How to Do Small Business Accounting the the Smart Way

What is small business accounting?

At the most basic level, small business accounting is properly recording financial transactions for a small business. It is the way a small business organizes and understands its financial information, making sense of financial data to get a good picture of a business’s financial state. 

Bookkeeping is often confused with accounting but is, in fact, a part of accounting. Bookkeeping is the recording and categorizing aspect. Accounting includes strategy, analysis, and planning, in line with GAAP or IFRS accounting rules, policies, and standards. Apply financial accounting and management accounting together and tailor it to the needs of a smaller company.

What is the role of accounting in a small business?

In a small business, financial performance is vital — larger companies might be able to weather a few storms, while a smaller company needs to be very careful to manage its cash resources. Small business accounting lets owners, managers, investors, and anyone else who is a stakeholder understand the financial picture to its fullest. It gives information on things like profit and loss, liabilities, and earnings, so decision-makers have an accurate foundation for strategizing. 

Small business accounting is also crucial for tracking income and expenditures for tax purposes and other compliance or audit needs.

What are small business accounting responsibilities?

Small business accounting responsibilities include:

For strong accounting practices, you must ensure that your data is tracked in line with accounting standards and use that information to find problems and create solutions, reduce costs and maximize profits, and conduct forecasting.

Small business accounting tasks include depositing payments, reconciling payments and receipts, paying vendors, reviewing timesheets and completing payroll, and scanning documents. Addititionally, reviewing bank statements, handling overdue receivables, and updating inventory ensures that all financial data is properly consolidated at the end of each period (e.g., each month) and reported on fairly and accurately.

How to do accounting for a small business

What are useful small business accounting tips?

Small business owners have a few accounting considerations that larger companies may not encounter. Far more of the responsibility of accounting falls on owners and employees rather than a dedicated accounting department. And there’s more at stake — much of it being personal funds, especially for new or struggling businesses.

That’s why our first tip is to separate business and personal expenses. All business accounting should be done with a different bank account and credit card, and any personal capital needs to be documented carefully. Every expense and all income needs to be accurately recorded, no matter its source.

We also suggest using cloud-based accounting software and additional softwares (for AP, AR, virtual credit cards) where you can or even hiring a professional, temporarily or permanently (more on that below!). Set aside time to deal with your accounting and use the information to forecast for the future. 

What are small business accounting best practices?

First, you need to determine an accounting method, cash or accrual. Cash accounting is common, especially for small businesses, recording transactions when a payment is received or made. Accrual puts those transactions on the books when the transaction is made.

Our tips above include other best practices: keep business finances separate, track your expenses, and maintain accurate and clear records. You will want to keep a close eye on accounts receivable, with solid credit policies, up-front payment, and monitoring past-due accounts. Monthly reviews of your accounting should pick up any issues before they turn into something bigger.

What are common small business accounting mistakes?

One of the biggest mistakes is getting in over your head with small business accounting, trying to do too much on your own without the necessary skill or resources. Accounting makes a considerable difference to the overall success of your company, and it’s something worth getting right from the start. It can be beneficial to work with a professional to get things set up, to get through tough situations, or on a longer-term basis.

Of course, outsourcing to a professional has the potential for more mistakes if you do not choose a certified, skilled accounting pro. Take the time to find someone who meets your needs, or you will have to go through the same process again until you find the right person.

Another common small business accounting mistake: not being ready for tax season. Small businesses should always be prepping for tax season, documenting financial information along the way instead of trying to deal with it all at once.

Finally, if you rely on accounting software, you will want to avoid the mistake of losing your information. Work with a reputable company that will keep your data secure and retrievable but also keeps backups of important documents in the event of an audit.

Where to find small business accounting resources

Where to find a small business accounting course?

Some business owners look for accounting courses through local colleges or local business development offices. There are also many options for online accounting courses. Some offer free information, while others are more comprehensive, paid courses.


Options include AccountingCoach.com, which offers a free bookkeeping program. DWMBeanCounter.com offers free information and a paid eBook version. open.edu has an introduction to bookkeeping and accounting program.


There are many courses like this — all it takes is an internet search and some investigation to find out if a course is the right fit for you. It is important to understand that this information can help you navigate accounting. However, it will not make you a certified accountant unless you’re pursuing that as a career with the appropriate education and training. 

What is a helpful small business accounting guide?

As with small business accounting courses, there are many small business accounting guides out there. The United States Chamber of Commerce offers one, covering the basics of small business accounting and tracking and analyzing financial metrics. The SMB Guide has a 2021 how-to guide focused specifically on small businesses, which may be helpful as well.

As with small business accounting courses, it’s still important to know the distinction between following how-to advice and professional accreditation. Don’t be afraid to reach out to an expert if you still need help after taking a course or reading a guide.

Where to find a small business accounting blog?

If you are looking for local advice, try searching for ‘small business accounting blog’ with the name of your city or your state if you want regional information. This can connect you with professionals — likely accountants and bookkeepers experienced with small business accounting — who share industry insight and tips.

