Follow the money: 3 options for small business accounting

Shiloh Johnson
By Shiloh Johnson

Updated July 2022

Whether you’re taking a DIY approach to your bookkeeping or looking to hire a professional accountant, having a pulse on your business finances can give you insight into the health of your operations and help you plan for the future.

When you first get your company off the ground, it’s easy to spend a lot of time fretting about mismanaging your business finances. Like many small business owners, you’re probably making do with limited resources until you show positive cash flow. But as your business grows, day-to-day tasks often take top billing — leaving tax and accounting to fade into the background. 

That is until you find yourself scrambling to figure out your numbers. In fact, just 40% of small business owners feel they are extremely or very knowledgeable about accounting and finance, and more than half are already working more than double the number of hours as traditional employees. Yeesh

You probably know that having a handle on your books is critical to keeping your business afloat. While plenty of great platforms can help you handle your revenue and expenses or manage your tax deadlines, you’ll need to decide whether to invest more time in managing your finances, hire a bookkeeper, or spring for a professional accountant. After all, cash flow is the engine that powers your business. 

It’s hard to know where you’re going if you don't know where to start. So how do you know which accounting option is right for you? Let’s look at the most common approaches to managing business finances and find a strategy to help your business succeed. 

Option #1 DIY accounting 

Financial accounting is the practice of recording, organizing, reporting, and analyzing financial data generated by transactions in your business. If you’re an entrepreneur or your business is brand new, it’s possible to keep your own books. At this stage, you may not have as many cash transactions to track, so it may not be as overwhelming to manage your business's finances. 

Doing your own bookkeeping can also give you a birdseye view of the financial standing of your business. You’ll be able to glean financial trends, review incoming and outgoing cash, and adjust or plan decisions to maintain the future of your business. Be sure to use a process that covers all of the essential components of business accounting, including:

  • Tracking revenue 
  • Recording expenses
  • Managing invoices
  • Keeping receipts 
  • Filing taxes
  • Making estimated tax payments

Fortunately, there are some intuitive solutions that can help you manage your books. You can use Quickbooks Self-EmployedFreshbooks, or Wave to guide you along the accounting process, including by tracking expenses and revenue and managing invoices. 

You’ll also want to develop a process that allows you to track tax deadlines and necessary steps to keep your business compliant with federal and state requirements. While many bookkeeping programs don’t offer a comprehensive approach to tax compliance, platforms like ComplYant can help manage your tax deadlines and budget. 

It comes down to time. If you find yourself overwhelmed with bookkeeping duties, you may want to consider outsourcing the work to a professional bookkeeper or accountant. 

Option #2- Hire a bookkeeper 

A bookkeeper is a professional who organizes and manages your financial transactions. They organize records of your income and expenses, reconcile accounts, and create financial statements. 

When your business outgrows the DIY model or is quickly scaling, it may be time to seek out professional assistance. Here are a few situations where hiring a bookkeeper may make sense:

  • If you’re in manufacturing and there are more moving parts beyond just categorization
  • If you work in construction and project-based billing needs are complex
  • If you’ve outgrown the “small business” definition and earn more than $7 million annually
  • If payroll needs have gotten more complicated
  • If you’re expanding and need the support 

In these scenarios, getting a bookkeeper makes sense as the accounting is more nuanced, and having a professional can help keep your books organized. A bookkeeper can take off some of the administrative burden, such as preparing 1099s, doing payroll, and keeping track of industry trends, so you can focus on your business. Be careful not to assume that a bookkeeper does more than keep the books. They are traditionally unqualified to manage tax returns or financial reporting.   

If you’re looking for a solid bookkeeper, talk to people within your industry for a recommendation. You’re more likely to find someone you can trust. 

Option #3 Find an accountant 

At some point, you might need extra help and want to work with an accountant. You might think that a bookkeeper and an accountant are the same, but they’re actually two different roles that often indicate different levels of experience. 

While bookkeepers help with your business’ day-to-day transactions, an accountant uses that financial data to present a big picture that can help you make financial decisions in the short- and long-term. They can also help with financial reporting, tax returns, income statements, financial forecasting, and more. 

Accountants tend to be more experienced than bookkeepers but may not be as experienced as a Certified Public Accountant (CPA). Usually, accountants have an undergraduate degree in accounting and have likely worked for a company in such a capacity or can prepare books for tax return filing. A CPA can create financial statements, consult around tax issues, and even assist you if the IRS audits you. 

Regarding tax time, having a CPA may be a better option than using online tax software if you have more complex tax needs, such as having a business, investments, rental properties, and the like. Though a CPA will cost more, ideally, a CPA will help you maximize your tax savings and keep things in order. The cost to work with a CPA can vary, but you shouldn’t spend more than 1 to 1.5% of your gross earnings on accounting help. 

If you have complex business concerns, need help with nuanced tax issues, or run a mid-level business and feel you would benefit from the assistance of a CPA, you can search for one with the Association of International Certified Professional Accountants or ask for referrals in your network. 

No matter what you choose – don’t fall out of the loop

Even if you elect to hand your bookkeeping or management of your business finances over to another professional, you must keep an eye on your business financials for yourself. Having your own perspective on the financial state of your business means you can bring your insight to decisions for your business instead of relying only on secondhand knowledge of your business's financial standing. 

Whether you’re doing the day-to-day bookkeeping yourself or just keeping high-level tabs on the business's financial state, it’s a good idea to also set reminders for important financial deadlines throughout the year. Set a time to evaluate your business finances at least quarterly, and use platforms like ComplYant that help business owners manage tax deadlines and budgeting and offer professional support. 

Ultimately, no matter who’s crunching the numbers, as a business owner, you’ll be making the decisions that will shape the future of your business. Understanding your business’s finances can give you the insight to make the right moves. 

Shiloh Johnson
By Shiloh Johnson
Shiloh Johnson is a long-time CPA and founder of ComplYant, a technology platform offering business owners and entrepreneurs a simple way to manage tax rules and requirements.

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