Many new business owners are unsure how to set up small business bookkeeping properly. Unfortunately, that means they either delay setting up a bookkeeping system properly or charge ahead and make mistakes. Either of those missteps can translate to major financial headaches down the road. A few simple actions can help you set up small business bookkeeping correctly.

Open An Actual Business Bank Account

Small businesses should set up business bank accounts before sending or receiving payments. Personal accounts do not always have the same access or features needed by commonly used bookkeeping software.

Be sure to compare the features of the business bank account you are considering, like minimum balance requirements, adding other users and limiting their access, and fees associated with the account. Sometimes, a credit union is a friendly option for brand-new business owners. Whatever you decide, opening a business bank account protects you and your small business by separating personal and business spending. It also makes it easier to track income and expenses.

Furthermore, with the increasing emphasis on digital transactions, selecting a bank that offers robust online banking capabilities, fraud protection, and excellent customer support is essential, especially as remote operations become more the norm.

Decide on Cash or Accrual Accounting Method

Cash accounting is relatively straightforward. In the cash accounting method, you report cash in and out at the actual time of spending or receipt. Accrual accounting is based on when the transaction happens rather than when the cash flows in or out.

The method you choose often depends on your industry. Accrual accounting may be best if your business carries physical inventory or uses credit for sales. Service-based companies, such as consultants in all sectors, generally operate under cash accounting.

Not sure which is best for your business? This is a good time to suggest consulting your tax professional.  There are also some regulations regarding the amount you make and if you need Cash or Accrual that backs that up.

Choose Small business Bookkeeping Software

Software is another key piece of how to set up small business bookkeeping. There are many options out there, but we prefer QuickBooks. The software and mobile application are easy to use and are personalized for your specific needs. The mobile QuickBooks application features mileage tracking and the ability to upload receipts and match them to the appropriate expense entry.

Create a Chart of Accounts

The chart of accounts lists all accounts tracked in the general ledger and is a foundational element of the small business bookkeeping process. In short, it’s an index of all the financial accounts in your company’s general ledger. The chart of accounts is the tool you use to categorize transactions and should be customized to your business.

Track All Your Business Expenses

Tracking your expenses might be a tedious component of bookkeeping, but it is one of the most important. Set aside time weekly to keep your books current and review reports. Lean into the features of your small business bookkeeping software that can simplify the process, like the QuickBooks upload receipts feature.

Commonly overlooked expenses include subscription services, minor equipment repairs, and mileage expenses that many small business owners forget to track. Utilizing mobile apps like Expensify or QuickBooks for real-time expense tracking ensures that these expenses are immediately recorded and categorized, preventing them from being overlooked.

When your bookkeeping is up to date, you can evaluate the overall financial health of your business. That, in turn, helps you to pay yourself first, ensure spending is in line with your goals, and identify opportunities to trim expenses. It also allows you to catch fraudulent spending before it takes too much of a financial toll on your business.

Some business owners find it overwhelming to keep up with their bookkeeping and outsource it to an individual or a company like Essential Accounting Support.
Outsourcing lets you focus on other business priorities while ensuring you have the most current numbers and reports to make critical decisions.

As compliance regulations evolve, particularly those relating to online sales and home-based businesses, having a professional manage your bookkeeping can provide added peace of mind and ensure that your records meet current standards.

Should you hire help for your small business bookkeeping?

Whether you do it yourself or hire someone to help, be sure to set up small business bookkeeping with the proper foundation from the beginning. While it takes some time and effort upfront, it will save you significant time in the long run and reduce the risk of future financial issues.

In 2024, approximately 5.21 million new business applications were submitted in the United States, indicating a strong entrepreneurial spirit despite economic uncertainties. 

This highlights the ongoing robust interest in entrepreneurship, with many new owners needing solid bookkeeping systems to support their ventures.

If you’d like help getting started on the right foot with your small business bookkeeping, we offer advice and help business owners set up new bookkeeping software accounts all the time. We do this for entrepreneurs who become clients and those who just need help getting started.

I work with clients locally in Bellevue, Kirkland, Redmond, Renton, Issaquah, Sammamish, Bothell, Duvall, and all around the country via our virtual bookkeeping services.

Reach out to set up a quick, complimentary consultation. We’d love to help you!