Accounting Tips for Small Businesses

Authored by:

f586031d2147153cc30bbe39db35da5630bdb821

Co-Founder

11+ years of business consulting experience. Co-founder at a Tax and Accounting Firm. Masters Degree from the University of Maryland.

Reviewed by:

ef035f3c52fd01d47f5099c0960431e603e3085f

President

Alissa Gildark

10+ years of tax and accounting experience. President at a Tax and Accounting Firm. CFO at a defense manufacturing company. Enrolled Agent credentialed with the IRS.

Published on Oct 21, 2024.

Struggling to understand your company’s financial complexities? Many businesses are, but you don’t have to! We can help mitigate these struggles at Gildark Financial Solutions Group. For starters, we have compiled a list of questions that many business owners have. With our guidance, you can understand why you should outsource your business’s bookkeeping and accounting needs, as well as learn about some other tips and tricks to streamline your books and brighten your financial future.

This Accounting Tips for Small Businesses article serves as a starting point for all businesses looking to learn more about their financials. What this article covers:

When Should a Small Business Consider Outsourcing Bookkeeping?
Frequently Asked Questions (FAQs) about Small Business Accounting
Accounting Tips for Small Businesses

When Should a Small Business Consider Outsourcing Bookkeeping?

Small businesses may consider outsourcing their bookkeeping for a plethora of different reasons. As an owner, it is impossible to do everything yourself. As your company grows, so will your revenue and your ability to hire experts in their field to alleviate pain points. You will begin to identify which things you want to continue to do while outsourcing others to free up more time to focus on building your business. The most common reasons a business will outsource its bookkeeping are when:

Time Management Becomes Difficult: Managing the books and categorizing transactions can be very time-consuming which detracts from your day-to-day business efforts. Outsourcing these tedious tasks can free up valuable time every day which means extra days every month, and extra weeks every year that you get back.
Day-to-Day Complexity Increases: As your business grows, so does the complexity of your financial transactions. Outsourcing ensures your books are handled by experts who can manage the increasing complexities with accuracy and the foresight to make decisions while accounting for tax implications.
Errors are made frequently: If you notice errors in your finances and/or are struggling to maintain records, it might be time to consult a professional.
Cash Flow is an Issue: Difficulty managing cash flow can be a sign that your bookkeeping needs additional expertise. Outsourcing can help manage finances better and provide additional insights into financial health. There’s no shame in asking for help!
There is a Need for Expertise: Bookkeeping professionals stay up-to-date on tax laws, accounting standards, and technological integrations If you lack expertise in any of these areas, outsourcing is the best way to ensure your business remains compliant and efficient.
An Influx of Business Occurs: During busy periods, outsourcing allows flexibility by providing extra bookkeeping support when needed without the long-term commitment of hiring full-time staff. This can occur seasonally or as a one-time necessity.

