Jan 5, 2023 Accounting — Eric Giguere

Basics of small business accounting: tips and tools for beginners

Accounting for small businesses can seem daunting. This guide will help you get your small business accounting started right away.

Step one: Know what's required

No matter how small or basic the system is, it is important to keep financial records right from the beginning of your business. Companies that are based in the UK need to be listed on Companies House. Businesses must also be registered with HMRC. Make sure to organize a financial record-keeping system too, which is legally required, and set up a business bank account. This will enable your business to borrow money, use a credit card for business and accept online payments.

Step 2: Learn about bookkeeping and accounting

Sometimes small business bookkeeping and small-company accounting are confused or assumed to be the same thing. They are not the same thing! Bookkeeping is the process of recording and reporting company finances and acts as a small but crucial part of basic business accounting.

By extension, accounting is the process of analyzing and examining financial information to create a business strategy, establish forecasts and make decisions.

As a small business, it's worth first getting to grips with the fundamentals of coherent bookkeeping, as there is a legal obligation to record financial data. You can always expand to accounting once you and your business are ready.

Step 3: Selecting a system

Businesses used to keep a general ledger in the past. This was a physical book that contained financial records and written financial information. This is the most important accounting record a small business needs. Most small businesses use computer software these days to manage their ledgers and keep track of incomings and outgoings.

Three methods can be used to do basic bookkeeping in small businesses. Many opt for the most straightforward and choose a spreadsheet software, something like Microsoft Excel or Google Sheets, to track finances. Before you choose, it's useful to know whether you will be using a single- or double-entry bookkeeping system.

Spreadsheet software can be inexpensive and simple. Many small business owners already have Excel installed on their computers. But woefully, we've all heard the tales of Excel nightmares, and spreadsheets have their downsides. J.P. Morgan lost over $2bn due to a spreadsheet problem. This was compounded by one error that fed into other calculations.

Desktop accounting bookkeeping software is an alternative option for small-sized companies. This program can be downloaded as an external program. This software includes Sage 50cloud and QuickBooks Desktop. These desktop accounting systems can be shared with productivity apps using the cloud.

Some of the weaknesses inherent in spreadsheets can be mitigated by desktop software. You can make forecasts, save time and get better bookkeeping for your small business.

Inputting data, and more support and security from service providers. The higher entry fee, the need to update software, and difficulties in sharing data can put small business owners off balance.

Cloud accounting, which is cloud-based and uses bookkeeping software, offers the best option. Examples of cloud accounting software include FreshBooks, QuickBooks Online, Zoho Books, and Wave. This allows you to access accounts anywhere, anytime, from any device. You don't even need a computer - a phone or tablet will suffice.

It is worth taking the time to look at the available software. Some of the most useful basic accounting features for small businesses include timesaving automation, which can be set up to help save time on invoicing and handling accounts. This article reviews the top accounting software that small businesses can use.

The software can help you prepare taxes. Software programs can perform automatic calculations, reporting, and provide multiple tax rate rates. Payroll processing and payroll services, which can be used to make it easier for employees to receive their wages, are also readily available.

Each system is unique and each has its pros and cons. Therefore, it is worth spending some time researching which system might be the most suitable for you. Some small businesses may choose to outsource their financial management and renounce all financial responsibilities.

Below are some of the top accounting software options for small UK businesses:

FreshBooks is Affordable Accounting for Small UK Companies


Recurring billing, client retainers, and real-time reports into your small business's health and accounts? FreshBooks does everything, and it offers a range affordable pricing levels to accommodate small businesses. Compare prices and start a trial

Start at PS4.40

  • 60% off for 6 Months
  • Automated billing
  • Chat with your clients

Visit our website

Ember - An Accounting Solution To Scale With Your Startup


Automated filing, tax optimizations, easy invoicing, and more, Ember powers your SME's potential, with chartered accountants on hand to help you manage your finances with ease. We'll help you run your business. Start a free trial Compare Prices

Monthly payment of PS39.00

  • Accountant included!
  • Trustpilot 5 stars
  • Automate all your expenses

Go to website



QuickBooks smart, simple software that is HMRC-recognized allows you to focus on running your own business. All your taxes, cash flow, and payroll can be managed from one location. You don't need to sign a contract, and you get award-winning UK support for free.

Starting at PS6.00

  • 50% off your 4 monthly commitment
  • Hmrc-recognized
  • Support that has won awards

Step four: Getting started

Once you have selected an accounting program and settled in, it is crucial to start recording financials so that you can get a true picture of what's happening inside your business. Small businesses must at this point ensure that they are correctly recording transactions and in the correct account. Mismatched account balances mean companies won't be able to balance or close their books every quarter - by zeroing out income and expenses and entering net profits or losses into the balance sheet - or make informed financial decisions.

Small businesses also have the option to look at their finances in order to set up payroll, calculate gross margins, and manage taxes.

You can now use the books to generate financial reports once they are balanced. A balance sheet is a summary of assets, liabilities, and equity within a company. Many people find this useful. The balance sheet shows how a company is doing and can help to decide if it can grow or if it needs to cut costs.

Similarly, a quarterly profit and loss statement can be a useful resource for small business accounting. This document breaks down revenues, costs, and expenses over an established time period. You can also use a profit and loss template to compare sales and expenses, and make forecasts.

The cash flow statement is a mandatory part in a company's financial reports. They are similar to profit and loss statements. However, they don't include noncash items. These statements show how businesses are spending and earning money, as well as their immediate viability and ability to pay bills.

As you grow, your preferred bookkeeping method will change. While a business is small, it might make sense, to begin with a simple Excel spreadsheet, but as the company

If your business expands, you may be interested in new bookkeeping software. You may be able to hire a full-time accountant one day.

Step five - The takeaway

You don't have to choose between small business bookkeeping systems or an accounting system. Understanding the basics can help you better understand your company, make smart business decisions and manage finances. It's a smart move to start a system that is scalable and coherent from the very beginning. You will always be grateful you did.

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