Small Business Accounting: What You Need To Know

Small business accounting stands for how a small business owner will perform accounting for the organization. Is this the proper way to describe what small business accounting is? Go through this article to know the real nature of small business accounting. 

All big organizations like Walmart, Amazon, etc., have started their journey as small businesses. The founders of these organizations probably said that accounting for small business owners is something you will eventually learn.

Those who can quickly learn how to do the accounting for small businesses can sustain and survive in the race. In general, accounting is the language of all business. But, sometimes, people believe that accounting is all about mathematical calculation!

Ideally, accounting is all about calculation, and it has a fair share of numbers associated with this process integrally. That is not the core of accounting. Instead, the purpose of accounting is to bridge the earnings and expenditures of the business.

Accounting is a detailed process of recording all the business financial records and transactions to make a company's profitable decisions. As an owner of a small business, you are solely responsible for making decisions. Any choices you make, there are some considerations related to finances.

For example, "how this decision will add value to my business," "can I afford this decision financially," and more. We can understand that even if you know the basic accounting for small businesses, you still take some time to put your thoughts on the accounting into action.

Let us dig deeper into small business accounting and how it functions in the remaining part of the article.

What is Small Business Accounting?

The ideal definition of small business accounting would be the accounting process generally any small scaled organization follows. Small business accounting involves keeping track of all the money that flows in and out of your business accounts and summarizing the data into financial statements. These statements should be analyzed periodically to improve the business.

Small business accounting is a process of gathering money, credit and debt-related information, posting transactions, and finally producing financial statements. An ideal bookkeeping and accounting services for small businesses allow you to run your business smoothly. Most organizations rely on various small business accounting apps for accounting.

Be it manual or automated, the purpose of small business accounting is the same. But, like any other organization, they also need to generate profit. Accounting programs for small business play a pivotal role in this regard.

Small business accounting keeps track of all business transactions, losses, and gain and reports the financial result to all stakeholders. Managing small business accounting may sound like a challenging thing to be done. But, in reality, if you can monitor your small business accounting, you will be able to make better decisions for the ultimate business growth.

 Now let us look into how to do small business accounting in a better way. 

How to Do Small Business Accounting?

Open a Business Account

Always have a dedicated bank account to separate your business transactions from your finances. This business account will help you organize your revenue system and help you to plan for the tax filing system smoothly at the end of the year. 

Record Income and Expenditure

Make sure to keep track of each income and expenditure. In this way, you can lay a strong foundation for your small business bookkeeping. The primary document will help you monitor all sorts of deductions, prepare financial statements and track the growth of your business.

An important question that must be coming to your mind is what kind of expenses you are allowed to add in this section? The answer will be that a small business owner can only add costs directly related to the business. So, for example, you should add invoice details, purchase orders, and other documents strictly related to your business.

Select the Accounting Method

If you look at the success story of any small business, you will find out one thing in common. They all have selected the accounting method from the nascent stage of their companies. Try to choose a method of accounting before creating a bookkeeping method for your business. This small business bookkeeping is essential to zero in on the small business accounting method.

There are two primary methods of recording accounting transactions: accrual basis of accounting and cash-based accounting. Record your income and expenditure only after receiving the payment or paying for something through cash. This is called the cash basis accounting system.

We are now coming to the alternative method of accounting, which is the accrual method of accounting. Well, this method includes double-entry of every recorded transaction. Let us help you to simplify this process.

Suppose you plan to record a transaction under the credit section without any cash transaction associated with this process. As we mentioned earlier, double entry for every transaction means you record expenditures and income when you experience the same. Whether there is cash exchanged or not, you need to enter the trade.

Build a Strong Bookkeeping System

The word bookkeeping holds immense importance in the world of finance management. Bookkeeping errors can lead your business to failure! This small business bookkeeping allows a small business owner to track the day-to-day activity of recording business transactions. 

This bookkeeping system offers a wholesome knowledge of making intelligent business decisions by making more profit. Does this sound too difficult for you from a small business owner's perspective? If you look around and find out how many small businesses have appointed a dedicated accountant or bookkeeper- the number will be less! Thanks to digitalization, any small business owner can afford an all-in-one software to keep track of accounting.

So, keeping track of the account payable and account receivable has become manageable for any small business owner. However, when a company grows and gets bigger, it will be necessary to invest in an enterprise resource planning (ERP) system.

Reconcile and Close your Books

This step almost marks the closure of the small business accounting cycle. Once you are done with all your transactional entries, you can reset the balances of temporary accounts back to zero and restart the accounting cycle. So, ideally, any business owner performs this reconciliation and closure of books at the end of the year.

There is a thumb rule to perform these two processes- at first, make sure that your income and expenditure accounts are settled or closed. Once you are done with this, you can only capture the transactions of upcoming periods.

Again, these ideas are merely an introduction to performing small business accounting. We know you have stumbled upon it while learning about terms like reconcile, book closing, etc. In the next part, we will guide you to grasp the basic accounting terminology to sail through in the world of small business accounting.