Frequently Asked Questions (FAQs) about Small Business Accounting

What’s the difference between accounting and bookkeeping?
- Bookkeeping is the process of categorizing and recording transactions all of the financial transactions of a business on a recurring and frequent basis. This includes logging sales, purchases, payments, and receipts. Accounting, on the other hand, involves summarizing, analyzing, and reporting these financial transactions. Accounting includes tasks like preparing financial statements (income statements and balance sheets), tax filings, and providing insights into the overall financial health of the business. While bookkeeping focuses on maintaining accurate records, accounting provides a more strategic perspective to help business owners make informed decisions.
Why is accounting important for my small business?
- Proper accounting practices are essential for understanding the financial health and standing of your business, and are the beating heart of your company. Accounting allows you to track your revenue and expenses, ensure profitability, manage cash flow, and plan for growth. Accounting ensures that your business complies with tax regulations and provides accurate data to file your taxes. It also helps when seeking financing or investors, as well-maintained financial records show potential lenders or investors that your business is in good standing and being managed professionally.
How often should I update my books?
- It’s important to update your books regularly—ideally on a monthly basis at a minimum. This helps ensure that you don’t fall behind on tracking your financial activities and can quickly address any discrepancies or issues. Regularly scheduled updates also make it easier to identify cash flow problems, reconcile bank statements, and prepare for tax season. Delaying these tasks can lead to errors, missed payments, or tax penalties.
Can I handle my accounting myself, or should I hire an accountant?
- Many small business owners start by managing their bookkeeping and accounting using bookkeeping software like QuickBooks or Xero. However, as your business grows and your finances become more complex, it can be beneficial to hire an accountant. Accountants bring expertise in tax law, financial planning, and compliance which means saving you time and minimizing costly mistakes. Additionally, an accountant can help you strategize for growth, offering advice on tax-saving opportunities, investment strategies, and cash flow management.
What accounting software should I use?
- There are several accounting software options available, each with its strengths. Popular options include:
  - QuickBooks: A versatile platform for small businesses with features such as invoicing, expense tracking, and financial reporting. Suitable for businesses of all sizes. Quickbooks Online is an accounting software that allows for cloud-based accounting.
  - Xero: A cloud-based software popular for its user-friendly interface and strong integration with other business apps. Ideal for small businesses looking for a streamlined approach.
  - FreshBooks: Designed for service-based businesses, FreshBooks offers invoicing, time tracking, and simple financial management tools.
  - Wave: A free accounting software suitable for freelancers and very small businesses with basic accounting needs.
- The best choice depends on your business size, budget, and accounting needs. Consulting with an accountant can help you choose the right platform for your business.
Do I need to worry about taxes year-round?
- Yes, taxes are not just a year-end concern. Staying on top of tax obligations throughout the year is crucial for avoiding surprises during tax season. This means tracking income and expenditures, paying estimated quarterly taxes (if applicable), and staying informed about potential tax credits and tax deductions. By keeping your books updated and understanding your tax liabilities, you can reduce stress and avoid penalties or interest on late tax payments (including sales tax).
What are the benefits of outsourcing accounting for my small business?
- Outsourcing your accounting to a professional firm or accountant has several benefits:
  - Expertise: Access to seasoned professionals who understand tax laws, regulations, and best practices.
  - Time Savings: By outsourcing, you free up valuable time to focus on growing your business instead of dealing with bookkeeping and accounting tasks.
  - Accuracy and Compliance: Professionals ensure that your financial records are accurate and compliant with regulations, minimizing the risk of errors or fines.
  - Cost Efficiency: Outsourcing can be more cost-effective than hiring a full-time in-house accountant, particularly for small businesses.
  - Strategic Advice: Accountants can provide valuable insights and advice on tax planning, business strategy, and financial management.
Why is keeping detailed financial records important for small business owners?
- Detailed financial records provide a clear view of your business’s financial health and are critical for making informed business decisions. Accurate records help you:
  - Track Performance: By keeping track of income, expenses, and cash flow, you can monitor your business’s profitability and identify potential areas for improvement.
  - Tax Preparation and Compliance: Detailed records ensure that you’re reporting the correct figures when filing taxes, helping you avoid penalties, audits, and potential fines.
  - Budgeting and Forecasting: Proper financial records enable you to create more accurate budgets and forecasts for future business planning.
  - Access to Financing: Lenders or investors often require detailed financial documentation when evaluating a business for loans or investments. Good records demonstrate financial stability and responsibility.
How can saving receipts benefit small business owners?
- Saving receipts is crucial for maintaining accurate financial records and maximizing tax deductions. Receipts provide evidence of business-related expenses, which is important for:
  - Claiming Deductions: Many expenses are tax-deductible, such as travel, meals, office supplies, and equipment. Saving receipts helps you claim all eligible deductions, reducing your taxable income.
  - Supporting Tax Returns: In the event of an audit, the IRS will request documentation to support the deductions you’ve claimed. Organized receipts serve as proof of your business expenses.
  - Expense Tracking: Receipts help you categorize and track expenses accurately, which is important for budgeting and cash flow management.
What role does understanding taxes play in small business accounting?
- A solid understanding of taxes is essential for small business owners to manage their tax obligations, avoid penalties, and make strategic decisions. This includes:
  - Filing Requirements: Knowing which taxes your business is required to pay (e.g., income tax, self-employment tax, payroll tax) and when payments are due.
  - Tax Deductions: Understanding which expenses are deductible helps reduce your taxable income and save money.
  - Estimated Tax Payments: If your business is required to make quarterly estimated tax payments, understanding how to calculate and submit them is critical for avoiding penalties.
  - Tax Planning: Knowledge of tax strategies can help you minimize your tax liabilities and optimize cash flow throughout the year.
What is the importance of understanding financial concepts for small business owners?
- A basic understanding of financial concepts like profit margins, cash flow, and balance sheets helps small business owners:
  - Make Informed Decisions: Knowing how to interpret financial statements allows you to make better decisions about pricing, spending, and investment opportunities.
  - Manage Cash Flow: Understanding cash flow helps you anticipate potential shortfalls and ensure there’s enough working capital to cover operating expenses.
  - Set Realistic Goals: Financial literacy allows you to set realistic financial goals and measure progress toward those goals over time.
  - Communicate with Financial Professionals: By understanding the basics of accounting and finance, you can communicate more effectively with your accountant, financial advisor, or investors.