Small Business Accounting: What You Need to Know
For small business owners, accounting 
isn’t just a back-office task—it’s a vital part of building a successful, sustainable company. Whether you’re just starting out or looking to gain better control over your finances, understanding the basics of small business accounting can help you make smarter decisions and avoid costly mistakes.
This guide breaks down basics of what you need to know about accounting for your small business.
What Is Small Business Accounting?
Small business accounting involves tracking, managing, and analyzing your company’s financial transactions. This includes everything from recording sales and expenses to creating financial reports and preparing for tax season.
Good accounting gives you a clear picture of your business’s financial health and helps you stay compliant with federal, state, and local regulations.
Key Components of Small Business Accounting
1. Bookkeeping
Bookkeeping is the foundation of accounting. It involves recording daily transactions such as sales, purchases, payroll, and expenses. Modern tools like QuickBooks or Xero can automate and simplify this process.
2. Financial Statements
Financial statements provide a summary of your business’s financial status. The most common include:
• Income Statement (Profit & Loss): Shows revenue and expenses over a period
• Balance Sheet: Displays assets, liabilities, and equity at a given point in time
• Cash Flow Statement: Tracks cash inflows and outflows to ensure liquidity
3. Tax Preparation
Keeping your books in order makes tax filing easier. Accounting helps ensure you’re taking advantage of deductions, avoiding penalties, and staying compliant with the IRS and other tax authorities.
4. Payroll Management
If you have employees or contractors, accounting helps track wages, withholdings, and payroll taxes to ensure timely and accurate payments.
Why Accounting Matters for Small Businesses
Accounting does more than keep you organized—it empowers your decision-making and long-term planning. Here’s how:
• Tracks Cash Flow: Know how much money is coming in and going out
• Supports Growth: Use financial data to create budgets and forecast revenue
• Improves Profitability: Identify areas where you’re overspending or undercharging
• Prepares You for Taxes: Avoid surprises with accurate, up-to-date records
• Helps Secure Funding: Investors and lenders rely on financial reports to assess your business
Choosing an Accounting Method
There are two primary accounting methods for small businesses:
1. Cash Basis Accounting
• Records income and expenses when cash is actually received or paid
• Simpler and often used by smaller businesses
2. Accrual Basis Accounting
• Records income when earned and expenses when incurred, regardless of when money changes hands
• Gives a more accurate long-term picture of business performance
Most small businesses start with cash basis accounting but may switch to accrual as they grow.
Should You Hire an Accountant?
If managing your own books is taking too much time—or if you’re unsure about financial regulations—it might be time to bring in a professional. A certified accountant or bookkeeper can help with:
• Setting up accounting systems
• Tax planning and filing
• Financial analysis and reporting
• Payroll and compliance
Hiring a professional can save time, reduce errors, and give you peace of mind.
Best Accounting Tools for Small Businesses
Accounting software can simplify your workflow and reduce manual entry. Some popular tools include:
• QuickBooks: Versatile and beginner-friendly
• Xero: Great for collaborative, cloud-based accounting
• Wave: Free and ideal for freelancers or very small businesses
• FreshBooks: Designed for service-based businesses
Take Control of Your Small Business Finances!
Understanding the basics of small business accounting isn’t just about staying compliant—it’s about taking control of your company’s future. With accurate records, smart financial tools, and (if needed) expert help, you’ll be in a strong position to grow, scale, and succeed.
Start simple, stay consistent, and let your numbers guide you.
The National Business Association has authored and curated resources on various topics and in multiple formats that will help you achieve your goals. Whether you are considering starting your first business or if you are a seasoned entrepreneur, there is something in this Resource section of the NBA website that will be helpful. We hope you find this article useful.
Providing relevant resources in an easy-to-navigate format is one of the many ways that the NBA accomplishes its mission of helping small businesses succeed. It fulfills our vision of being an indispensable resource for the self-employed, small business owners, and entrepreneurs. If you are interested in a deeper relationship with the NBA, sign up for our free email newsletter or learn about becoming a member by clicking on the “Join the NBA” link above.