Some well-known accounting blogs have a national or even international audience and focus. Accounting Coach is one option, covering a wide variety of accounting topics.

For specific aspects of accounting help, search for ‘small business accounting blog’ along with relevant keywords like taxation or bookkeeping. As an example, for bookkeeping, check out 5 Minute Bookkeeping. For taxes, a blog like Where Every Penny Matters might help.

Should you go the DIY route for your small business accounting?

The DIY route can be a very tempting approach for small business accounting. When you are starting, it’s hard to think about paying someone money to help you make and save money. For many small companies, DIY is the way they start, but many find that they eventually need help from a pro, whether at tax time or all year long. If you’re thinking about the DIY method, here is some information to help you through.

What are small business accounting basics?

To DIY your accounting, you need to know how to analyze cash flow, manage accounts payable and receivable, calculate and disburse payroll, create financial statements, and budget. This is the bare minimum of accounting needs and does not include forecasting or analysis to use your accounting to improve the business. 

What to know about small business accounting for beginners

The most important thing about DIY small business accounting: if you’re going to do it, you have to actually manage and stay on top of it. A lot goes into running a business, especially when you’re a small business owner, but you cannot let accounting fall by the wayside.

You need to do the basics of small business accounting, every day. It means recording receipts, invoices, payments, and other information, so it’s all there to reconcile and report at the end of the month. You need to calculate payroll on time, every time, so your staff gets paid. And, you need to find the right processes and platforms to get this done and stick with it.

What are different small business accounting methods?

As noted above, you can use a cash basis method, accrual, or a mixed approach, known as modified cash basis. 

How to keep accounting books for a small business

There are a few ways to keep accounting books: keeping a hand-recorded log, using a spreadsheet system like Excel or Google Sheets, or using an accounting software platform. Hand-recorded books are far inferior to more modern methods.

How to do small business accounting in Excel

Accounting in Excel digitizes physical books. You will want to assign a transaction number to each entry, with column heads for the date, description of the transaction, whether it is income or expense, and the account balance. Fill in the income or expense column with the monetary value, and your account balance will adjust accordingly.

How to do small business accounting in Google Sheets

Google Sheets is simply a cloud-based spreadsheet system, so you can use it to account just as you would with Excel. The difference is that you can access your Google Sheets system from any computer or device with an internet connection.

How to choose small business accounting software

Why should a small business use accounting software?

A good small business accounting software platform can bridge the gap between DIY accounting and having professional help. It makes it easier to enter information and automate reports, taking away some of the risk of human error or running out of time for analysis. Some software systems allow small business owners to do other things, like send invoices directly, snap photos of receipts, or track billable time.

What accounting software is best for a small business?

While the overall best accounting software for small businesses varies based on opinion, a few big names are well-known for a good reason. Investopedia ranks the best overall software as QuickBooks Online, with the best software for micro-business owners being Xero. Service-based business owners might enjoy FreshBooks, while freelancers see benefits from Quick Books Self-Employed. Explore each option and be sure that the features match your needs. We have additional resources where we have explored Bench vs. QBO and Bench vs. Xero to help you make your decision.

Doing small business accounting with payroll

Payroll is a common need for small business owners, but it isn’t always a function built into accounting software. Systems like QuickBooks Online offer payroll integrations to make your life easier and to ensure staff gets paid. If you want to include payroll with your small business accounting software, ensure the integrations exist before you invest.

Doing small business accounting with Quickbooks

QuickBooks, in its various forms, is popular because it’s used by accounting professionals and integrates with many third-party applications. Like Google Sheets, it is cloud-based, so you can access it from anywhere at any time. It’s also scalable, so you can add upgrades or boost performance only when you need to, so you can use your profits wisely.

When to consider small business accounting outsourcing options

When you need help with accounting and the cost of outsourcing is less than you will gain as a return on your investment, it’s often worthwhile! If you are struggling, feeling stressed, or find that too much time and resources are being spent dealing with accounting to the detriment of other business operations, consider a professional.

How much should small business accounting cost?

To make outsourcing worthwhile, look for a company offering consistent pricing so you can pay a predictable rate. If you are outsourcing, you should also be paying less than what a full-time hire would cost! The actual cost will vary depending on your needs — payroll, a CFO, tax prep, etc. — but if the number seems high, consider getting other quotes.

How to get a quote for small business accounting

Getting a quote for small business accounting should be as simple as reaching out to a prospective company and asking for a consultation. Any quote or consultation should come to you at no cost, with no obligation.

How to find a small business accounting firm near me 

You can start with an internet search focused on your location. Ask other business owners for references or check in with local business coaches, chambers of commerce, and business development organizations.


When your growing business is ready to outsource accounting our team is ready to show you how we can streamline your accounting close.

*This blog does not constitute solicitation or provision of legal advice and does not establish an attorney-client relationship. This blog should not be used as a substitute for obtaining legal advice from an attorney licensed or authorized to practice in your jurisdiction.*

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