up having to close shop because the lack of awareness led to tax errors, legal implications or insufficient cash flow. It’s important to hang on to critical documents, including bills, proof of payments, invoices, receipts, financial statements, past tax returns, 1099 and W-2 forms and any other legal forms.


Another task related to accounting is payroll, which can quickly take up a lot of time for a small business owner. A minor payroll mistake can be costly, so it’s critical to manage this process accurately and efficiently. If you’re not familiar with payroll taxes and managing employees, you’ll need to outsource the payroll or rely on functional software.

If you don’t have the time or the experience to manage the accounting side of the business yourself, you have two main options: outsource the job to an accountant or use business accounting software.

Hiring an Accountant

If your business has the means, hiring an accountant is easier than trying to handle the tasks yourself. Some accounting firms specialize in handling the needs of small businesses. You could also look for a sole practitioner with experience in small business accounting. For small businesses that can’t hire an accountant full-time, even bringing in a temporary worker can be beneficial for the busiest times of the year.

When you make the decision to hire an accountant, whether full-time, part-time or temporarily, you will need to transfer most of the financial management tasks over to that person. It’s important to hire someone you can trust and who has experience that gives you confidence in their abilities to handle the finances of your business. To a business owner with little to no experience in financial management and accounting, outsourcing is one of the most appealing options since it takes the responsibility off their shoulders.

In addition to handling the day-to-day financial aspects of the company, an accountant may be responsible for additional tasks. These could include reviewing past financial documents to look for ways to reduce waste, advising on the company structure, serving as a liaison between the business and the IRS during an audit, managing the payroll, building and tracking financial goals within the business plan and developing a financial plan in the event that the business struggles to achieve its goals or it endures a catastrophe.

A small business owner may struggle to hand the reins to someone else, but outsourcing these tasks can help the company achieve greater financial success. For growing businesses, hiring an accounting firm on a temporary or as-needed basis may be a better option since it allows for shifts as the business grows.

Benefits of hiring an accountant include assistance with tax management and potential audits, development of a better business strategy and access to someone with knowledge of tax laws and other business finance laws. Some of the drawbacks include the cost, loss of control and the risk of granting the majority of the company’s financial information to a single person. As the owner of a small business, the decision to hire an accountant ultimately falls on you.

Choosing the right accountant or accounting firm for your small business can also be challenging. Many business owners are familiar with the Big Four accounting firms: KPMG, PricewaterhouseCoopers, Ernst & Young and Deloitte Touche Tohmatsu. These firms are accessible and have plenty of qualified CPAs on staff, but the larger size may make the firms less appealing to smaller business owners. Depending on your area, you can search for smaller firms that tend to offer lower rates and more personal, face-to-face services.

As your business grows, the hourly consulting fees charged by an accounting firm can become extremely high. For growing businesses, the salary of an in-house accountant may be more manageable than the hourly rates. An accountant can do all types of important tasks and processes, which can help justify their salary on your company’s payroll.

Business Accounting Software Options

If you’re tech-savvy and at least somewhat familiar with the basic principles of business accounting, you may decide to use business accounting software to handle these important financial tasks. Using digital solutions is much more accurate and easier than manually calculating or tracking expenses. Software options can perform data entry, produce critical reports, track metrics based on performance and projections and crunch the numbers. As long as the data entered is accurate, the calculation accuracy is essentially guaranteed.

Benefits of opting for business accounting software include simplified tracking, reduced redundancy and mistakes, cloud-based storage options and a user-friendly, generally familiar interface. However, some of the risks and drawbacks include the potential for a security breach, the need for tech support provided by an outside source and annual fees for subscriptions and upgrades. In your search, you’ll find basic software options that are more budget-friendly, but these often don’t offer the same level of service.

Some of the best software options for small business owners include Zoho, Wave Accounting, FreshBooks, Intuit, Acclivity Group, Xero, The Sage Group and Kashoo. As you review the different features and options, you can make a decision about which software will be able to handle the most critical tasks for your business.

How to Decide

With so many options, the next step for a small business owner is weighing the pros and cons of outsourcing and accounting software. Consider the company size and projected growth over the next few years, your understanding of basic accounting principles and the cash flow allowance of the business. You’ll also need to weigh whether you feel comfortable handling these potentially sensitive and critical tasks over to an external person. Look at what others in your industry are using to manage their accounting. These factors will all help you make the right choice for your business.

Task Management

As you get the accounting processes underway and into the workflow, there are a few important tasks you should do every day. Cash flow is the fuel that keeps your business going, so check in every morning to see how much cash is available in the business account. On a weekly basis, record all necessary transactions, prepare payroll, pay vendors, file receipts, send invoices and review any outstanding bills. Every month, take some time to review the past-due receivables, analyze the status of your inventory and balance the business account.

On a quarterly basis, it’s smart to review all payroll reports, review the year’s goals and track their progress and make the estimated income tax and sales tax payments. After you’ve closed the books for the year, the final tasks include reviewing any outstanding receivables, preparing and distributing 1099 and W-2 forms, reviewing all tax returns and reports and performing a thorough analysis of the remaining inventory.

Get into the habit of managing and paying bills on time to avoid damaging relationships with vendors. Combing your accounts payable and receivable tracking systems will help you know when cash is regularly coming in, making it easier to set a routine schedule for paying outstanding invoices. If you hit a hard month, it’s always better to talk to your vendors instead of trying to avoid their calls or skip multiple payments in a row.

Additional financial resources are available to small business owners, making it easier to track expenses and manage the accounting side of the business. Take advantage of all the resources at your disposal to improve your accounting processes and boost your business’s growth.

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