Small Business Accounting:
Your Complete Guide
As a business owner, you don’t need to know the in’s and out’s of accounting. But you do need to know the purpose it serves and when your business could benefit from it. Accounting teams are responsible for interpreting, classifying, analyzing, and reporting on financial information in order to do everything from building budgets and advising investors to filing tax returns and identifying new avenues of growth.
Many new entrepreneurs make the mistake of letting accounting operations fall to the wayside. And hey, we get it: We are entrepreneurs, too, and we are very familiar with the feeling of “so much to do, so little time.”
That’s why outsourcing this work can help. Having a small business accounting service in place means you can see where your money is, how it’s being spent, and how it could be used more efficiently. It also ensures that you’re using the best method (cash vs. accrual accounting) for your specific business. And, finally, it keeps your investors happy along with your customer base.
Bookkeeping vs. Accounting
Bookkeeping vs. accounting: Are they one in the same?
When it comes to small business accounting, it’s a common misconception that bookkeeping and accounting are interchangeable, but in reality, they serve quite different purposes. Bookkeeping is solely responsible for the recording of financial transactions, while accounting involves interpreting and analyzing that data. Deciding whether you need a bookkeeper or an accountant depends on a few factors. Here are some things to consider:
Understanding Bookkeeping vs. Accounting
Typically, bookkeepers record financial transactions on a daily basis and will log everything from bill payments to reimbursement receipts. Ultimately, their goal is to keep your books up-to-date and dutifully organized.
Conversely, accountants handle bookkeeping and then some. They will complete the same tasks as a bookkeeper, and will additionally advise on best practices for setting up your books, generating budgets, creating reports, and more — all with the end goal of helping you make better, more informed business decisions.
Which service will satisfy my business’s needs?
The growth stage and needs of your small business will determine whether you need a bookkeeper vs. an accountant. Early on, you may not need or have the budget for all of the services that an accountant would provide. Therefore, a bookkeeper would suffice to start. As your business expands and financial needs change, however, you may need a more comprehensive approach to managing your books, which is where an accountant comes into play.
That’s another benefit of outsourcing this function (rather than hiring a full-time staff member). With Acuity, you only pay for the services and the hours that you need. Then, as your business grows, we can grow with you and provide more advanced services.
CFO vs. CPA
Speaking of more advanced services, here’s another small business accounting question we get asked frequently: Do I need a CFO or a CPA? This breakdown will help:
A chief financial officer is responsible for managing all financial-related actions and decisions within an organization.
A certified public accountant is a more experienced accountant that is certified through a CPA exam and handles all accounting functions for a business.
Manage and implement long-term financial strategies, build forecasts and financial plans, treasury and controllership duties, and more.
Manage and auditing financial records, representing your business in front of tax authorities, oversee audits, prepare tax forms, and more.
Bachelor’s degree and/or MBA
Accounting degree and CPA certification
A CPA, or certified public accountant, is responsible for all accounting functions, from managing and auditing your financial records to representing you or your business in front of tax authorities. CPAs are essentially accountants with more experience, education, and expertise. They must be certified through the CPA Exam, and they must meet continuing education requirements to maintain their licenses.
The role of a CFO is more leadership-oriented, as he or she will focus on managing and implementing a longer-term financial strategy for your business. CFOs will build forecasts and manage your financial plans; they will maximize profitability while also maintaining the relationships with your lenders, investors, and shareholders.
While these roles are important for business growth, many small businesses can’t afford or don’t need a full-time CPA or CFO. That’s where we come in. Talk to us to learn more about what a fractional role would look like.
At a Glance
Bookkeeping services keep you organized.
Tax services keep you compliant.
Accounting services help you take a strategic look at the past.
CFO services help you take a strategic look at the future.
Small Business Accounting Tips
If you’re new to the world of small business accounting, getting your finances in order can feel a little overwhelming. Once you learn a few industry terms and the tricks of the trade, you’ll be well on your way to a brighter financial future.
Tip #1: Get to Know These 10 Accounting Terms
- Asset – Anything the company owns that has monetary value. These are listed in order of liquidity, from cash (the most liquid) to land (least liquid).
- Balance Sheet – A financial statement that reports on all of a company’s assets, liabilities, and equity.
- Cash Flow – The inflow and outflow of cash in a business.
- Credit – An increase in a liability or equity account, or a decrease in an asset or expense account.
- Debit – An increase in an asset or expense account, or a decrease in a liability or equity account.
- Depreciation – The loss of value in an asset over time.
- Equity – The value left over after liabilities have been removed; the portion of the company that is owned by the investors and owners.
- Income Statement – A financial statement that shows the revenues, expenses, and profits over a given time period. Also referred to as a Profit and Loss or P&L.