Basic Accounting Terms

Being a small business owner is all about donning multiple hats together simultaneously. There are many days when you will multitask. Some of these tasks are even brand new to you. As a small business owner, you need to manage everything systematically. 

Some of you may run your organization on a tight budget, so appointing a skilled resource who can help you get the difficult work done can be fancy!

We often hear business owners share their experiences in small business accounting. However, it seems a bit complicated to them as most of them do not have a strong background in accounting. In that case, learning the basic accounting for small businesses can help you manage the accounting game. According to a report published by Statista, the craze of having a dedicated accountant for an organization was there in the USA till 2018.

Here is the list of the basic accounting terms that every small business owner should know

• Debit

  Debit in accounting stands for decrease in liability and increase in assets on a company’s balance sheet.

• Credit

  Credit means when a borrower receives a sum of money with interest.

• Accounts Receivable

  Accounts Receivable is the balance of money earned by a firm for goods or services delivered.

• Accounts Payable

  Accounts Payable is the amount due to vendors or suppliers for goods or services received by a firm but not paid.

• Assets

  Asset is a resource with monetary value that an organization owns in the expectation that it will provide some benefit in future.

• Capital

  Capital stands for the cash in hand that an organization can spend as required.

• Margin

  An investor has to deposit a particular amount with their broker, which is called margin.

• Liability

  A liability is something that is owned by someone else not by a person or a firm.

• Depreciation

  Depreciation is the decrease in book value of a particular asset.

• Fixed Expenses

  Fixed expense is a type of expense whose total value will not change even after the book value gets changed.

These basic terminologies will help you get a hold of small business accounting. Thanks to the invention of AI, most organizations are now deploying accounting automation software as per their need and affordability.

Suppose you can easily afford software that can handle your accounting-related problems. In that case, you must be thinking, why do you even bother to learn about these accounting terms? If you fail to pay heed to the basic accounting terms, you will not be able to use accounting software comfortably on your own. 

This is one of the golden tips to success in small business accounting from our side. Now, let us explore other tips to succeed in small business accounting.

Small Business Accounting Tips for Success

There is no shortcut to success. However, there is no harm in finding shortcut steps to achieve success in less time. Accounting for small business owners is not a cakewalk, especially when they have started their journey. Sometimes, they can spot mistakes in the transactional entry and find themselves in a complete mess managing the balance sheet properly.

Many small business owners recalled their early day's struggle with small business accounting. Some of them shared how much they struggled to make a balance between the account payable and account receivable. 

These real-life stories give us a sense of difficulty. But does that mean other entrepreneurs cannot get success in accounting for small businesses?

The majority of the small business owners did not have much idea about the perfect way to do small business accounting. They learned about the accounting programs for small businesses over the period while working. 

This is not rocket science. All you need is a little bit of patience and eagerness to enhance your skill sets. Small business accounting should not be a massive thing for entrepreneurs.

First-time entrepreneurs think that this accounting can get on their nerves. But, in reality, if you try to create a checklist for the bookkeeping and accounting services for small businesses, things will be easy. We have listed below a handful of tips that will allow you to get your small business accounting done smoothly. 

• Application of Automation

Accounting automation is artificial intelligence taking the manual tasks of an accountant and making the accounting process entirely automated. There are a few regular works of accountants that can be automated like reporting, filing, and data entry. If these time-consuming and monotonous tasks of accountants can be automated, they can easily pay attention to the strategy, analysis, and human interaction for better collaboration.

• Use Accounting Software

There is a plethora of accounting software available in the market. Any small business owner would like to invest in futuristic solutions rather than doing things manually. This software is easy-to-use and time-saving. 

You can easily set up your preferred accounting automation software in a way that it syncs with your business account automatically. It will help you to track expenses.

• Track Inventory Reports

Make sure to keep track of your inventory. The more organized you are, the more vigilant you can be to prevent stolen or lost merchandise. Inventory tracking is a big part of the success of your business. 

Most accounting programs for small businesses have inventory management tools. Your financial professional can help you to set up the inventory management tools within your accounting automation software.  

• Hire a Professional Accountant

Hiring a professional and dedicated accountant may not be possible for small business owners initially. In that case, you need to hire a public accountant to help you out on a monthly or hourly basis. It depends upon your bookkeeping and accounting services for small businesses related needs. 

A professional accountant can help you to understand the most complex features of accounting. It will ensure you streamline your small business accounting-related and business development-related needs.

 The Evolution of Small Business Accounting

Like any other vertical, accounting is transforming drastically. Be it big organizations or small businesses- everyone embraces the change. However, when it comes to small businesses, they are the ones who are always up for going by trends. This is because the majority of the companies rely on small business accounting apps to get their daily accounting jobs done.

Accountancy has come a long way from maintaining all transactions details in bulky files to deploying all-in-one accounting software. Gone are those days when accountants used to present monthly or quarterly statements to their clients. Then, business owners or clients had to consult with them to understand the bookkeeping and accounting of the business.

