The best small business bookkeeping software options

If you want to run a successful small business, you’ll need sound bookkeeping to make sure your finances are in order, you’re following all financial laws, and you can predict what you’ll need to do in terms of finances going forward. But if you didn’t go to school for accounting (and most small business owners haven’t), you may not know where to start. Here are some ideas on what bookkeeping entails, and how you can establish good bookkeeping habits to keep your business up and running.  

Small Business Bookkeeping 101: The Basics

Bookkeeping is the regular recording of all of your financial transactions. Basic bookkeeping is simply keeping track of every financial transaction your business does – what money you spend, what money you bring in, and what you do with your money. Your bank statements may be a good starting point, but good bookkeeping goes much further. 

Choose Your Bookkeeping System

To set up bookkeeping for your small business, you’ll want to start by choosing which bookkeeping method you use: single-entry (also known as cash basis accounting) or double-entry (also called accrual accounting). Single-entry is simpler – you record each transaction a single time in your overall ledger – but it can be less accurate. Double-entry bookkeeping has you record an entry twice, as a debit and then as a credit. This helps you catch mistakes early on before they turn into major financial problems. 

Establish Your General Ledger

Once you’ve chosen your bookkeeping method, you’ll set up your general ledger. While you can use an actual book to do this if you want to be old school (or drive yourself crazy), most businesses either use a simple spreadsheet or bookkeeping software. Every transaction you make has to be entered into this ledger, and bookkeeping software can help you do this automatically, saving you time and headaches. 

Set Up Your Business Accounts

After your general ledger is in place, you’ll set up your accounts within it. This helps you sort your transactions into one of five categories:

• Assets – anything you own or have, like your brick-and-mortar property, inventory, even your laptop. Accounts receivable, cash, real estate, and inventory are all assets. 
• Liabilities – any debts you owe, payments you have to make. This includes accounts payable and interest payable.
• Revenue/income – any money you earn from sales. Interest income is also a revenue.
• Expense – cash that flows out, like utility payments or payroll. Insurance and interest expense count here, too. 
• Equity – this includes dividends, stock shares, and your capital as the owner.  

Record All of Your Transactions

This is your day-to-day bookkeeping practice. Every single transaction you make needs to be recorded correctly. You must make sure you record exact amounts for each credit and debit, and organize them into the right business account categories. This is where software comes in handy – it can import your bank information so you don’t have to do it all manually.

You’ll want to create a regular schedule for your bookkeeping. It’s best to do these entries at least once a week, but if you can do it at the end of the day, you’ll be less likely to make errors. 

Balance and Close the Books

At the end of each day, week, month, quarter, and year, you’ll want to make sure all of your totals match. To do this, you post your entries to the business accounts and adjust the balances as necessary. This can be a somewhat complicated process, but in general, you’re trying to make sure that your assets are equal to the sum of your liabilities and your equity. If that’s not what you’re getting, go back through your entries and find errors. Data entry is the number one place where a small human error can make a big mess over the long run. Again, bookkeeping or accounting software can handle this for you and save you a lot of time. You should do this at least every quarter, but doing so more often (like, monthly) can help you catch and fix errors early on. 

Create Financial Reports

In order to really understand what your finances are doing, you’ll need to create financial reports out of your general ledger. These reports include the balance sheet, the profit and loss (P&L) statement, and the cash flow statement. That bookkeeping software we keep bringing up can do all this for you on the spot. Having these reports can help you make financial decisions when you’re in a pinch. 

Manage Records and Data Storage

Proper records are crucial for making sure you’re complying with the law. Good bookkeeping storage and management can also help you save time finding financial information (like whether you paid last month’s electricity bill). The IRS requires you to keep different records for certain periods of time, too. And proper bookkeeping records are part of keeping your company legally compliant across the board. 

What’s the Difference Between Bookkeeping and Accounting?

If you’ve never handled finances for a business before, you might be wondering, what’s the difference between bookkeeping and accounting? While both deal with financial matters pertaining to business, bookkeeping deals with the day-to-day financial issues and administration, while accounting provides you with a broader view of your finances based on that bookkeeping data.

So in bookkeeping, you’ll keep track of all of your transactions and administrative information, including business expenses and income, such as:

• Purchases you make for the business
• Receipts and invoices for any financial transactions
• Sales you make
• Payments you make, including payroll
• Bank reconciliations
• Preparing documents like year-end financial statements and tax information

Over time, you’ll accumulate enough data from your bookkeeping system to get a bigger perspective of your business’s financial health, which would be accounting. Accounting is more concerned with the broader picture, such as:

• Determining the cost of your operations
• Reviewing and analyzing all financial statements and tax documents
• Filing taxes
• Making forecasts on business finances
• Auditing
• Advising on financial advice, including tax planning

Why Bookkeeping is Important for Small Businesses

Bookkeeping is an extremely important part of any business, but it’s especially important for small businesses. First and foremost, you need good bookkeeping to make sure you know how healthy your business finances are. Most small business owners aren’t operating on large margins, and making decisions – like whether or not you can afford to buy the equipment you need today or next week, or if you need to increase sales this month – relies entirely on knowing where your bank account is right now. You can also use your bookkeeping to help you build an emergency fund for your business, which is extremely important. 

Small businesses also need to stay in compliance with laws and regulations, including IRS requirements and local and state requirements. Small business bookkeeping can help you produce the financial statements you need quickly to ensure compliance. This is particularly important during tax season, when you’ll want to produce your tax returns quickly (and hopefully get a return sooner!). 

How to Manage Your Small Business Bookkeeping

You may choose to manage your own bookkeeping, especially when you’re first starting out and may need to save money wherever you can. Most companies today use bookkeeping software to handle the day-to-day tracking of financial transactions. This can help reduce mistakes and errors, and automated systems can help you know what information you need to be tracking, as well as what to send to the IRS for tax reporting. 

You may want to hire a certified public accountant (CPA) to help you set up and manage your bookkeeping. And while you can certainly use an Excel spreadsheet and enter everything manually, this will set you up for hardship later on, especially if your business grows and your accounting becomes more complicated. 

The Best Software for Small Business Bookkeeping

Since we’ve mentioned business bookkeeping software so many times, it’s only fair to give you an idea of which software works best for small businesses. We highly recommend the following bookkeeping software for your small business:

Where to Get Small Business Bookkeeping Services and Help

Of course, even the best software can’t answer all of your bookkeeping questions. There are a variety of resources available to help you with bookkeeping, so you don’t have to go it alone. 

Your local Small Business Administration (SBA) is a wealth of information on bookkeeping. Many local chapters will hold events to help decode bookkeeping and help you find resources to set you up for success. 

By setting up good bookkeeping practices from the start of your small business, you can have a better idea of your financial health and make better financial decisions overall. In the end, bookkeeping will keep your small business alive and help you grow.