Small Business Accounting Basics
Accounting is at the top of the list when it comes to essential tasks that business owners avoid. Why? Maybe because it's scary. Maybe because it isn't as fun as other business tasks (for most people :p). Maybe because they are concerned they will do it wrong. I am not going to give you even close to all of the answers today for solving your accounting questions and I am not an expert or a CPA, but I AM going to provide 3 basic tips for new small businesses that are deciding how to manage their numbers accurately and effectively on a regular basis:
1. Know the difference between accounting and bookkeeping.
When starting out, many business owners wonder if they need an accountant or bookkeeper. And while some of you may already know the difference, I find that many of my clients do not. And that’s okay! Let’s break it down here.
A Certified Public Accountant (CPA) is a licensed accounting professional who has met a number of requirements and passed the rigorous Unified CPA examination. My opinion is that every business owner should hire a CPA to support their business. Why? Because they make sure your books are accurate, they file taxes on behalf of your business, AND they provide essential advice about your business and offer specific recommendations that ultimately ensure you are running your business legally, effectively, and profitably ($$$!). They are a key advisor to you and your business.
Now, to bookkeeping. A bookkeeper is not a CPA but generally has an extensive amount of accounting and record-keeping knowledge. They are responsible for managing your books on a day-to-day basis. They keep track of and properly categorize income, operating expenses, accounts receivable, accounts payable, payroll, and every other transaction that comes in or goes out of the business. They will also work with your CPA and provide them all of the documents that the CPA needs to do their job and support you at tax time.
2. Determine whether or not to hire a bookkeeper.
While I believe a CPA is essential for any small business, there are many businesses out there that are capable of doing their own bookkeeping rather than hiring or outsourcing a bookkeeper. Some reasons you might do your own bookkeeping include:
Your business is small (few transactions per day/week)
You don’t have any employees or only a few
You are tech-savvy and numbers-savvy
You have studied accounting/bookkeeping
Some reasons you might want to outsource bookkeeping include:
Your business is growing larger (many transactions per day/week)
You have many employees
You struggle with numbers and technology
You’d rather spend your time on other business tasks
Ultimately time is money. If you are able to do your own bookkeeping without it taking up serious amounts of time that you could be spending on the business itself, then by all means save yourself the expense of a bookkeeper and do it yourself! However, if bookkeeping is going to steal numerous hours from your day and/or it is a constant struggle, then it’s worth the money (and the reduced stress) to hire the bookkeeper. If you decide to go that route, just do your research - look at the various bookkeepers in the area, check out their reviews, and compare costs. Then go with the best fit for your business.
3. Use the best software.
If you are a business that still does bookkeeping through written records or via Excel, it is time to upgrade to a bookkeeping/accounting software and connect it to your bank account! In today's world there are plenty of software programs out there that are extremely intuitive and easy to use.
I always recommend Quickbooks Online to my clients, whether you are doing your own bookkeeping or outsourcing. Quickbooks Online is user friendly, plus ALL bookkeepers and accountants (CPAs) will have significant experience using it. One of my favorite aspects of Quickbooks is the app that you can download directly onto your phone. As a business owner, you wear MANY hats so every free moment you have is valuable. The app allows you to login and categorize transactions that have come through from your bank account easily while you are standing in line, watching tv, or out and about. Check it out for yourself: https://quickbooks.intuit.com/online/
Accounting seems scary to many small business owners, but I promise it is not as difficult as it seems! As always, feel free to reach out to me with any specific questions or thoughts!