The Ultimate Guide to SMB Accounting

The Ultimate Guide to SMB Accounting
October 5, 2023
Time to read: 10 min
October 5, 2023
6 min read

While SMB accountancy tasks seem burdensome, you could discover they're more doable than they first appear.

By dividing your accounting chores into smaller pieces and developing a schedule of activities to perform, you should be able to be on top of your bookkeeping responsibilities.

Small-to-mid size business (SMB) accounting can get confusing at times, depending on the industry and the service provision model. It is imperative to acquaint yourself with essentials like revenue recognition and proper recording in order to maintain meticulous bookkeeping.

Luckily, you can count on lots of available information and professionally-designed bookkeeping platforms to help you cope with the complexities of managing your financials.

In this tutorial, learn all you need to know to handle your accounting and bookkeeping so that you can take charge of your company's money.

Owners of SMBs often choose to handle their own books, which can lead to issues and errors. This is yet another reason why double checking and counting on the right software product are both going to be essential.


Some of the top accounting challenges that small businesses face include:


  • Keeping up with the financial disclosures that SEC requires from all businesses
  • Filing taxes correctly and within the required timeframe
  • Regulating payroll (classifying employees correctly, filing taxes, making sure there are no mistakes with payments for each pay period)
  • Keeping track of both income and expenses, updating such information as soon as a change is required
  • Cash flow management
  • Correct financial analysis (can be very important to determine trends and ensure the long-term financial viability of the business)
  • Book reconciliation, which can be an especially big challenge in the absence of reliable and customizable accounting software


Best Accounting Principles for SMBs

Following GAAP guidelines is one of the best ways to ensure the accuracy of SMB accounting.


The aim of GAAP is to guide all companies, regardless of size and industry, through accounting procedures. This happens through standardized principles that take the guesswork out of every single operation.


Under GAAP, an accounting cycle is followed by everyone. The cycle features the following steps:


  • Every financial transaction is recorded in chronological order
  • At the end of the accounting cycle, information about the transactions is taken to the company’s general ledger
  • All financial transactions are classified as revenue, expenses, assets, liabilities and shareholder’s equity
  • After the information is entered, the trial balance is received – it’s the sum of all debits and credits
  • Using the financial information from the general ledger, the entity can now create its financial statements like an income statement and a statement of cash flows


Eventually, the financial statements will be used to analyze the company’s performance, its strengths and weaknesses. Through accurate accounting, a small business can easily identify both strengths and weaknesses. When such trends are established through proper documentation, the company can undertake measures aimed at strengthening performance and overcoming the issues that stand in the way of stability.


Needless to say, there are different accounting methods that SMBs can employ. Each one comes with its strengths, weaknesses and guiding principles.


If you’re searching for a reliable source of information on payroll maintenance and proper accounting, you will discover a lot of useful information in our blog. While the content does focus on paystub creation and specifics, some common accounting topics are also going to be examined in intricate detail.

Tips on how to keep books for a small business

Bookkeeping could look like a complicated world of tax codes, VAT filings, and accounting jargon. In actuality, it's elementary. Essentially, it's about tracking how much money entered the firm and how much money left it. By keeping track of this information, HMRC can then determine what tax you owe.

Here's all you need to know about how to perform accounting for small companies.

Record all transactions

Keeping a proper record of all your transactions is an essential small company accounting responsibility. You must log this information each time you make a transaction or get a payment.

Formerly this would have been done in a ledger book or a spreadsheet, but it's much easier to record this information using cloud accounting software.

Each time a consumer makes a purchase, you need to take down how much they spent (if you offer things, it's best practice to record what they purchased too).

Each time you acquire anything for the firm, pay a supplier or pay your personnel, you should record this too. Write down how much was left in the company bank account and what purchase it was.

You should preserve a copy of all your invoices for at least six years.

Reporting transactions is a legal responsibility for companies. But there are other reasons to do it too:

  • Keep on top of expenditures and monitor how much flows in and out of the firm.
  • Monitor your revenue and receive a clear image of what you're truly generating.
  • Makes your tax return less difficult by maintaining receipts and records of every expenditure in an ordered fashion.

By law, single proprietors must keep proper financial records (bookkeeping), while limited liability companies must preserve records for six years.

Many company owners begin with a straightforward approach using spreadsheets, but an increasing number opt for accounting software.

Here is how to maintain financial records for a small firm.

Manual bookkeeping

You can manage your cash flow using spreadsheets, such as those you can create in Microsoft Excel.

Manual bookkeeping may appear acceptable initially, but it is time-consuming and prone to mistakes and duplications.

Bookkeeping using software

Managing your books using cloud-based accounting software saves time, money, and human error. Cost-effective, user-friendly software is available to automate your record-keeping. You may use it, for instance, to automatically extract transaction data from your bank account, so eliminating the need to manually input each transaction.

