The majority of small business owners and start-up founders are on their toes almost every day. Though several activities stake their claim on your time, accounting and bookkeeping form a significant chunk of your workload.

Whether you are documenting your monthly expenses, getting tax papers in order, or taking care of bills, organizing your accounting back-office is essential.

Cash flows are critical for business. US Bank research confirms that cash flow issues are the number one reason for the closure of almost 82% of small businesses. The failure rate of sole proprietorships is even lower, according to the same study.

What differentiates businesses that become successful from those that shut up shop? Sometimes, the difference between success and failure can be as simple as:

  • Setting clear and manageable goals
  • Making a plan of action for business visibility
  • Investing in the right tools to run the company
  • Proactively avoiding common pitfalls

In this blog, we’ve curated our top accounting and bookkeeping tips that’ll help organize your finances, prevent liquidity issues, and grow your small business. 

Accounting tips and tricks for small business owners and startups

You may get away with manual processes in the beginning. However, things can get messy as the business grows and takes on more clients or staff.

Here are some top bookkeeping tips for startups that will help you plan, organize your cash flows, and build a successful business.

Keep tabs on expenses

Overspending can be the bane of businesses. However, it is important to note that not all expenses provide the same value.

Remember that every dollar spent takes the company one step away from profit. So when you start your business, keep a close watch on all expenses. Understand the benefit gained from every expense and document it carefully.

Choose an accounting structure

Deciding which accounting structure to use for your small business is not your accountant’s prerogative alone.

Consult your accountant on which accounting method to choose from — cash-based accounting or accrual-based accounting. Here is a brief primer on both methods:

  • Cash-based accounting: In cash-based accounting, companies document revenue when money is received. They record expenses when the cash is paid. Cash-based accounting is perfect for smaller businesses and professional service firms that do not hold inventory.
  • Accrual-based accounting: In accrual accounting practice, income is reported when earned, not when cash is received. Expenses are documented when money is incurred, not actually paid. Accrual-based accounting is suitable for significantly larger and more complex businesses with inventory or shareholders and investors.

Automate manual processes

Automating routine processes is one of the golden accounting tips for startups. Many accounting and bookkeeping activities are repeated, such as:

  • Calculating mileage payments for staff reimbursements
  • Documenting utility bills in a centralized database
  • Tracking invoices sent to customers
  • Following up on late invoices
  • Paying staff salaries each month

Make your life easier by using a unified accounting project management solution to track expenses, generate custom reports, and send invoices automatically.

Categorize expenses

Tracking business expenses can make or break your business. No business owner wants to pay unnecessary taxes. To ensure that you receive the benefit of tax write-offs and deductions available to your company, keep a record of all expenses.

Start by documenting expenses, then classify them into appropriate categories such as bill payments, vendors, administration, or miscellaneous.

Keep an eye on the credit

One of the most common signs of an insolvent business is an inability to make payments on time. It may struggle with a poor credit score, lack of funding, or difficulty fulfilling its working capital needs.

When companies use bank finance to fund their daily operations, they often struggle to pay back the high-interest debt. Do adequate due diligence before taking on any external funding.

Forecast future expenses and income

When setting your financial goals, consider three distinct elements — the past, present, and future. Going full steam ahead without a financial forecast is a waste of time and money. 

An Institute of Business Forecasting and Planning study confirms that businesses can save up to $3.5 million per year with accurate financial forecasting.

Companies need to create and maintain accurate financial forecasts that keep finances in top shape. This will help answer questions such as:

  • What will our annual sales be in the next two years?
  • What will the percentage increase in customers be in the coming five years?
  • Will the company break even in the next accounting period?
  • Do we have enough staff to handle client projects for the next year?

Keep business and personal banking separate

Getting a business bank account is one of the first steps you should take as a small business owner.

Put this on your to-do list once you get a social security number as a sole proprietor or an Employer Identification Number (EIN) as a professional service firm founder.

Here are some reasons for separating personal and business banking:

  • Having clear visibility into business cash flows
  • Saving time by not scrambling through endless bank statements to identify and differentiate individual and business transactions
  • Keeping tax-related documentation clear and ready
  • Avoiding legal responsibility for business debts
Top Bookkeeping & Accounting Tips for Small Businesses 2
Photo by Kelly Sikkema on Unsplash

Know the law

Many small business owners know how to manage a business. However, they may not have sufficient knowledge about accounting and bookkeeping.

