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Accounting for Small Business

Updated on January 23, 2012

Accounting and small business

Effective accounting is one of the factors separating moderately successful businesses from strong enterprises with growth potential. The challenge for small business people and sole proprietors is to set up and maintain an accounting system that is easy to use, doesn't get in the way of normal operations, but gets the job done. These considerations are all the more important since you may be doing most or all of the accounting work yourself.

Here we will consider three major components of small business accounting: (1) setting up an accounting system, (2) executing and using the system, and (3) adjusting the accounting system as time goes on.

1. Setting up an accounting system

Accounting for our purposes includes both the routine work of bookkeeping and the very non-routine job of analysis and strategizing for your business' financial wellbeing. A few major points to remember when setting up your accounting system:

  • Choose a software program that you work well with, or can learn easily, and that you will stick with. Don't make the mistake of getting a "must-have" bookkeeping product that doesn't fit with your schedule or is too difficult to use. Quickbooks and Quicken are two of the most popular. For many small businesses, Microsoft Excel can suffice just fine as well.
  • Gathering and organizing data: getting comprehensive and relevant data into the system frequently is key. Your data will primarily include all revenue and expenses, and may include tangible or intangible assets and receivables and payables, depending on how your business works.
  • Setting up a schedule for updating your books and performing your analysis. Most small businesses should need no more than a few hours at the end of each week to update the books, and then some additional time to analyze the numbers and make some decisions. The key here is consistency and creating a system you can keep up with.

2. Using the accounting system

The accounting system is only useful if it's continually fed with information and analysis. Make sure to stick to whatever schedule you have established for your system. It should be easy to use and you should be able to find the data you need quickly. You should be able to see a good amount of information at a glance to get an overview of how things are going. Reminding yourself of your short term and long term financial goals will help to maintain the system.

3. Changing the accounting system over time

Inevitably, new challenges will arise in small business. Just like every other aspect of business, your accounting system may need updates or adjustments to accommodate new circumstances. Some things to keep in mind include:

  • How growth, new products and increasing complexity may affect the way your accounting system works.
  • Training new workers in the system, and dealing with issues of trust and confidentiality around sensitive information.
  • Improving the system and making it more precise as your business grows, perhaps by incorporating new tools or software.
  • Your options for hiring a professional accountant or bookkeeper. This can free up a lot of your time to devote to other business activities.
  • Storing and backing up all information as time goes by.

Accounting and its importance in small business

You want a system that enables you to quickly and efficiently collect data on your business, organize it into a useful format, and use it to make decisions. It is a task that is often seen as boring or tedious by small business people, but it doesn't have to be. You are allowed to cut corners and simplify things if your resources and time are limited. But it is still worth the effort, and the small time investment, to setup and maintain a system that is relevant to you and your goals.

An abbreviated accounting system is better than none at all. Even a simplified system will enable you to see things about your business you may never have realized without it.

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    • secularist10 profile imageAUTHOR

      secularist10 

      6 years ago from New York City

      You bet. I've seen clients that lurch from one month to the next unaware of what's happening with their finances, regularly scrambling to pay their bills. They might be profitable on net at the end of the year but that poor cash flow management really takes its toll over time--on their business and their sanity!

    • MyOfficeBooks profile image

      MyOfficeBooks 

      6 years ago from Brisbane

      secularist10 - The main issue I find with small business is they have no idea what "cash flow" is. They see money in their account and then spend it. They fail to take the time to budget or research what their "break even" point actually is. It is also a challenge to work "in" your business, as well as "on" your business... I like how you ended your article with saying that an abbreviated process is better than none at all! Hear, Hear to that!

    • secularist10 profile imageAUTHOR

      secularist10 

      6 years ago from New York City

      Thanks, glad you liked it. If a small business owner can afford a professional bookkeeper, then by all means, they should get one. But if not, they're going to have to it themselves. It can be tough when getting started, but it should get easier as time goes on.

    • MyOfficeBooks profile image

      MyOfficeBooks 

      6 years ago from Brisbane

      Some fantastic tips in this article. I feel Austinstar's comments are echoed by many others. Why not employ a bookkeeper to do this for you if you are a small business? Then you don't have find the time or be organised :-)

    • secularist10 profile imageAUTHOR

      secularist10 

      6 years ago from New York City

      I hear you, Austinstar. It's all about baby steps.

    • Austinstar profile image

      Lela 

      6 years ago from Somewhere near the center of Texas

      Now if I can only get organized enough to do this!

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