A competent accounting system can manage all of your crucial company data and show it in an at-a-glance style to assist you in making the best choices. You may customize your reports based on your priorities at any given moment. You should consider a concise daily review that focuses on the particulars of the day.

Real-time tracking of your revenue and spending is a significant time-saving. Your accounting software may offer a mobile application for recording revenue and spending on the move.

The finest accounting applications contain features that make it easier to keep track of the specifics, such as storing images of receipts so that you do not need to save paper copies.

Track your financials

Your financials are the reports or statements that provide an overview of the financial health of your organization. It is crucial to understand what these are and how they are created so that you are always informed of your organization's performance.

You should consider the balance sheet, income statement, and cash flow statement as the three most essential financial statements.

Reconcile transactions

Transaction reconciliation is the second most crucial accounting process for small company owners and is often performed at the end of each month. Examining your business's monthly bank statement and comparing your financial records to the credits and debits shown on the statement constitutes bank reconciliation.

The purpose of reconciliation is to provide an accurate picture of your firm's financial health. It may help you detect problems like inexplicable expenditures and multiple payments, for example.

Bank reconciliation should assist you in determining the rationale behind any inexplicable transactions or payments.

Manual reconciliation might be difficult to do. However, accounting software may make bank reconciliation duties simpler and faster. The software can automatically match your bank statement's revenue and expenditures with bills you've issued and expenses you've incurred.

Stay on top of late payments

Late payments are one of the leading causes of company failure. Common causes of payment delays include:

  • Suppliers whose terms and conditions fluctuate
  • Customers delaying cash to verify job quality Customers requesting a payment reduction that was not initially agreed upon
  • Suppliers who remove credit without notification
  • Customers who postpone payment to dispute the work's quality or delivery timelines

Hire an accountant  

You read it correctly. And no, accountants are not a luxury solely available to large enterprises and the rich. In fact, research conducted by the Institute of Chartered Accountants revealed that the great majority of small and medium-sized enterprises (SMEs) with less than 250 workers used accounting services. If you have a grasp on your accounting, you may ask why you need the services of an accountant.

The fact is that accountants are not bookkeepers. Bookkeeping involves recording and arranging numerical data. In contrast, an accountant examines these figures under a microscope. Their duty is to analyze your finances and determine what is working, what is not working, and what COULD work. 

Hiring a competent accountant exemplifies the maxim "spend money to earn money." It's an investment in your company's future. An accountant will collaborate with you to create a development trajectory, eliminate waste, and get all the advantages to which you are entitled.

Manage your liquidity

Cash management in a small company is a crucial skill for every entrepreneur. The good news is that there are ways to simplify life, such as outsourcing a portion of the work to an accountant or utilizing cloud accounting software.

It's also important to note that you can work alongside an accountant while using your accounting software, which means they can view your figures in real-time and give business-improving recommendations.

Tips on how to keep books for a small business

Small business bookkeeping vs accounting

Accounting and bookkeeping are sometimes used as if they were the same thing. They don't mean the same thing, though. So, what's the difference between keeping books and keeping accounts?

Bookkeeping tracks how much money comes into and goes out of a business. It used to be done by writing information into ledger books, where the name came from. Now, most businesses do it with software in the cloud.

Bookkeeping tasks include keeping track of all money coming in and going out and collecting and storing financial information like receipts, invoices, and bank statements.

Paying bills and staff, matching bank statements, entering data, and paying taxes are part of the job. Every business, from self-employed freelancers to big companies with offices worldwide, needs to do bookkeeping.

Bookkeeping is a part of accounting, and it's usually thought of as the first step in a more extensive process. Business accounting is about making sense of complex financial data and using it to make reports and forecasts. This is usually done to determine how a business is doing financially and how well it is doing.

Even though your business is still pretty small, it's essential to learn the basics of bookkeeping because you are legally required to do so. Business accounting will help you in the long run, but you should focus on getting your books in order first.


What is an SMB in accounting?

It stands for Small-to-Medium-Sized Business. An SMB can be a limited liability company (LLC), a corporation, or, very rarely, a sole proprietorship. 

What is the easiest bookkeeping software to use for small business?

FreshBooks is a piece of accounting software that is one of the easiest to use. 

The software is made for people who run small businesses but don't have a background in accounting. 

You can make and send invoices, keep track of expenses, manage projects and clients, and look at reports.

What software do most accountants use?

Here are some of the Best All-Around Professional Software for beginner to expert-level accountants

  • FreshBooks
  • Quickbooks Online
  • NetSuide ERP
  • Sage Business Cloud
  • Xer
  • QuickBooks Enterprise
  • Zoho Books