Additionally, business owners are likely to be unaware of the federal, local, and state laws and legal regulations required for business.

For example, a company must:

  • Maintain paper receipts for the last three accounting periods (accountants recommend retaining receipts for the previous seven years)
  • Provide paper receipts to legal authorities such as the Internal Revenue Service (IRS) to claim tax deductions
  • Accurately record income to avoid tax underpayments and IRS penalties

Create business budgets

Did you know that setting up and reviewing a budget is directly related to startup success? 

According to a survey by the US Small Business Administration, small businesses that review their budget weekly, monthly, and annually have success rates of 95%, 75%, and 25%, respectively.

The survey found that successful small businesses have these financial management traits in common:

  • Relatively higher unused credit balances
  • The ability to earmark appropriate amounts for payroll expenses
  • Regular budget monitoring
  • An understanding of the benefits of using credit for business

Consider paying yourself

Entrepreneurs managing S corporations and C corporations pay themselves a salary on regular business payroll. Small business owners and startup founders can do the same and consider it an owner’s draw in legal terms.

Having an apportioned salary for the business owner is an accepted business practice that helps you reinforce the business’s distinct and legal standing.

Consider a tax accountant

Investing in a professional tax accountant can bring immense value to your business, with a time commitment of a few hours per week or month.

A bookkeeper records income and expenses and categorizes them for specific periods. An accountant, meanwhile, helps file taxes and sets up the accounting backbone of the organization.

With an accountant or bookkeeper taking care of financial tasks, small business owners can spend more time attracting new customers — Fundera estimates that this could net small companies up to $320k annually. 

Invest in accounting software

Simplify business finances by automating manual workflows and processes to save precious time and resources. One of the easiest ways to do so is with accounting software that fits your business needs and budget. 

Forget the days of clunky, on-premise software. Pick from a wide variety of cloud-based accounting project management software that gets bookkeeping in order, streamlines cashflows, and helps you stay updated on finances.

Worried that you need to be tech-savvy? There are many accounting project management solutions with clean and straightforward user interfaces perfect for non-techy entrepreneurs.

Avoid business thefts and losses

A study by Hiscox found that 68% of employee theft, fraud, and losses occur in small and medium businesses. The same study reports that a small business encounters an average loss of $289K a year.

The most common occurrences were:

  • Theft of business funds by employees (34% of cases)
  • Check frauds (22% of cases)

More than 70% of check fraud cases happened in companies with less than 100 employees.

Optimizing your inventory management and automating your bookkeeping with dedicated software is essential to safeguard your small business from employee theft.

Stay on top of invoicing

Everyone likes being paid on time. As a direct fallout of COVID-19, more than 54% of businesses are struggling with delayed invoice payouts.

Late invoice payments can mean:

  • Failure to make timely payments to vendors, suppliers, and banks (for interest payments)
  • Inability to make utility payments, including water, electricity, internet, or software subscriptions
  • Struggling to pay staff salaries and travel expense reimbursements
  • Inability to expand, invest, and make capital purchases
  • Corporate insolvencies

Delayed client invoices can also make businesses too dependent on bank financing or shareholder capital funding, which can further impact their finances.

Plan for major purchases

Whenever there is a major purchase in the offing, a business will need to have adequate cash flow to meet it. Bad credit can ruin business finances.

In such a scenario, it may be difficult to obtain the necessary funding for business expansion or complete capital expenditures. Having your accounting and bookkeeping in order will help you get external funding or bank financing for major purchases.

Why use Wrike software to keep your books up to date?

Accounting and bookkeeping can be complex, time-consuming, and tedious. Establishing robust accounting practices and processes can help small businesses be more financially organized, tax-ready, and profitable in the long run.

Most accounting tips for small business owners have less to do with accounting and more to do with managing your business. Elevate business productivity by getting Wrike’s project management software for accountants that helps:

  • Teams collaborate seamlessly with automated reports for clear project visibility
  • Adjust team workloads to ensure optimum productivity
  • Improve business profitability by tracking project budgets in one place
  • Speed up expense approvals and automate manual workflows

Finance forms the core of any business. Get a free Wrike trial to establish a predictable cash flow system, eliminate the guesswork in accounting, and achieve small business success.