Best Accounting Software 2021

Bookkeeping Basics for Small Businesses

Cheree Hill, the founder and owner of Tranquility Bookkeeping Services, offers in-depth insights about bookkeeping for small businesses. She specializes in bookkeeping for private practices and service-based businesses.

This guide to bookkeeping for small businesses, created by Cheree Hill of Tranquility Bookkeeping Services, gives you the top ten fundamental bookkeeping tips for small businesses. We’ll also include SoftwarePundit’s firsthand recommendations about which bookkeeping and accounting software tools are best for your business.

Table of Contents

What is Bookkeeping?

Bookkeeping is simply the recording of the day-to-day financial transactions in your business. These transactions include sales, purchases, inventory, loans, assets you own, and more. It’s important for all businesses, no matter how big or small, to implement proper bookkeeping systems. Creating and keeping up-to-date books will help you manage your spending, evaluate trends in income, and stay organized for tax time. This will help you ensure that you take advantage of every tax deduction possible.

Top 10 Bookkeeping Tips and Tricks

These are Cheree’s top bookkeeping tips and tricks for freelancers and small businesses. Where applicable, we’ve linked to some helpful resources that you can use to help you with your processes.

Separate Personal and Business Finances

Mixing personal and business finances can make for a huge headache. Not only does the IRS frown upon commingling funds, but it will be hard for you to adequately track which expenses are business and which ones are personal.

The inability to distinguish between business and personal expenses can prevent you from getting all the deductions you’re entitled to during tax time. Depending on your business structure, you may also be at risk of losing your legal protections.

Use Accounting Software to Track Revenue and Expenses

Accounting software helps manage your financial records more efficiently than a typical Excel spreadsheet. In the accounting software, you can track invoices, accept customer payments, reconcile transactions, and more.

QuickBooks Online Dashboard

Processes are automated which reduces human error due to manual entry. Automation also reduces the amount of time you spend managing your books, which allows you to focus on more profit-inducing activities. Accounting software also generates real-time reports, providing you with data that allow you to make better business decisions.

Select the Best Accounting Method for Your Business

When setting up your business, you need to decide which accounting method is best for you. This basically means determining which way you choose to record your transactions. The two most popular methods are cash and accrual.

With cash accounting, you are recording each transaction as it happens. For example, you record income on the date it was received and expenses on the day they were paid. With accrual-based accounting, you record income the day it was ‘earned or invoiced’ and expenses on the day they were billed.

The decision to choose the cash or accrual method is usually based on many factors such as the type of business, your business structure, or your business size. This choice is also important for tax purposes. If you’re unsure of how to choose, seek input from your bookkeeper or accountant.

Track Receipts

If you’re a business with lots of financial activity, it may be hard to remember what each transaction is for. Having an additional record, such as a receipt, helps you to do so. Keeping track of your receipts also helps you claim all possible deductions for the tax year.

For every deduction on your tax return, you should have a record to back it up. This is important in the event of an audit. The inability to support your deduction with documents such as receipts may cause the IRS to disallow it, costing you money.

With software like Dext or HubDoc, you can store receipts electronically, meaning that you don’t need to keep annoying paper copies of your receipts. Most accounting and bookkeeping software solutions have built-in receipt capture software tools as well.

Eliminate or Minimize Cash in Your Business

As you might know, cash is much harder to keep track of than electronic transactions. Cash can get lost, can be left unaccounted for, and it’s more likely that you may be tempted to commingle cash with your personal funds.

If you must use cash in your business, be sure to deposit any payments received into your business bank account in a timely fashion. If you spend cash, save and document on each receipt exactly what you spent your money on. Also, be sure to incorporate a cash tracking system to ensure it all gets accounted for.

Review Financial Reports Regularly

Your accounting system provides you with reports that allow you to make proper decisions in your business. Reports every business owner should review at least once a month are the Income Statement, Balance Sheet, and the Cash Flow Statement. Other reports that may be useful, depending on your type of business, are the Accounts Receivable Aging Report and the Payroll Report.

Keep Track of Your Receivables

You work hard for your money and you deserve every penny. If you’re a business that invoices your clients, you should create a system for tracking client payments to ensure that each invoice is paid on time.

Unpaid invoices mean a reduction in cash flow, which can hurt your business in a major way. If you’re having trouble collecting your payments, consider requiring a deposit before providing services or switch to requiring automatic drafts for client payments.

Prioritize Bookkeeping Tasks

It’s crucial to set aside time for each part of the bookkeeping process. Waiting until the end of the year can cause a lot of stress and put you at risk of missing tax deductions. To make bookkeeping less daunting, you can avoid doing all your bookkeeping at once by breaking the process down into tasks and spreading them throughout the year. Here’s a sample schedule:

ActivityFrequency
Client Invoicing
  • Weekly
Categorizing Transactions
  • Biweekly (at minimum)
  • Weekly (preferred)
Bank Account Reconciliation
  • Monthly
Payroll
  • Weekly
Bill Pay
  • Monthly (at minimum)
  • Biweekly (preferred)
Review Financial Reports
  • Quarterly (at minimum)
  • Monthly (preferred)
Tax Payments
  • Quarterly

Keep Track of Tax Deadlines

Depending on the type of business you have, you may need to pay attention to more than just one tax deadline. There are deadlines for income tax, payroll tax, state tax, and the list goes on. Missed deadlines could mean hefty fines which can put a huge dent in your cash flow. Luckily for you, the IRS has a tax calendar on their website which you can sync to your calendar so you never miss a deadline.

