Set Up a Simple Accounting System to Maximize Your
Finances and Make Better Decisions

Good accounting and financial management are at the heart of any successful business. When you can understand how much money is coming into and going out of your company, you can make better decisions about cash flow, profit margins, budgeting and much more.

The problem is, to many business owners, accounting can seem like a complete mystery. With terms like accounts receivable, reconciliation, depreciation, balance sheets and more, it’s no wonder you might find the whole idea daunting.

Don’t worry — we’ve got you covered. Here, we’ll explain the basics of small business accounting, and tell you what you can do to keep things simple, stay on top of your finances and make the most of your money.

The Basics of Business Accounting

At its simplest, business accounting is simply managing the money that comes into, goes out of and stays within your business. There are several methods for managing accounts, but below we’ll explain one of the simplest. The essential parts of an accounting system are:

Invoicing and Money Due to Your Business

Also known as “accounts receivable.” This is how you take money into your business: by sending out invoices, selling goods and services or otherwise collecting payments from your customers.

Expenses and Bills You Need to Pay

Also known as “accounts payable.” This is how you spend money from your business: by paying bills and expenses for goods or services you receive from suppliers, vendors and others.

Account Reconciliation Against Bank Accounts

This is a check you should perform on a regular basis. It involves going through all of your business bank, credit card and other accounts and checking that all transactions are recorded in your accounting system and vice versa.

Account Reporting for Financial Management

This is how you keep track of the money you currently have on hand, your assets and your liabilities. These reports can include cash flow statements, profit and loss reports, balance sheets and more.

Together, these four areas form the basis of any small business accounting system. Let’s look at how they work in practice.

How You Would Use Your Business Accounting System

  • You perform a service or sell a product to a client: You would add an invoice in your accounting system and send it to your client for payment. It gets entered into your accounts receivable.
  • You order goods or expect to pay a bill: You enter the amount into your accounts payable and then pay the bill when it comes due.
  • You reconcile your bank and other accounts: On a regular basis, you go through your bank statements and accounting system and make sure all the transactions match up.
  • You keep track of your money: You look at your account reports on a regular basis to make sure you’re staying on top of cash flow and profit margins, and that you have enough money to meet all your commitments.

It can be just that simple, but there are other elements you can add to create an even more robust management system.

Other Parts of an Accounting System

There are plenty of applications out there that can help with your business accounting — we’ll have more on the most popular software below. Many of these services have extra functions to assist you with aspects that include:

  • Estimates: Create estimates and send them out to customers. When they accept the work, turn the estimate into an invoice.
  • Projects: Track time and tasks that you’re doing for clients. This is especially useful for freelancers, as you can enter your hourly rates and add any time entries to your invoices.
  • Payments: Manage payments of invoices through your accounting program by giving clients online payment options.
  • Reminders: Get and send reminders for bill and invoice payments.
  • Reconciliation guesses: Import bank statements into your accounting system and automatically match them up with entries.
  • Customer tracking: Track clients together with bills and invoices.
  • Snapshot: Get an up-to-date view of your finances.

How Often Should You Update Your Accounts?

Here’s how often you should update your accounting and finances:

Accounts Receivable Tasks

Create an invoice and add it to your accounts receivable whenever you do billable work or sell something to a client. Seriously, you never want to forget to ask for money you've earned! You don’t need to send the invoice right away, but always make sure you add invoice items as you do work.

Accounts Payable Tasks

Create an entry for accounts payable (like a bill due) whenever you order something you need to pay for, or you receive a bill or other demand for payment. Just like invoicing, you need to stay on top of any money going out of your business.

Account Reconciliation Tasks

You should reconcile your accounts at least once a month, or more often if you have lots of transactions. Not staying on top of reconciling your accounts is a great way to lose your sanity!

Account Reporting Tasks

It’s helpful to look at your account reports every couple of weeks so you can make sure you’re on top of everything.

     

Get Help With Your Business Accounts

Of course, you don’t need to do your business accounts alone. Here’s where you can get some help.

Small Business Accounting Software

There are plenty of online software applications that can make small business accounting much easier. Some of the more popular accounting software solutions are FreshBooks, FreeAgent, Zoho Books, QuickBooks Online, Xero, Wave and ZipBooks.

They all have free trial periods, so you can try them out and see which is right for you. Most of this software functions similarly; once you understand how one accounting application works, you should be able to pick up another application fairly quickly.

   
Online Bookkeeping Services

Bookkeeping is a part of accounting and helps you to manage the transactional side of your accounts. Bookkeepers focus on accounts payable, accounts receivable and especially reconciliation. You can easily hire an online bookkeeper, which will often be much less expensive than a fully-qualified accountant or CPA.

Note that even if you hire a bookkeeper, we still recommend having an accountant do a final check of your accounts and help you understand, manage and file your taxes. You can find bookkeepers at Upwork, Fiverr, People Per Hour, Freelancer and other online platforms.

   
Online Accounting Services

Accountants do more than bookkeepers. In addition to bookkeeping tasks, they can also provide financial advice, help you understand and file your taxes and dig into the details of your business. They are generally more expensive to hire than bookkeepers, although using bookkeepers and accounting software can make their jobs easier and lower their fees. Find accountants at Upwork, Fiverr, People Per Hour, Freelancer and other online platforms.

Use a Local Accountant or Bookkeeper

Some business owners prefer to deal with their accounts face to face. Fortunately, there are likely to be plenty of accounting firms within a few miles of where you live. Give them a call and find out how they charge for their services, then shortlist them and choose an accountant who meets your needs.

There you have it: Small business accounting isn’t as daunting as you once thought! Take it step-by-step, get a good accounting system in place, find a professional to help you out and you'll be on top of your business finances in no time.

There you have it: Small business accounting isn’t as daunting as you once thought! Take it step-by-step, get a good accounting system in place, find a professional to help you out and you’ll be on top of your business finances in no time.
 
 

Read More about Business Finance

Top 5 Best Banks for Small Business

A bit of research into the best banks for small business could wind up saving you significant money — for instance, nearly half of small business owners reportedly pay unnecessary monthly fees. So consider these options as you determine which bank best suits your small business.

Understanding Overdraft Fees for the Top 20 Small Business Banks

You should consider much more than which bank is close by or which one you’re currently using to manage personal accounts. Though there are many reasons to a select a business bank, one of the most important is understanding the bank’s overdraft fee policy.