Oct 30, 2020

7 Tactics to Simplify Your Small Business Accounting

Accounting is one of the main barriers to entry for would-be entrepreneurs. Many small business owners have fantastic ideas and feasible business plans but struggle with managing their finances as the business grows. 

If this sounds familiar, there’s good news: you can develop a small business with a simplified accounting system that’s accurate and easy to maintain. Don’t get intimidated by complex bookkeeping—follow these 7 tips to develop a system you can actually use.

1. Keep Your Business and Personal Expenses Separate

If you operate as a freelancer or sole proprietor, consider filling to become a limited liability company (LLC). With an LLC, your personal assets are protected if a client or vendor tries to sue you. One of the requirements of an LLC is that you must keep your personal and professional expenses separate. Even if you don’t operate as an LLC, separating your personal and business expenses is a good habit.

Make sure your personal charges don’t get mixed in with your business expenses—otherwise, you’ll spend more time sorting your books and risk human errors or missed expenses. Separating these expenses will also save you—or your accountant—a lot of headaches when tax season arrives.

2. Look for Ways to Streamline Your Invoices

What does your desk look like? Is it littered with copies of invoices, undeposited checks, and notes to bill certain clients? If so, you need an invoice management tool. 

With a digital system, you can easily create invoices and record payments automatically. You can also set up a process for paying invoices and recording the expenses under different categories. 

Paying invoices on time is essential to working with vendors and maintaining your credit. You also need your clients to pay you quickly to ensure a steady cash flow. The more you can automate this process, the more on top of payments you can become.  

3. Categorize Your Expenses and Revenue Streams

If you’ve ever used a personal finance app like Mint, you know that you need to filter different expenses into categories to determine how much you spend on different things. The same concept applies to your business: when you track expenses, sort them into different sections like equipment, materials, marketing, utilities, payroll, taxes, and other/miscellaneous expenses. You might also create additional categories and subcategories depending on your business. 

When an accountant looks at your books, they should be able to understand where all of your money goes (and where it comes from) in order to help you to improve your profit margin

4. Centralize Your Payment Systems

As you grow your vendors, be sure to pay them from a single source. This habit will make balancing your accounts easier and can help you to keep track of your budget. If you’re sending payments via PayPal, writing checks, and using multiple credit cards, your cash flow tracking can get muddled. However, if every expense hits the same account through the same payment method (like through a business checking account), you can clearly see what you owe and who has been paid. 

5. Balance Your Books Frequently

Accounting often seems like a complex process because many business owners procrastinate until the tasks build up to impossible levels. Instead of waiting until the end of each month to balance your books, process your receipts, and follow up on invoices, set aside time each week to handle these tasks. 

You only need an hour to make sure everything is recorded and in good working order. For busier companies, you may benefit from spending 20 minutes each day recording your finances—that way, they’re always in order. 

6. Hire a Professional Accountant

One of the easiest ways to simplify your accounting process: have someone else do it for you. Consider working with an accountant during tax season to ensure that you file correctly and get the most out of your tax return. These professionals understand the different deductions you qualify for and can help you to save hundreds—if not thousands—of dollars. 

Some accountants also specialize in helping small businesses get up and running. They can create the infrastructure you need and train you on inputting invoices and tracking expenses. This way, you don’t have to develop your own systems for financial tracking. 

7. Use a System That Handles Bookkeeping for You

Many small business owners begin keeping their books on basic spreadsheets to organize their businesses. They don’t think that they’re large enough or run complex enough operations to warrant an accounting service. However, this method means that you must figure out your accounting from scratch and ensure the information across multiple sheets is accurate and aligned. 

Instead of this stressful option, consider using a bookkeeping service right from the beginning. You can use existing templates for greater organization and enjoy auto-generated reports that provide key snapshots of your business. 

A tool like Sunrise is affordable for small businesses and can give you the tools you need. Give us a shot and take control of your accounting early on—this way, you’ll know what you’re doing as you grow.

About the author

Derek Miller
Derek Miller
Derek Miller is a writer specializing in entrepreneurship, small business, and digital marketing. His work has featured in sites like Entrepreneur, GoDaddy, Score.org, and StartupCamp. He’s currently the CMO of Smack Apparel, the content guru at Great.com, and a marketing consultant for small businesses.

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Bookkeeping for your small business.

Simplify your bookkeeping and save money