Managing Your Finances

12 Ways to Simplify Accounting in Your Small Business

Regardless of what kind of small business you own or plan to start you need to stay on top of your accounting. Failing to do so can and will result in unnecessary issues and obstacles down the road that could potentially slow down or even halt your business growth.

Managing your accounting means you have to keep track of your business expenses, monitor and evaluate financial reports, and collect payments from your customers.

As a small business owner, you will be faced with countless responsibilities and tasks, so alleviate some of the stress with these ways to simplify accounting.

1. Track and Sort All Business Expenses

Tracking business expenses isn’t rocket science. It’s about staying consistent—and that’s where most small business owners fall behind. Even if you have good intentions, it’s very easy to misplace paper receipts or forget to record them.

“Keeping track of paper receipts can be overwhelming, but with technology, we are able to take a picture of each receipt and automatically record it. Once you get in the habit of immediately archiving the receipt you will never miss one,” says David Finn of David Finn, P.C.

The key is to simplify the process of capturing and organizing receipts. It’s much easier to adopt a habit that’s easy rather than one that’s complex.

Use a tool for tracking expenses that allows you to:

• Take a picture of paper receipts and safely store them in the cloud
• Capture receipt details as expenses
• Easily categorize expenses
• Connect your business bank accounts and credit cards to automatically track digital expenses

Developing a streamlined system for recording and categorizing business expenses means more accurate financial reports year-round and less stress at tax time. It makes your accountant’s job easier, too, which could mean fewer billable hours.

One last tip: Don’t mix your personal and business expenses.

2. Operate From a Separate Business Bank Account

You should never mix personal and business expenses, even if you are a freelancer or independent contractor. It’s a nightmare for filing taxes and leaves you personally at risk for problems with your business.

The easiest way to keep personal expenses out of your business bookkeeping (and vice versa) is to open a business bank account. You might also consider a business line of credit.

Keep every business-related expense separate and then routinely reconcile the account, which helps to ensure your bank statements and accounting match up.

“The easiest way to avoid issues is to reconcile your business bank account at the end of each business day. It takes just a few minutes and helps avoid accounting mistakes. The longer you wait, the higher the probability of an error surfacing,” suggests Henry Ijams of AvidXchange.

The longer you put off reconciling your account, the harder it will be to find the conflicting transaction. If done daily, it can take less than 5 minutes.

3. Be 100% Sure of Your Tax Obligations

It’s very important that you form your small business correctly, as your taxes will be affected differently depending on how your business is structured. Many entrepreneurs assume that an LLC (limited liability company) is the way to go, but depending on their business, it might not always be the most advantageous tax option.

“It’s an absolute necessity to consult with an attorney and tax professional when initially setting up your business entity. If you can’t afford to do that, then you can’t afford to start a business,” says David Baddeley, CEO of Finance.co.uk.

Pre-business formation expenses are something you don’t want to skimp on. Think of it as an initial investment in the security and longevity of your business.

4. Create an Accurate Invoicing System

Having a system in place to keep all of your accounting organized is key, and the more organized you are, the fewer headaches you will have down the line. In today’s technology-driven era, choosing the right business accounting software is very important, and the first step in creating a reliable invoicing process.

“There are a lot of options on the market, so it’s important that you go with an option that not only has all of the features and integrations you currently need but also has the ability to scale with your growth,” suggests Stephen Young of Blinds Direct.

It can be costly and time-consuming to transfer all your financial data to a new platform. While professional-looking invoices are important, the features that support your business as it grows are equally important to consider.

5. Collect Applicable Taxes

This is pretty straightforward for local small businesses that collect payment in person, at the point of sale, but it can get tricky for service-based businesses that accept credit cards to collect payments from clients all over the country and the world.

“Most platforms now make it easy for small business owners to collect the appropriate sales tax based on the customer’s location. For service-based small businesses, the applicable taxes must be added to invoices and tracked accordingly,” advises Tim Haider, CEO of Aesthetic Brand Marketing.

Not all invoicing solutions offer seamless taxation, so be sure to consider that. If you manage your accounting on the cloud, adding tax to an invoice is a simple process. It’s a good idea, however, to consult with your accountant to determine the proper tax to collect for various clients, depending on their location.

