Running a small business is a journey full of challenges, and managing your finances is one of the biggest.
With the right accounting practices, however, you can reduce stress, maintain compliance, and create a clear growth path. In this guide, we’ve compiled 25 practical tips to help you streamline your small business accounting. These tips can be used by small and medium businesses looking to grow and scale operations.
What is Small Business Accounting?
Small business accounting involves tracking your business’s income, expenses, assets, and liabilities. It includes recording transactions, preparing financial statements, managing taxes, and maintaining accurate financial records.
A well-managed accounting system helps you understand the financial health of your small and medium business and make informed decisions.
Why Should You Care About Small Business Accounting?
Accurate accounting ensures your business is compliant with tax laws, provides you with valuable insights into your cash flow and profitability, and helps you identify areas for improvement.
Neglecting your accounting can result in missed tax deadlines, poor financial decisions, and even legal trouble. Good accounting practices are the foundation of a sustainable and growing business.
A Checklist to See If Your Small Business’s Accounting Needs Attention
Use this checklist to evaluate the state of your small business's accounting processes. If you answer “No” to any of these, it may be time to update or improve your systems.
Defined Accounting Processes
- Do you have a clear, documented process for managing your business's financial transactions?
- Have you set specific timelines for regular accounting tasks (e.g., reconciling accounts and generating financial reports)?
- Do you have a professional accountant, bookkeeper, or outsourced service to assist with complex accounting tasks?
Bill Pay System
- Do you have an efficient system for paying bills on time and keeping track of upcoming payments?
- Is your bill payment process automated (e.g., using tools like bill pay services or software for recurring bills)?
Expense Management System
- Do you have a standardized system for managing credit card expenses across the company?
Automated Systems & Integration
- Are your accounting systems automated to reduce manual entry and human error (e.g., invoicing, bill pay, expense tracking)?
- Do your accounting tools integrate seamlessly with other business software (e.g., your CRM, payroll system, expense management tools)?
Payroll System
- Is payroll automated and integrated with your accounting system to ensure accurate tax reporting and financial tracking?
Accounting Software & Tools
- Are you using modern accounting software that fits your business needs?
- Does your accounting software and other systems allow for easy reporting and data exporting?
Tax
- Are you working with a tax professional or accountant to ensure compliance and optimize your tax strategy?
Security
- Are your accounting systems protected with strong security measures to prevent fraud or unauthorized access?
Scalability
- Are your accounting systems and processes scalable as your business grows?
Financial Reporting
- Do you generate regular financial reports (e.g., profit and loss statement, balance sheet, cash flow statement)?
- Are your financial reports accurate, consistent, and up-to-date?
- Do you use these reports to make informed business decisions, assess profitability, and manage cash flow?
Next Steps: If you answered "No" to any of these items, it might be time to reevaluate your accounting systems and processes.
25 Small Business Accounting Tips for Business Owners
Here are 25 tips that can be used by small and medium businesses to set up, maintain, and improve their accounting process:
Setting Up Accounting for Small Businesses
1. Setting Up Accounting for Small Businesses
Getting your accounting system in place is the first step to financial control. You’ll need to choose the right accounting method (cash or accrual), set up bookkeeping practices, and decide whether to manage it yourself or hire a professional.
It’s wise to review your system as your business grows from year to year.
How often: One-time setup, with periodic reviews as needed
2. Open A Small Business Bank Account
One of the first things every business should do is open a separate business bank account. Mixing personal and business finances can lead to confusion, errors, and potential legal issues. Having a dedicated account makes it easier to track income and expenses, ensuring your records are clean and accurate.
How often: One-time setup, ongoing use
3. Choose An Accounting Method
There are two main accounting methods: cash and accrual. Cash accounting records transactions when money actually changes hands, making it simpler for small businesses.
Accrual accounting records revenue and expenses when they are earned or incurred, providing a more accurate long-term picture of financial health.
How often: One-time decision, reviewed annually
4. Set Up A Chart Of Accounts
A chart of accounts is a comprehensive list of accounts in your business. It categorizes every transaction–income, expenses, asset, or liability–into a specific account. A well-organized chart helps you quickly analyze the financial health of your business.
As you continue to grow, review the accounts in use. Too many accounts and everything blurs together. Too few accounts, and you don’t get the high-level reporting you need. Work with your accountant to establish a COA that works for your business.
How often: One-time setup, with annual reviews
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5. Determine The Fiscal Year
Your fiscal year is the 12 months for financial reporting. It could follow the calendar or align with your business cycle. Choosing the right fiscal year can simplify your accounting and tax preparation.
How often: One-time decision
6. Know When Your Business Needs A Software Upgrade
As your business grows, manual processes might become too cumbersome. If you find yourself buried in paperwork or struggling to track transactions, it’s time to upgrade to an accounting automation software.
