Small Business Accounting Systems

For the Newbie businessperson finances and accounting can be intimidating and too often frustrating. Fortunately, there are a number of excellent tools out there to help out and with a little bit of basic accounting knowledge you can turn this task into an incredibly useful tool to grow your business. Besides, there is nothing more entertaining than counting your own money!

Concept of a Separate Entity

One of the most difficult concepts for people to grasp is that of their business as a separate entity. The entity concept in its essence requires the exclusion from your business records of activities that are personal in nature. Example, its OK to record as a business expense drinks with a potential client while you are in the process of selling your products or services are business, but never drinks with your pals while watching a football game. The easiest way to maintain this separation is to open a new bank account just for your business and to religiously funnel all activity through that account and only through that account and to record said activity using detailed and accurate records. While you are at it you will probably want to get a credit card in the businesses name and use that strictly for business activity. It doesn’t have to registered in the name of your business if you don’t have a federal identification set up for your business; just put it in your name and refer to it in all documentation as XYZ Co. account. All this isn’t just good accounting and a valuable tool in managing your business, it also clearly shows your intent to manage a successful and independent business if the IRS should happen to start poking its big schnoz into your affairs.

Schedule C Filers

Partnerships and Corporations

If you have gone a step further and registered your business as a partnership or corporation (including the many sub-variations of partnerships and corporations such as an S Corporation, a Limited Liability Company, or a Limited Partnership) then your organization is probably a little more complex and your business will usually file a separate income tax return (with the exception of a single member LLC.). This means only preparing an income statement based upon your personal financial software will no longer suffice, you will need real financial statements with assets, liabilities and equity accounts. It also means that you will have to understand the concept of retained earnings. If your business doesn’t require carry much debt or require many fixed assets and you have a decent grasp of accounting then the personal finance software above is probably more than up to the task. I use a combination of Quicken and a few Microsoft Excel spreadsheets and it works just fine. However some will require more advanced software that can help them with transactions like payroll or depreciating fixed assets and they will end up buying an off-the-self accounting solution created especially for small businesses. I scoured the web for you and my favorite review of the options available is by Mary Girsh-Block at the CPA Technology Advisor. She rates and discusses the pros and cons of the Big 5, the by far most popular programs available.

Garbage In Garbage Out

As the WebCPA and the author of WebBizFinance.com, my job is to help you have more time and more money!

Tyler

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