- Inventory – The term used to classify the assets that a company has purchased to sell to its customers that remain unsold.
- Liability – All debts that a company has yet to pay, including accounts payable, payroll, and loans.
Tip #2: Open a Separate Bank Account for Your Business
If you’re using your personal bank account for business transactions, stop. This is one of the biggest mistakes we see and ways that business owners can get themselves into a real mess. It’s imperative to open a dedicated business-only account. Doing so will not only help you stay organized and track your expenses, but will protect you legally while safeguarding your identity.
Tip #3: Save Your Bookkeeping Records
Play it safe and hold onto your records for longer than you think necessary — up to seven years, in fact. While the IRS requires companies to keep business tax returns for a minimum of three years, the agency can still come after your business six and even seven years later.
Tip #4: Learn About Automation in Accounting
Forbes expects that by 2020, accounting tasks — in addition to tax, payroll, audits, and banking — will be fully automated using A.I.-based technologies. They predict that these technologies will be the most significant disruption in the accounting industry in 500 years, bringing both huge opportunities and serious challenges.
Tip #5: Use These Accounting Tools
From software to accounting apps that help you keep track of your expenses, familiarizing yourself with these six accounting tools can help you get organized.
Tip #6: General Payroll Tips to Keep Handy
Did you know that 27 percent of small business owners spend more than five hours per month on payroll? Use these payroll tips to stay on top of payments while saving time.
Common Small Business Accounting Problems
We’ve been serving small businesses for years, so we know the most common challenges, questions, and frustrations that business owners have. Here’s a list of top small business accounting problems and our recommendations for how to solve them. Bottom line…when it comes to inconsistent information that occurs when you don’t regularly check your accounting records, the miscategorization of data (such as expenses and inventory), or late or forgotten invoices…sometimes it’s just easier to pass this off to a team who can take these frustrations off your hands. We are happy to help if you feel like you’re at this point.
Hiring an Accountant vs. In-House Accounting
We’ve touched on this a little bit throughout, but if you’re still trying to decide whether to hire an outsourced accountant or keep your accounting in-house, here’s some more info to consider.
Many businesses opt to keep their accounting in-house, as there are several benefits to having an accountant on staff. For one, an in-house accountant might know your business and its policies a little better, and therefore may be more attuned to company culture.
On the other hand, having both a bookkeeper and accountant on staff can be expensive when you consider yearly salaries and benefit packages. Often — and this is especially true for small businesses where employees wear many hats — bookkeepers and accountants might have responsibilities outside of their titles such as managing the office, assisting executives, HR, and the like. This can lead to unintentional neglect of accounting duties, especially when it comes to financial reporting which can often get pushed further down the list of priorities.
Hiring an accounting service has its benefits, too. Outsourcing can help reduce the risk of fraud and, when working with a reputable company, you can rest assured that your dedicated team members are experts in their field. An outside accounting service is hired for one job and one job only: to manage your finances accurately and effectively.
Small Business Accounting by Industry
The general rules of accounting can apply to almost every industry; however, there are aspects of certain fields that require special considerations. At Acuity, we tailor our approach based on the needs of not only your business, but also of the industry you serve. Here are a few of the industries that we cater to, and how our accounting methods might differ between them.
At Acuity, we specialize in…
SaaS/Tech Companies | Agencies + Creatives | 501 C (6) Organizations | Blockchain & Crypto
From keeping track of daily expenditures to formulating budgets and financial projections, small business accounting is a big deal. Consider these key takeaways to set your company up for financial success both now and in the future.
KEY TAKEAWAY 1
KEY TAKEAWAY 2
KEY TAKEAWAY 3
Accounting can help keep day-to-day operations running smoothly, but it can also help you plan for the future and achieve your financial goals. While other aspects of running a small business might take priority, in the long run accounting will set you up for success when it comes to budgeting, reporting, tax season, and beyond.
Accounting is essentially the next step up from bookkeeping. As your business grows, you’ll require guidance in regards to the best practices for managing your books, generating budgets, and creating reports. An accountant will do all this and more, with the end goal of helping you make better, more informed business decisions.
If you’re looking to hire an outside accountant or accounting service, look for a firm that can grow and evolve with your business. It’s also vital that they understand the industry you’re in and that they’re familiar with the best platforms, apps, software, and technology that will best suit your needs.
When it comes to satisfying your accounting requirements, opting for the right service provider is instrumental in your success. With a company like Acuity, you can rest easy knowing that our experts are up-to-date on the latest accounting methods, platforms, and technologies. Sign on with us today to get a FREE Xero or QuickBooks license, or get in touch if you need help figuring out which service your business needs.