How often: Periodically, as your business grows
Eliminate Manual Tasks & Upgrade to Software
7. Process and Workflow Automation
Automation is a game-changer for small business owners. It reduces manual errors, saves time, and allows you to focus on other aspects of running your business. Use software to automate invoicing, expense reporting, and bank reconciliations.
The right software can simplify each aspect of your accounting process. Some tools businesses can use include:
- Payroll: Gusto, Rippling
- Bill Pay: BILL, Routable, Settle
- Expense Management: Fyle
- Bookkeeping: QBO
By automating repetitive tasks like data entry and reconciliation, you free up valuable time. Automated tools also ensure consistency and accuracy in your workflows. Look for tools that can seamlessly handle tasks like payroll processing, cash flow management, and credit card reconciliation.
How often: Continuous
Monitor/Record/Track Ins And Outs Of Money
8. Record Transactions
Recording transactions regularly is essential for accurate bookkeeping. Ensure that every sale, expense, or refund is logged in your system. Keeping records up-to-date will help you avoid costly mistakes and make it easier to file taxes.
How often: Daily/Weekly
9. Prepare And Send Invoices
Getting paid on time is critical for maintaining cash flow. To avoid payment delays, create and send invoices promptly. Use invoicing software to automate the process and track outstanding payments.
How often: As required
10. Track Your Small Business Expenses
Tracking business expenses is crucial for maintaining financial health and maximizing your tax deductions.
Small expenses can quickly pile up and, if left unchecked, lead to budgeting issues, cash flow problems, and missed tax-write-offs. Without proper tracking, you might overlook deductible expenses or struggle with reconciling your books at the end of the month.
Consistently tracking every transaction ensures you have a clear picture of where your money is going, helping you make informed decisions and avoid overspending.
How often: Weekly
Fyle makes tracking business expenses effortless by automating the entire process. Simply snap a picture of your receipt and submit it via text, Gmail, Outlook, Slack, or email, and Fyle’s AI will immediately create, code, and submit the expense.
It also categorizes expenses based on your business rules, ensuring accurate coding for your General Ledger. Fyle notifies you in real-time of business credit card transactions and helps you automate credit card reconciliation, reducing manual errors and keeping your records audit-ready.
11. Document And File Receipts
Maintaining proper documentation is crucial for tax deductions and audits. You can use Fyle’s Conversational AI to submit and track receipts via text message. This not only ensures you’re ready for tax season but also helps you track spending and manage reimbursements.
How often: Weekly
12. Pay Vendors
Late payments can strain vendor relationships. Set up a system to track due dates and ensure that bills are paid on time. Software tools can automate reminders and payments to help you stay on top of obligations.
How often: Weekly/Monthly
13. Review Accounting Processes Regularly
Take the time to review your accounting processes periodically. Identify areas that could be improved or automated, and stay proactive about addressing inefficiencies. This will ensure your accounting practices remain effective as your business grows.
How often: Quarterly
Review Critical Business Financials
14. Review Cash Flow
Your cash flow shows how much money is coming in and going out of your business. Review it regularly to ensure you have enough cash to cover expenses. A healthy cash flow is essential to keeping your business running smoothly.
How often: Monthly
15. Review Past Due Invoices
Late payments can cause serious cash flow problems. Review overdue invoices regularly and follow up promptly with customers. Consider offering early discounts or setting clear payment terms to avoid late payments.
How often: Weekly/Monthly
16. Check + Take Stock Of Your Inventory
Inventory management is a critical part of accounting for businesses that sell products. Make sure your inventory is updated regularly to prevent over-ordering or stockouts. Inventory tracking software can help automate this process.
How often: Monthly
17. Prepare And Review Financials
Financial reports, such as the balance sheet and profit and loss statement, provide key insights into your business’s performance. Review them regularly to track progress, identify potential issues, and plan for the future.
How often: Monthly/Quarterly
18. Review Long Overdue Receivables
Receivables that go unpaid for too long can create cash flow problems. Monitor overdue accounts closely and have a plan in place for collections. Automation tools can send reminders to customers with overdue balances.
How often: Monthly
Understand Your Tax Implications
19. Investigate Import Tax
If your business imports goods, you should be aware of the applicable taxes and compliance requirements. Failure to adhere to import tax laws can result in fines or delays in getting products to market.
How often: Annually/As needed
20. Establish Sales Tax Procedures
Sales tax can be complicated, especially if you operate in multiple locations. Set up clear procedures for collecting, reporting, and paying sales tax. Automate the process using tax software like TaxJar, Zamp or Avalara.
How often: Monthly/Quarterly
21. Determine Your Tax Obligations
Work with a tax professional to understand your business’s tax obligations. This includes federal, state, and local taxes, as well as any industry-specific tax liabilities you may face.
How often: Monthly/Quarterly
22. Review And Pay Quarterly Payroll Taxes
Payroll taxes must be filed quarterly. Failure to do so can result in penalties. Ensure that your payroll software is set up to calculate, deduct, and file taxes automatically.