6. Set Up an All-in-One Payment Solution

Limiting your payment options can simplify accounting considerably. When you accept cash, checks, PayPal, credit cards, etc., you need to track and reconcile each one. This makes an all-in-one option convenient.

“If you can capture all of your payments through one gateway, it makes accounting much easier. For example, with Stripe, you can accept all major credit and debit cards, and also checks, via ACH payments. When all of your deposits are coming from one source it makes it much easier to stay on top of things,” explains Noam Sadovnik, founder of CLINICUBE.

7. Maintain Current P&L Statements

Two of the most important small business metrics are profit and loss.

But if you are only paying attention to your P&L (a.k.a. income statement) quarterly, then you could be in for a rude awakening. Instead, look at your P&L report weekly.

“Small businesses experience surges and dips in sales all the time, and while some things like seasonal sales can be prepared for in advance, there are many factors that are out of the business owner’s control.

Keeping an up-to-date P&L statement allows you to quickly get a snapshot of the overall health of your business at any time,” says Roxana Zaman, co-founder and COO of Maple.

Your P&L statement should include revenue, cost of goods sold, gross margin, operating expenses, other income and expenses, and net profit. These are all numbers you need to know at all times.

8. Always Be Increasing Your Gross Margins

“Many small business owners focus on expenses and revenue when doing their accounting, losing track of what can really help to improve their growth and bottom line, which is increased gross margins. Managing the books for a business needs to also focus on increasing profits,” says Marton Sugar, CEO of Pub Crawl Budapest.

One of the most overlooked aspects of accounting is COGS (cost of goods sold). COGS can apply to both physical products and services, though for the latter, it’s often called cost of sales.

You should always be working to lower your COGS to increase your gross profit margin, while also seeking out strategies to increase your income.

9. Always Look for Ways to Improve Cash Flow

Part of your accounting process should include optimizing your cash flow. Improving cash flow is important for every business, from large corporations to solopreneur freelancers.

“Little things like sending your invoices in a timely manner or adjusting your payment terms can help your business collect revenue faster, which can greatly benefit the operational side of your business,” advises Zulay Suarez of Scottish Trust Deed.

If you have slow-pay clients, consider giving them a shorter time gap for payments, such as going from 30 days to 15 days. This can help close that previous payment gap and help bring cash into the business faster.

10. Create a Seamless Payroll System

Payroll is something that seems simple on the surface, but in reality, is a very complicated component of business ownership.

“You really have 2 options when it comes to payroll. You can either use software and handle it in-house or hire a company to handle everything from calculating the correct withholdings and taxes to making the direct deposits to your employee’s bank accounts,” says Robert Hamparyan of Hamparyan Injury Lawyers.

For a complete understanding, this payroll guide tells you everything you need to know.

11. Use Secure and Compliant Accounting Software

Integrating your invoicing, expenses, payments, and reporting all in one place using accounting software saves you time and headaches, period. Not to mention automated features that keep you organized and compliant.

But, when you use a third-party tool for your accounting, you need to be sure they keep your data safe and secure.

“Make sure that the data you are sending to your accounting software is protected with 256-bit SSL encryption and the servers on which the software resides are constantly scanned for vulnerabilities,” advises Adam Boalt, CEO of PassportRenewal.com.

12. Triple-Check All Records to Ensure Accuracy

If you just file away all of your expenses and reporting month after month and then just hand it off to your accountant, issues can pop up.

“I suggest keeping your files as organized as possible, and reviewing all expenses each month several times before filing them away, even if you are storing it all in the cloud,” explains Ben Larcey, co-founder of StoreKit.

Triple-checking all of your financial records will ensure you are handing off accurate numbers to your accountant every time. A little extra time spent triple-checking can prevent wasted time in the future.

Hate Bookkeeping? Simplify Accounting

Tracking business expense receipts and understanding tax requirements probably isn’t why you got into business for yourself. But following these tips to simplify accounting can make it so much easier.

Even if you have an accountant, managing a portion of your financial workflow day-to-day sets you up for success with accurate financial statements and insights to make critical business decisions.

This is your business, so it’s critical that you know where it stands. Spending the time to establish a smooth accounting system now can help you avoid accounting mishaps down the line, which can cost you.

This post was updated in August 2023.