Accounting is an important part of running a small business. It’s critical to have a system in place for recording your income and expenses and keeping financial records up-to-date. Not only is it necessary for tax purposes, but it’s vital for being able to understand your business’s profitability and cash flow as well.
If you’re a new business owner, you may be wondering how to do accounting for your small business. The good news is that there are several options available to you. Ultimately, your choice should be based on your comfort level with your business’s financial records as well as the amount of time you can realistically devote to keeping records up-to-date. Your small business accounting efforts should be ongoing, and should not be put off until the last minute. You don’t want to be struggling to catch up on many months’ worth of financial reporting right before you need to apply for a loan or file your taxes.
DIY, or “do-it-yourself” accounting means just that. As the business owner, you keep track of the business’s finances manually, whether it be on paper or electronically. It today’s computerized world, it’s probably not realistic to do the entire accounting process on paper, however you might have employees keep paper receipts or write down certain expenses so you can enter them as digital records later on.
Using a spreadsheet software like Microsoft Excel or Google Sheets is a common way to track expenses and income. If you’re not familiar with how to use this type of software, it could be useful to take a beginner’s class
to learn basic functions. There are also templates available for both Excel
and Google Sheets
that can help get you started with financial recordkeeping for your business. Keep in mind though, that things can become complex with spreadsheet software when you factor in multiple worksheets, reports, and graphs to cover all of your business’s finances. When building these types of spreadsheets, you’ll also need to consider what information will be required in the future when you need to do things such as file taxes, purchase insurance
, or apply for a loan
. You’ll want to be sure you’re documenting all of your business’s critical financial data
in your accounting process.
Depending on the size of your business, doing your accounting in this type of manual fashion may not be feasible. Typically, the DIY method is used for small start-ups
or those businesses that don’t have many employees. Managing the finances for your own business can be appealing because it allows you to maintain control and total awareness of your company’s financial picture, but you should keep in mind that if your business grows, DIY accounting may become overwhelming and too time consuming for you to maintain.
If you find the DIY method appealing, but don’t like the idea of using Google Sheets or Excel for your recordkeeping, another option is to purchase business accounting software
. Options like QuickBooks
often include out-of-the-box spreadsheet templates and built-in formulas to make necessary calculations easier. In many cases, accounting software can also manage payroll and prepare documents needed for taxes.
Some accounting software options
can even help manage tasks such as inventory tracking, invoicing, credit card processing, or project-based billing. It’s important to consider all of your business accounting needs before determining which accounting software product to purchase.
Hire a Third-Party Professional
Although accounting software can make it easier to manage your business’s finances than using a simple spreadsheet program, it still requires you to have a basic understanding of what information to input and how to verify that your outputs are correct. It also requires time out of your day. If you have no financial or bookkeeping background, or if you simply don’t have extra time to spare, a better option may be to hire a certified professional accountant
, or CPA, for your business.
A CPA is trained to know which information needs to be recorded, what documents you’ll need to file your taxes, which expenses can be written off, and more. They’ll also be familiar with which tax credits
are applicable to your business and will understand the tax laws in the state your business operates out of. Accounting rules aren't always black and white, so while accounting software can help guide you through the process, in many cases it simply can’t compare to the professional advice you’ll receive from your own accountant. And while accounting software basically just helps you enter the information you already have, a CPA can suggest changes to your process, or additional records to retain, so you can better manage, track, and control your business’s finances.
It’s important to point out though, that hiring a CPA means an additional expense for your business. Be sure to research options in your area to find someone who fits your business needs as well as your budget. You also need to be sure to hire a CPA you can trust
. Make sure they have the necessary experience and a proven track record of being reputable. It could be helpful to ask other small business owners if they have an accountant they would recommend. You could also ask your business lender or local chamber of commerce for recommendations. Websites like Yelp.com, Yellowpages.com and BBB.org can also be useful when trying to get a sense of an accountant’s experience and customer satisfaction.
Internal Accounting Staff
As your business grows, you may decide it makes sense to hire internal accounting staff
. This could consist of one or more part-time or full-time employees who are trained in business accounting. Of course this also means adding a payroll expense to your business, but you might find it worthwhile to have internal staff dedicated to your business accounting needs. Unlike a CPA who will be focused on multiple clients, a dedicated in-house accounting staff will be solely focused on your business and can thus become an expert on your finances.
Deciding whether to go with DIY accounting, accounting software, or professional help will depend on your business, your budget, your available time, your accounting needs and what you feel most comfortable with. In some cases, a small business may even utilize a mix of these accounting solutions. Your initial choice may not be the same for the life of your business, but knowing what options are available to you, and knowing what to evaluate can hopefully help to ease the stress of implementing a small business accounting process.