How often: Quarterly
23. Pay Sales Tax Obligations
Paying sales tax obligations is critical to complying with state and local tax laws. Sales tax rates and requirements vary depending on where your business operates and what products or services you sell.
Failure to pay the correct sales tax amount or missing deadlines can result in fines, penalties, or audits. To avoid this, ensure that you’re collecting the correct sales tax at the time of sale and that you’re keeping accurate records of those transactions.
How often: Monthly/Quarterly
24. Fill Out And File IRS Forms
Filling IRS forms is a necessary part of business tax compliance, and different forms apply depending on your business type and payroll obligations. For example, you might need to file forms such as W-2s, 1099s, or Form 941 to report employee wages, independent contractor payments, or quarterly payroll taxes.
Staying organized is key, as each form has specific deadlines.
How often: Annually/Quarterly
25. File Tax Returns
Filing your business tax returns is an annual requirement. They compile your income, deductions, and other financial data for the year.
For small businesses, the type of tax return you file depends on your business structure (e.g., Form 1120 for corporations, Form 1065 for partnerships, or Schedule C for sole proprietors).
To avoid errors and missed deductions, maintain organized records throughout the year and ensure all expenses are properly categorized. Learn more about Decimal’s Tax Services and work with experts who can help you minimize your tax liability.
Using automated tools like Fyle to manage your expenses can help streamline the process and keep your financial records in perfect order for tax season.
How often: Annually
Bonus Pro-Tips
26. Apply For Small Business Funding
Having up-to-date financials is key when seeking small business loans or investments. Ensure that your bookkeeping is clean and that you have detailed reports to share with potential lenders or investors.
27. Find High-Quality Accounting Partners
Hiring the right accountant or bookkeeping service can save you time and money in the long run. They’ll help you avoid costly mistakes and ensure your books are in order. Look for someone experienced with small businesses in your industry. Check out Decimal to learn why outsourcing may be right for you.
How Fyle and Decimal Can Help
Decimal and Fyle work together to streamline accounting processes and reporting, allowing you to close your books faster each month. This boosts productivity and ensures accurate bookkeeping.
Fyle
Be Audit Ready with Accurate Record Keeping
Fyle automates the collection and coding of receipts, eliminating human error. When tax season arrives, your books will be in order, with every transaction accurately documented.
Stay Compliant with Robust Policies
Fyle’s policy engine ensures that all expenses are verified against company policies before submission. This reduces the risk of fraud, ensures compliance, and identifies duplicates.
Decimal
Improve your accounting processes to scale with you
Decimal handles your day-to-day bookkeeping, allowing you to focus on your business. Gain reporting and insights into your business that help you make strategic decisions. As the business grows, Decimal is ready to assist with bill pay, payroll support, and so much more.
Gain expert insights in Tax Planning
Decimal’s Tax Service gives you access to former KPMG CPAs who have deep experience with businesses across the US. They’ll help you maximize your returns and walk you through the best strategies when structuring and running your business.
Small Business Accounting FAQs
What Are The Basics Of Small Business Bookkeeping?
Bookkeeping involves recording all of your business’s financial transactions, categorizing them, and tracking income and expenses. The goal is to ensure your books are accurate and up to date for tax reporting and financial analysis.
What Accounting Is Required For A Small Business?
All businesses need to maintain accurate financial records, file tax returns, and ensure compliance with local and federal regulations. Depending on the size of your business, you may also need to issue financial statements, such as balance sheets and income statements.
Can You Do Your Own Small Business Accounting?
Yes, many small business owners manage their own accounting. However, as your business grows, it may become too time-consuming, and you might want to hire an accountant or invest in accounting software to help manage the workload.
How Do I Do Accounting For My Small Business?
To do your accounting, start by setting up a system to track income and expenses. Record every transaction, reconcile your bank accounts, and prepare financial statements regularly. You can do this manually, but using accounting software makes the process much easier.
How Much Should I Pay An Accountant For My Small Business?
The amount you pay can vary widely depending on your specific needs. Consider factors like whether you need assistance with tax preparation, bookkeeping, bill payments, financial reporting, or strategic advice. The complexity of your business, its size, and the frequency of services you require will also play a role in determining the cost. As you explore options, you will find various plans or services that align with your budget and meet the needs of your business.
What Does An Accountant Do For Small Business Owners?
An accountant helps manage your financial records, ensures tax compliance, prepares financial statements, and advises on financial decisions. They can also assist with tax planning and filing, helping you save money and avoid penalties.
What Does A Bookkeeper Do For A Small Business?
A bookkeeper is responsible for recording all daily financial transactions. They manage invoices, track expenses, reconcile bank accounts, and ensure that your financial records are organized and accurate. This frees you up to focus on running your business.
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