 A typical discussion revolved around whether that particular business is capable of applying for a new loan. Sometimes, the client used to take advice from CPAs on how smoothly they could get rid of the existing loans. It was all about debit, credit, assets, liabilities, ledger books, and journal management.

In the past, clients used to pay attention to questions like, "how to increase profit,"? "how to increase the sales," "what is cash flow" and "is the business going on the right track"? These questions rarely got addressed through financial statements or ledger balance records. 

The major drawback of the old-era financial information was the level of complicacy. Clients often used to book an appointment with their accountants to understand the financial statement.

Just imagine, if a small business owner is not sure about the basic accounting for small business- how will they analyze the strengths and weaknesses of the venture? Small business accounting aims to create a positive impact on business operations. In the early time, the pace of business growth was slow compared to the modern era.

Thanks to digitalization for paving the way for automation in accounting for the ultimate business growth. Here's how small business owners can use automation in their accounting activities.

Automation in Small Business Accounting

Automation is the most discussed topic of the century. No matter in which field you are in, you must have heard about the multiple benefits of automation. Small business accounting is also one of the sectors where automation does wonder.

 Automation has the potential to make the accounting process faster, more efficient, and better transform the entire business process. The application of automation in accounting for small business owners can be considered more like an evolution. Accounting automation offers more accurate and in-depth accounting for small businesses.

Finance teams can realize their full potential and be able to make better decisions with the help of automation. They can get rid of all repetitive and slow-paced tasks with many free accounting apps for small businesses. Automation makes our life simple. Let us see how small business accounting gets benefited from automation

 Time-Saving

There is no doubt that the implementation of automation saves a lot of time. Primarily, you will have more time than you can utilize for some other quality work rather than working on

the same task again and again. If you can use accounting software properly, then the need for reconciliation will be nil. The main chunk of data that would be reviewed has already been checked and copied.

Better Output

A small business owner can focus more on business decision-making with the help of automation in small business accounting. They can enjoy more time as so many redundant tasks of accounting will be taken care of by the accounting automation software deployed by them.

Quick Data Recovery

Present-era small business owners can consider themselves lucky as they do not need to run to finding out a particular file just to check a data. Thanks to the technical advancement,you can now recover a particular data in a minute. Automation in small

Business accounting aims to organize, store and name documents in a way that anybody can find them. 

 Real-time Integration

There are plenty of free accounting apps for a small business to automate your

small business accounting. The more you can

automate your business operations, the better you can focus on business

plan. This is apt for a small business accounting system so that you can

invest this time in some other productive accomplishments.

Professional Advancements

Always remember, any job that involves a lot of repetitive work associated with it has the potential to be automated. Accounting is also included in this list. This shift does not mean

that machines have all capabilities to do all work. So, you can

easily understand that seasoned accountants will be there to manage the accounting automation software. 

Select Best Accounting Automation Software

The word “accounting automation software” is doing the rounds in the world of accounting. Every small business owner should try their hands-on small business accounting apps. The secret to running a successful small business is to leverage automation by integrating multiple business functions under a single umbrella. Small business accounting is the best segment to automate.

Small business owners need such accounting programs for small businesses that allow them to finish their daily accounting tasks. It includes recording payments, sending invoices to customers, reconciling transactions, and tracking expenses.  The ideal small business accounting software should help you to analyze the financial health of your business.

Here are the primary factors to consider while selecting the best accounting automation software

Selecting the best accounting software for your small business seems challenging initially. Every free accounting app for small businesses includes a different set of features, unique functionality, and other lucrative aspects. 

 We are here to simplify your search process. Always remember three primary factors in your mind while settling down for the best accounting software

• Features

What do you want your small business accounting software to do? What kind of accounting reports do you need to generate regularly? Do you need accounts receivable and accounts payable tools both at the same time? 

 Do you need to track the inventory? How about opting for services like payroll management, project management, etc.?

• Usability

As a small business owner, would you like to have cloud-based software or desktop software will suffice? Do you want an application-based small business accounting service? How many users will access that particular software simultaneously?

• Cost

How much would you like to invest in a small business accounting software? Is it going to be a basic one or that one where all modern features are available to manage your small business accounting seamlessly? 

Now you have narrowed down your choices to a few options after knowing the tricks of selecting the best accounting automation software. This is the time to sign up for free trials to explore all features. This process will help you to understand and select the accounting software that saves your time. It serves all your small business accounting related purposes.  

Wrapping Up

Small business accounting is not about how well and swiftly you can get your basics of small business accounting done. You won’t believe the moment you thought you had done your bookkeeping and accounting services for small businesses. Your job of overall analysis will begin from there. 

Accounting is the backbone of any business. The same thing goes with small business accounting as well. It is the ultimate game-changer for any business. 

 Your sales and marketing teams will not be able to collaborate if the small business accounting does not function properly. The constant cash flow matters a lot for any organization to sustain itself. 

If you have made it this far, we hope you have gathered a good amount of basic knowledge to start your small business accounting independently. Let us know how you have found this article insightful and share your thoughts on small business accounting.