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A Guide To Small Business Accounting

Small business accounting plays a vital role in achieving a successful business. It helps you keep track of assets, income, liabilities, and cash flow, which helps you make smarter business decisions and improve your business performance. Unfortunately, accounting may not be your favourite task unless you’re an accountant or love working with numbers. But adopting good accounting habits is key to avoiding costly errors that often lead to business failure. This post outlines the seven best small business accounting tips to help prevent cash flow problems. But before that, let’s first look at what small business accounting entails and why it’s important.

What is small business accounting?

Small business accounting keeps track of the money flowing in and out of your business accounts, including sales, purchases, expenses, and liabilities. It involves the process of recording, tracking, and analysing your business’s financial transactions. It helps determine the profitability of your business. And while business accounting it’s a huge topic, it essentially boils down to the following for small businesses:

  • Bookkeeping: recording and reporting your business’s financial information
  • Filing tax returns
  • Creating financial reports

Small business accounting helps you gauge the value and health of your business and make better decisions for your business’s success.

Benefits of small business accounting

We get it; your life as a small business owner is mostly jam-packed with various business activities, and the last thing you feel you probably need is accounting. However, bookkeeping is among the most important aspects of your business’s success. Here are a few benefits you get from small business accounting:

  • It improves the decision-making process

As mentioned above, financial accounting plays a vital role in your business, allowing you to keep track of your business’s financial transactions. This helps you make informed decisions that are key to your business’s survival. For instance, business accounting can help you identify problems in your cash flow, allowing you to make an informed decision about the way forward. For example, if there are cash flow snafus due to the price, you may decide to revise the prices of the products to boost sales. Business accounting also helps investors make investment decisions, and lenders assess your business’s liquidity, solvency, and creditworthiness.

  • It promotes budgeting and planning in business

Budgeting and planning are among the most important aspects of a business. They provide you with enhanced clarity and focus, a greater ability to make continuous improvements, and provides you with targets that will help your business grow. They align your business goals with your spending. For instance, a budget will help you separate the essential and optional resources in a business to avoid spending your money on unnecessary things. Even better, a well-thought-out budget can help you raise venture capital or acquire funding as it gives investors a clear picture of your spending needs

  • It enhances business performance

Financial reporting and analysis play a vital role in the growth and success of a business. It allows you to examine how your business is performing and if your goals and objectives align with your long- and short-term growth strategies. Here are a few uses of a financial report of a business:

  • It provides you with your business’s credit and investment information
  • It contains the required information about your cash flows
  • It provides you with clear information about your business’s liquidity and solvency
  • It provides information about your profits and losses

The bottom line is business accounting helps you understand your business’s financial position, which is key to its survival.

Tips for small business accounting

As a new business owner, it’s possible to get away with manual processes initially. But things can get messy as your business grows and takes on more clients and workers. When such happens, small business accounting comes in handy to help you plan and organise your cash flows and create a successful business. And the best thing is that you don’t need to be a maths expert to get started with business accounting. Here are seven tips to help you organise and manage your business finances:

1.      Separate your finances

First on our list of the best small business accounting tips is separating your business finances from your personal finances. Trust me, the last thing you want is to waste your time going through your transactions to identify which money belongs to you or the business. This also applies to freelancers or self-employed individuals. Having separate bank and credit card accounts for your business eliminates all the personal transactions from your business accounts, making it easy to reconcile the accounts. Plus, having separate bank accounts for your business offers several other advantages, including:

  • It makes it easier to keep track of your business expenses to take advantage of tax deductions
  • It provides you with personal liability protection by keeping funds from your personal money
  • It provides you with the option of a line of credit that your business can use to cover cash gaps.

Having checking accounts, savings accounts, merchant services accounts, and credit card accounts allows your business to accept customer credit and debit card payments.

2.      Invest in accounting software or an accountant

Accounting is the organised process of tracking, recording, and analysing your business’s income and expenses. It’s a vital financial management component that ensures you have the information you need to make informed business decisions. However, accounting and bookkeeping aren’t a skill that most business owners have. Hiring a person dedicated to the task is often a wise investment. An accountant makes life easier for you, from loan applications to forecasting, tax audits, and VAT registration. Here are several reasons why you should hire an accountant:

  • Accountants can maintain accurate records, allowing you to track cash flow and get insights into your business. This helps you assess your business performance and make sound decisions.
  • Accountants can help keep your book in order, which makes it easier to get a line of credit
  • With an accountant, you’ll spend less time on accounting, giving you more time to build and grow your business.

You can get accounting software if you can’t afford an accountant or outsourced accounting services. And the best thing about the software is that you don’t need to be tech-savvy to use them. Most have a shallow learning process, and anyone wishing to handle the software can do so easily. Here are a few things the software can help you with:

  • Generating financial reports
  • Simplifying payroll and providing accurate data
  • Minimising paperwork, saving time and money
  • Simplifying tax compliance
  • Promote better decision-making through accurate reports.
  • Generating invoices quickly

3.      Keep your records neat

Try as much as possible to keep your paperwork records in good shape. When tax deadlines are fast approaching, most business owners often find themselves rushing to file their returns. Neat records mean that you use less time to locate your tax documents.

4.      Keep your books updated

Having well-organised accounting books is key to your business’s success. It makes planning and financial forecasting for your firm easy. It also provides you with valuable insights about your business. Here are a few reasons why you should keep your books up-to-date:

  • Updated books help you stick to your budget
  • They keep you aware and prepared for emergencies
  • They give you clear and realistic financial projections
  • They make it easy to comply with the law
  • They help avoid errors and mistakes.

You can invest in software or an accountant to keep the books updated.

5.      Generate monthly reports

Monthly reports are key to staying on top of your business finances and avoiding emergencies. The reports should contain the balance sheet and your profit-and-loss statement, as a minimum. These reports will help you better understand how your business is run and where you stand financially.

6.      Keep track of your business expenses

Business expenses are the funds you spend in your efforts to generate income or revenue. They include employee salaries, rent, business travel, transport, education, and entertainment costs. Tracking your expenses helps you better understand your business’s spending, which is key in planning and decision-making. For instance, to cut labour costs, you could outsource cheap labour from contractors. The nature of your small business may not need someone working 40 hours/week to accomplish a task.

7.      Work on business tax

Business tax is one of many small business owners’ nightmares. The busy nature of their day-to-day business makes it hard to find time to go through the books and file tax returns. To be safe, always ensure you file your tax returns on time and report to HMRC if you miss the deadlines. Also, attend the HMRC workshop to learn a few things about business taxing. Such a workshop will also help determine your taxable income.

The bottom line

Research shows that poor cash flow management or understanding of the cash flow is the number one reason most small businesses fail worldwide. Yes, accounting can be a tedious aspect of running a business, but it’s vital to avoid piles of paperwork and cash flow issues. This post discusses the seven best small business accounting tips. Good luck as you use it to promote your business growth through accounting and bookkeeping.



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