What is small business accounting?
Business accounting is the process of gathering and analyzing financial information on business activity, recording transactions, and producing financial statements.
Ever feel like your business finances are too time-consuming? Pulling your focus from the things you love about running your company. You're not alone. However, understanding the basics of small business accounting can help you find growth or money-saving opportunities for your business.
Many small business owners manage their own accounting to save money. If you’re in the same boat, you must have a firm grasp of business accounting basics. Let’s look at the importance of proper bookkeeping and key tips for managing your accounting:
7. Reconcile your business bank account
11. Prepare and review financials
12. Review and pay quarterly payroll taxes
13. Review long overdue receivables
14. Take stock of your inventory
15. Fill out and file IRS forms
Business accounting is important for a variety of reasons, and knowing business accounting basics can make it easier to make forecasts, generate invoices, complete payroll, and file taxes:
While accounting may not be what motivates you to go to work every day, it’s likely something you’ll encounter whether you do it yourself or outsource to an accounting firm. There are weekly, monthly, quarterly, and annual accounting tasks you need to complete to ensure your business’s success.
Let’s look at the key tips for small business accounting and how often you should do them:
1. Record transactions
How often: Weekly
You’ll want to gather and record all your transactions, usually weekly, but you can do this daily or bi-weekly, depending on your volume. This includes recording revenue such as product sales and expenses like purchasing supplies.
Although recording transactions manually or in a digital spreadsheet is acceptable, it’s easier to use small business accounting software like QuickBooks, which can integrate seamlessly with your bank account.
2. Document and file receipts
How often: Weekly
After recording transactions, you’ll want to keep copies of your invoices and all receipts. While tossing receipts in a box might seem tempting, it leads to chaos at tax time.
Unless you have a very small volume of transactions, it’s better to organize separate files for assorted receipts weekly or as they come in. Most accounting software lets you scan paper receipts and avoid physical files altogether.
3. Pay vendors
How often: Weekly
You should have records or folders for each vendor that include billing dates, amounts due, and payment due dates. If vendors offer discounts for early payment, you may want to take advantage.
Track your accounts payable and keep enough funds to pay your suppliers on time to avoid late fees. Whether you make payments online or drop a check in the mail, keep copies of invoices sent and received using accounting software to make things easier during tax time.
4. Prepare and send invoices
How often: Weekly
You’ll want to do invoicing weekly in most cases, although some businesses may invoice monthly or as they make credit sales. Either way, be sure to include payment terms.
Most invoices are due within 30 days, noted as "Net 30" at the bottom of your invoice. Without a due date, you will have more trouble forecasting monthly revenue.
5. Process payroll
How often: Weekly
If you have employees, you likely need to run payroll weekly, but your pay period may also fall into a different category, such as bi-weekly or semi-monthly. You’ll want to process payroll on your set dates and research your payroll tax requirements, which can differ for each business.
You’ll need to handle payroll withholdings and then report and deposit the payroll taxes, like Social Security, to the appropriate agencies on the required dates. A payroll service provider can do all this to save you time and ensure accuracy at a reasonable cost.
6. Review cash flow
How often: Weekly
Cash flow management is critical and includes forecasting how much cash you will need in the coming weeks and months. It will help you reserve enough money to pay bills, employees, and suppliers. Plus, you can make more informed business decisions about how to spend your cash.
This can be as simple as a statement showing your current cash position, expected upcoming cash receipts, and expected cash payments for this period.
7. Reconcile your business bank account
How often: Monthly
Just as you may reconcile your personal checking account, you need to know that your cash business transaction entries are accurate and that you are working with the correct cash position.
Business bank reconciliation makes it easier to discover and correct errors or omissions—either by you or the bank—in time to correct them.
8. Review past due invoices
How often: Monthly
You can use an accounts receivable aging report for a quick view of outstanding customer payments. The beginning of the month is a good time to send overdue reminder statements to customers, clients, and anyone else who owes you money.
At the end of your fiscal year, you will look at this account again to determine what receivables you will need to send to collections or write off for a deduction.
9. Check your inventory
How often: Monthly
If you’re managing inventory, set aside time to reorder products that sell quickly and identify others that are moving slowly and may have to be marked down or written off.
If you check regularly (and compare to prior months’ numbers), it’s easier to make adjustments, so you are neither short nor overloaded.
10. Pay sales tax obligations
How often: Monthly
If your business needs to charge and collect sales tax for the products you sell, you’ll likely need to make monthly payments to the appropriate state department.
11. Prepare and review financials
How often: Quarterly
Putting together your financial statements and reviewing them allows you to evaluate how much money you’re making—the difference between revenues and expenses—and how you spend profits. While you’re at it, you’ll be able to identify trouble spots and make adjustments to improve your business.
12. Review and pay quarterly payroll taxes
How often: Monthly and quarterly
Note that you’ll need to pay some payroll taxes, such as FICA taxes, to the IRS monthly or sem-weekly, depending on the amount you withhold. However, filing the FICA return (Form 941) is due quarterly. However, for FUTA taxes, deposits are typically due quarterly, and you’ll file your FUTA return (Form 940) annually.
Note that you may need to make quarterly estimated tax payments if you expect to owe $1,000 or more when filing your annual tax return.
If you’re still feeling uncertain, don’t be afraid to speak with a professional bookkeeping service about securing their help.
13. Review long overdue receivables
How often: Annually
Now it’s time to check significant past due invoices and decide whether you think customers will eventually pay, whether to send past due bills to a collection agency, or whether to write them off for a deduction.
14. Take stock of your inventory
How often: Annually
Do an inventory analysis to determine the value of items not sold. If you have to sell inventory for a deep discount, you could deduct it from your year-end taxes.
15. Fill out and file IRS forms
How often: Annually
One of the last things you’ll do after closing out your books for the year is file forms with the IRS. If you have employees, you’ll need to send them and the IRS W-2 forms.
Also, if you pay independent contractors $600 or more during the year, you’ll need to send each one a 1099-NEC form, as well as copies to the IRS. The deadline for sending these forms to employees and contractors is January 31.
16. File tax returns
How often: Annually
Finally, you’ll need to file your annual tax returns for yourself and your business. For example, you’ll use your personal tax return, Form 1040, to report business income and expenses on Schedule C if you’re a sole proprietor.
Streamline your accounting and save time
While you may be an expert at marketing or operations, don’t underestimate the importance of small business accounting. Without a clear financial picture, it can be difficult to move your business forward.
Accounting software like QuickBooks Online can help you generate financial reports, manage taxes, and handle other small business accounting tasks. This kind of software can make your life as a business owner much easier.
QuickBooks Online Payroll & Contractor Payments: Money movement services are provided by Intuit Payments Inc., licensed as a Money Transmitter by the New York State Department of Financial Services, subject to eligibility criteria, credit, and application approval. For more information about Intuit Payments Inc.’s money transmission licenses, please visit https://www.intuit.com/legal/licenses/payment-licenses/
Small business accounting FAQ
Marshall Hargrave is a financial writer with nearly two decades of experience in finance, investing, and tax industries. He’s helped create and edit content for the likes of Investopedia, RobinHood, Fortune, and Yahoo! Finance. He’s also supported startups and small businesses with accounting, bookkeeping, and budgeting and worked with various finance organizations like the Consumer Bankers Association and the National Venture Capital Association. Marshall is a former Securities & Exchange Commission-registered investment adviser with a bachelor's degree in finance from Appalachian State University.