Leave It to Professionals

Handing over your bookkeeping duties to a professional saves you time and money. Investing all of your time in profit-inducing activities makes for a better bottom line. Outsourcing to a professional ensures your business finances are taken care of efficiently and accurately, providing you access to the right data right when you need it.

Best Accounting Software for Small Businesses

We personally researched and tested the most popular accounting platforms for freelancers and small businesses. Below are our top choices for you to consider. All the choices below are either bookkeeping services, or allow you to add bookkeeping, tax, or accounting services to your software plan.

1. QuickBooks Online

QuickBooks Online is the best accounting software for small businesses. Though it’s expensive, you get the best list of features as well as the ability to hire QuickBooks Advisors to help you with your accounting and bookkeeping. Software plans range from $25 to $150 per month, and you can search for and select QuickBooks-certified accountants and advisors to help your business.

QuickBooks Online
Rating: 94
Starting Price: $25 per month

QuickBooks online is the most popular accounting tool for small businesses. It includes all features a small business needs to keep track of its financials, and most accountants are very familiar with using the tool. QuickBooks Online has over 70 financial reports, integrations with many third-party tools, and a powerful payroll add-on.

Pros:
  • Best overall accounting platform for most small businesses
  • Most accountants and bookkeepers are trained in using QuickBooks
  • More than 70 reports included - the most of any accounting software
  • Allows multiple users to access the system at the same time, and work simultaneously
Cons:
  • Customers report that the software is not as user-friendly as other accounting tools
  • More expensive than other accounting platforms
  • Learning how to best navigate the application takes time
  • History tracking (audit log) is difficult to use

2. Wave

Wave is a freemium accounting tool that gives customers invoicing, receipt capture, and expense tracking entirely free of charge. Customers can add bookkeeping support, tax services, and accounting coaching to their software package. Bookkeeping and payroll support starts at $149 per month, the tax service is $1500 for the year, and the accounting and payroll coaching is $229 for a one-time appointment.

Wave
Rating: 86
Starting Price: Free

Wave is an accounting tool for invoicing, expense tracking, and payroll functionality. Wave is the best freemium tool on the market, and we recommend it for those who want accounting features for free.

Pros:
  • Wave offers features for free that most alternatives charge for
  • Extremely well-built and user-friendly interface
  • Wave offers bookkeeping services for those without a dedicated bookkeeper
Cons:
  • It's very difficult to get in touch with the Wave support team
  • Payroll comes at an additional monthly cost
  • Lacking inventory management features that many businesses require

3. Bench

Bench is a software-enabled bookkeeping service for small businesses. Pricing ranges from $159 per month to $419 per month. You’ll be able to sign up for regular bookkeeping as well as catch-up bookkeeping, where Bench advisors will retroactively balance your books.

Bench
Rating: 87
Starting Price: $159 per month

Bench is a software-enabled bookkeeping service with around 10,000 customers. It offers both bookkeeping and tax services for small businesses at reasonable monthly prices.

Pros:
  • Bench offers catch-up bookkeeping services for businesses that have fallen behind
  • Tax advisory services come at a very reasonable monthly price
  • You can add your personal accountant to your Bench account
Cons:
  • Business owners have relatively little control over the software where financial work is being done
  • Reporting section is very limited compared with competitors
  • You cannot use Bench if you reside outside the United States

Key Takeaways

Understanding the ins and outs of bookkeeping is critical for running a successful small business. In addition to a professional bookkeeper, you should invest in accounting software. Fortunately, it’s easy to find a professional who can assist you, and there are a variety of excellent accounting software platforms available.

If you’re looking for more professional accounting tips, be sure to check out our article outlining this year’s best accounting blogs. The blogs and forums included in that article are fantastic educational resources for freelancers and small business owners.

About the Author

Cheree Hill owns Tranquility Bookkeeping Services, a cloud-based bookkeeping company focused on helping small business owners achieve financial success. She ensures that bookkeeping and accounting needs are met with proactive solutions, and is passionate about helping business owners streamline their processes, maximize efficiency, and increase their cash flow. Tranquility Bookkeeping Services provides services throughout the United States and specializes in private practices, though the company also serves freelancers and businesses in a variety of other industries.

Katelyn Anderson

Katelyn is a Junior Research Analyst at SoftwarePundit, where she conducts in-depth analyses of technology markets & products and writes software-related content. She graduated summa cum laude with degrees in English and Psychology. Her main areas of interest are content creation, user experience, and search engine optimization. You can connect with Katelyn on LinkedIn.

Katelyn is an expert in several software categories including:

  • Accounting software
  • Live chat software
  • Vacation rental software

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