Top DIY Accounting Practices for Small Business Owners

Are you ready to be your own accountant? For many small business owners, DIY accounting is the most cost-effective choice. If you decide to go that route, here are some key practices to keep your accounting effective and stress-free.

1. Invest in Reliable Accounting Software

Using quality accounting software is a game-changer. Affordable and user-friendly tools like QuickBooks, FreshBooks, and Xero streamline tasks such as tracking expenses, invoicing, and generating basic financial reports. Starting at around $20 to $30 per month, these programs are designed for small business needs and are easy to set up and maintain.

With features like expense categorization, receipt capturing, and bank account syncing, accounting software reduces errors, saves time, and keeps your finances organized. At tax time, it consolidates all your records in one place, so you’re not scrambling to gather receipts and documents.

2. Schedule Regular Financial Check-ins

One challenge of DIY accounting is consistently keeping track of finances. Even for those with an accountant, I encourage setting aside an hour each week on the same day for a financial check-in. During these sessions:

• Invoice customers and pay bills: Keeping cash flow steady is essential.

• Review your cash balance: Ensure funds are available for any upcoming expenses.

For DIY accountants, also set up monthly sessions to:

• Reconcile accounts: Match your bank statements to your accounting records to catch any discrepancies.

• Update expenses and income: Categorize new transactions to keep everything current.

• Review profit and loss: Analyze your statement to understand your business’s financial health and identify areas for improvement.

• Track estimated tax liabilities (more on this below!).

To help keep you on track, WBFS put together a free accounting checklist with weekly, monthly, quarterly, and annual tasks. Copy this Google Sheet by signing up below ↓

3. Separate Business and Personal Finances

Mixing personal and business expenses complicates accounting and increases the chance of errors. Plus, if your business is an LLC or a Corporation, keeping finances separate helps protect your personal assets from business liabilities, a concept known as “piercing the corporate veil.”

Open a dedicated business bank account and use it exclusively for business-related transactions. A business credit card can also be beneficial for building credit and tracking spending. This practice simplifies expense tracking and ensures you’re maximizing deductible expenses at tax time.

4. Be Tax Time Ready

Stay organized throughout the year to make tax time easier. Here’s how:

• Keep thorough records: Document the purpose of each business expense and save any receipts or invoices.

• Digitize receipts: Use accounting software or apps to scan and store receipts digitally, reducing clutter and making records easy to retrieve if needed for an audit.

• Categorize expenses: Small business expenses like office supplies and business meals are often deductible. Proper categorization in your accounting software streamlines tax filing and ensures you don’t miss any deductions.

5. Plan Ahead for Taxes

DIY accounting requires proactive tax planning. Here are a few key steps:

• Estimate taxes early: Use your accounting software to calculate estimated taxes based on quarterly or monthly income. Many business owners are required to pay quarterly estimated taxes.

• Set aside funds: Based on your income and tax rate, earmark a portion of your earnings each month for taxes. This will prevent cash flow issues when taxes are due.

• Understand your business structure’s tax obligations: For instance, LLCs and S-Corps often require both business and personal tax filings. Knowing these requirements helps you plan ahead and avoid surprises.

6. Use Financial Insights for Decision-Making

Accounting isn’t just about staying organized; it’s a powerful tool for guiding your business decisions. Regularly reviewing your financials helps you:

• Identify cost-saving opportunities: Spot patterns in expenses to find areas for cost-cutting or negotiating better rates.

• Monitor growth: Tracking revenue and expenses over time shows your business’s trajectory, helping you set realistic goals.

• Assess cash flow: Regular cash flow analysis is key to financial stability, helping you avoid cash shortages and plan for major expenses or investments.

Conclusion

Managing your accounting independently can be rewarding, providing both cost savings and insights into your business’s financial health. By investing in the right tools, establishing consistent practices, and setting time aside for financial reviews, you’ll stay organized, prepared for tax season, and focused on growth.

Remember: Better numbers, better business.

Ready to give up being a DIY Accounting?

If you are at a place in your business where it makes sense to outsource you accounting needs, we are here to help. Explore our services to see how we can support your small business.