Top 12 Bookkeeping Best Practices for Achieving Business Success

The accounting and bookkeeping for small business can assist you in keeping accurate records and create basic financial statements. Historically described as “paper pushers” who track financial information, today’s accountants need to learn about big data and data analytics as part of their continuing education. Not long ago, an accountant’s work finished when business financial statements were finalized and tax forms were ready to be filed with federal, state, and local governing bodies. Bookkeepers, as well as accountants, can be on staff full-time, part-time, or hired freelance as independent contractors.

• A separate bank account and airtight bookkeeping helps your lawyers protect you in court.
• Besides keeping you cognizant about your business’ past and present performance, small business accounting also helps in generating invoices and completing payroll.
• Remember, the best accounting solution is the one you’ll consistently use.
• A comprehensive accounting manual sample answers many accounting questions, so you don’t waste time reinventing the wheel.
• Federal insurance contributions consist of the social security and Medicare taxes you withhold from your employees’ pay and match with your own contributions.

Our experts love this top pick, which features a 0% intro APR until 2024, an insane cash back rate of up to 5%, and all somehow for no annual fee. GnuCash is a single-user system, so you won’t be able to network the product to accommodate additional users. But if you plan on being the only user, you can download this small business accounting application anytime at no cost. You can skip this step if you’re not planning on hiring any employees. However, even if you’re only hiring an occasional contractor, you should have your payroll system set up.

Using Financial Information and Accounting

If you’re using accounting software, the accounting cycle is automated, reducing the number of steps drastically. Common accounting programs for small businesses include QuickBooks, Xero, and FreshBooks. Each platform offers powerful features for small business owners, including bookkeeping tools, point-of-sale functions, and mobile apps. A chart of accounts lists all business transaction and is used to compile statements, review progress and locate transactions. These charts have to be updated often to include various business transactions.

Below are four common methods that will help you get started. Each of these records should be kept for a specific length of time—some for 10 years, some for as few as three. You can learn more about record retention periods in our guide to small business recordkeeping.

Small Business Accounting 101: How To Set Up and Manage Your Books

We’ve put together this guide to help you understand the basics of small business bookkeeping. Is it because your business model slowly changed and now you no longer have a margin? Or is it because your business model is great, but you had a one-time cost you’ll never have to worry about again? This sort of review is huge for seeing the big picture, especially when you’re sniffing out trends year-to-year. But as useful as this is for your internal purposes, it’s also important for your external reporting. You probably owe a few different government entities taxes on a quarterly basis.

• A business can sign up for email reminders, or even import reminders into Outlook.
• When you receive the dreaded “no” from a potential investor, it doesn’t mean that the door is forever closed.
• To set this up, you will need to open a merchant account with your bank, which acts as an intermediary between your customer’s card account and your business account.
• Some people do this themselves by hand or through spreadsheets, which might seem like the cheapest option at first glance.

Consider incorporating late payment fees or penalties into your business contracts as an additional incentive to get paid on time. When payroll is then run for your company, it is automatically posted inside QuickBooks, pulling in allocated information from what’s on the timesheet. We set it up to code time at the economic unit, the customer or job level, so you can generate true profitability reporting by tagging each job. Adjustments are recorded as journal entries where necessary.

A Process for Kicking Off Your Small Business Accounting

The method makes it easy to determine when a transaction has occurred and there is no need to track receivables or payables. It recognizes revenues when cash is received, and expenses when they are paid. This method does not recognize accounts receivable or accounts payable. In some cases, small business owners may prefer hiring sole practitioners or accounting services firms that specialize in small businesses.

Each petty cash expense should have a receipt or a note about it. Hearst Newspapers participates in various affiliate marketing programs, which means we may get paid commissions on editorially chosen products purchased through our links to retailer sites.

Overview: What is small business accounting?

Get a sense for your own hourly rate, then ask yourself if your time is more valuable spent elsewhere, like closing deals. This thought exercise leads some people to delegate their bookkeeping to a professional who can do this cheaper, faster, and better. But handing this over to a specialist might help you get your books right the first time, and liberate you to play to your strengths. If you do hand this over to someone else, you’ll want to put a few checks and balances into place. Your accountant can give you a list of safeguarding procedures to implement such as having an approval process for all outgoing funds, checks and credit card payments.

• Not recording all of them is a big mistake that may come back to haunt you, especially at tax time.
• Small business owners take on a range of responsibilities that are handled by specialized departments in larger companies.
• At the end of the accounting period, the accountant must prepare the adjusting entries to update the accounts that are summarized in the financial statements.
• Financial statements summarize transactions into reports that show how the business is doing.
• Planning Meeting – Meet with a professional accountant and gain an understanding of all the forms you need to file, which entities you’re filing with, and when those forms are due.
• And it will be easier to work with a bookkeeper and an accountant, as well as any potential investors who come knocking when it’s time for you to sell.