Top 14 Accounting Tips for Small Businesses

When running a business, one of the most important activities you'll have as the owner is managing your finances. Even if you don’t consider yourself an accountant, it’s wise to understand your finances and keep track of income and expenses so you can plan for the future.

Also, you want your finances to be organized to make filing your taxes easier. Categorizing expenses appropriately ensures that your accountant can claim all the appropriate tax deductions for your business. And if you’re on top of your accounting, you may be able to reduce the risk of audit, or if you are audited, being organized can help streamline the process.

Let’s look at a few ways you can successfully manage your small business accounting.

1. Use the Right Software

When we use the phrase “manage the books” these days, we’re referring to a digital “book” in the form of accounting software. Several accounting programs are explicitly designed for small businesses, including Freshbooks and Quickbooks.

These programs make it easy to automatically download bank transactions, generate invoices, and create financial statements; you don't need an MBA to understand how to use them!

2. Open a Separate Business Bank Account

While it may seem simpler to use your personal bank account for business transactions, it can actually create quite a headache. Not only will it be difficult to parse out different transactions from a single account, but it can also expose your personal assets to liability for the business's debts. The smarter thing to do is to open a separate business account and keep all business banking separate from your personal banking.

3. Consider Hiring an Accountant

Understandably, you want to minimize your business expenses, but accounting may be one area where the investment will more than pay for itself. You can hire an accountant part-time to manage your expenses, send invoices, and file taxes. An accountant may also be able to handle payroll and benefits, which is a job in and of itself.

4. Categorize Your Expenses

In your accounting software, you have the ability to choose an expense category for each transaction. Doing so will make filing taxes easier since you’ll need to report any business expenses you had, such as travel, employee health insurance, vendors, et cetera.

You should talk to an accountant to understand which categories you’ll need, as the IRS uses specific categories. Matching yours to what they use will simplify the process.

5. Pay Attention to Financial Statements

Even if numbers make your eyes cross, you should learn to decipher key financial statements, including your profit and loss statements and balance sheet. These reports can provide important insights into how your business is doing financially and help you make informed decisions about financial strategy and growth.

6. Automatically Link Your Bank Account to the Software

Accounting software allows you to connect to your business bank to download your business transactions into the program automatically.  Gone are the days of having to balance the books manually!

All you have to do is make sure each transaction is appropriately categorized, and this can take just a few minutes if you do so regularly.

7. Set Up a Payment Policy

It’s a fact of doing business: sometimes, you have clients who drag their feet to pay you. Rather than jeopardizing your ability to pay your vendors, consider creating a payment policy. You can either offer a discount if clients pay within a few days or charge a fee if they pay late. This may light a fire underneath those late-paying clients and get you your money faster!

8. Manage Your Accounts Weekly

Certainly, you have a lot of other responsibilities in your business, and managing your accounting may fall to the bottom of a long list of priorities. But if you spend just a few minutes each week reviewing transactions and sending invoices, you can prevent having a large amount of work to do every month or quarter. This also ensures that you are on top of your finances.

9. Have an Emergency Fund

You likely have a budget that accounts for every dollar your business earns, but do you have an emergency fund? What would happen if you suddenly needed to replace a computer or pay a large insurance deductible? 

Setting aside money each month ensures you can cover any urgent situations that may arise. Consider opening a business savings account so that this money earns interest.

10. Plan Ahead for Major Purchases

Planning to hire more full-time employees in a few months? Need to update all your computers? Looking for a company vehicle? These are all significant expenses that, with a bit of planning, you can pay out of pocket rather than taking out a loan to cover.

Create a budget for the expense and decide when you want to make that purchase. Then divide that amount over the number of months between now and then. That is the amount you need to set aside to save for these larger purchases.

11. Offer Multiple Ways to Pay

Only 14% of Americans use cash to pay for all or most purchases. That means if your business is cash-only, you could miss out on serious opportunities to bring in new business. Set up a merchant processing service so you can accept debit and credit cards, and consider also accepting mobile payments like Google Pay and Apple Pay.

If you have a website, consider also selling your products online. To do this, you’ll need a payment processing system such as Paypal or Stripe.

12. Keep Accurate Inventory Records

If you sell products, you know that managing inventory can be a pain. There is inventory management software that can make the process easier, and some accounting software also integrates with these programs so you can set prices and track your spending on inventory.

13. Keep an Eye on Your Long-Term Goals

It’s easy to stay focused on the present with your business, but remember that long-term planning is critical for your company’s success. Use your financial statements to see how revenues rise or fall over time, and use that data to plan for the future. 

This might include acquiring another business, opening a new location, franchising your business, or expanding your team.

14. Be Smart About Financing

You might assume the best time to take out a business loan is when you need the money. But if your business is struggling, lenders may think it will be a strain for you to repay the loan. If you know you will need a large sum of money in a few months, it may be better to take out financing ahead of time, when business is booming.

Also, keep an eye on your credit. You have both a personal credit profile and one for your business (only if you take out a credit card or loan in the business name). Your credit score and credit history will determine how much you are eligible to borrow in the future, so adopt healthy credit habits like paying bills on time and keeping your debt-to-revenue ratio low.

Successful businesses have a solid financial foundation, and building yours starts with incorporating tips like these. Remember: you don’t have to manage your finances alone, even if you’re a one-person show. Working with a professional accountant or CPA can ensure that you are properly managing your money, help you understand what the numbers mean for the future, and get you paid on time.