How to Do Small-Business Accounting: Is DIY the Way to Go?
Small-business owners have a million worries: How can I grow my business? Will I hit my sales goal this month? Did I keep my costs under control?
The last things small-business owners want to think about are bookkeeping, payroll, and taxes. Yes, these three tasks are of paramount importance. Even so, trying to do everything — including your own accounting work — can quickly backfire; Unless you 100 percent know what you’re doing, even the slightest mistakes in these three areas could cost you dearly.
In my previous life as a public accountant, I had the opportunity to help small-business owners manage their bookkeeping, payroll, and taxes. While there was a handful of people who knew what they were doing, most of them who tried to manage it all on their own ended up making costly errors. Thankfully, it was our job to catch these mistakes before they turned into bigger problems.
The First Step
Based on my experience, here’s what I recommend that you do to manage these small-business accounting needs: First, ask yourself, Do I have the expertise?
Before anything else, you need to establish whether or not you know what you’re doing.
Do you know what double-entry accounting is? How about the difference between debit and credit?
And do you know that employers must match the employee’s FICA payments for payroll taxes? Or that you have to remit the federal and state income tax withheld from paychecks to the proper places?
If those concepts sound like a foreign language to you, you probably shouldn’t be doing your own bookkeeping.
That said, just because you don’t know these things today doesn’t mean you should never do your own small-business accounting down the road. It just means that you shouldn’t do them right now.
No Clue What You’re Doing, But Want to Do It Yourself?
Most small-business owners don’t have an accounting background, so it’s difficult to know where to start. So if you want to do small-business accounting yourself, don’t just jump in the deep end. Instead, hire someone to take care of these tasks initially while you learn how to do it yourself.
I would recommend taking basic financial-accounting and cost-accounting classes. You can take these at either your local community college or through online courses. If classroom instruction isn’t your style, you can always pick up a textbook and work your way through it.
Income taxes and payroll are a different story. The best way to earn payroll is to get training from someone who’s well versed in your company’s and locality’s payroll issues. Additionally, classes addressing critical legal and compliance issues are available through the American Payroll Association.
Small-business taxes, on the other hand, are incredibly complex. Besides, you don’t do them often enough to bother learning in most cases. It’s usually better for everyone involved to either use self-guided software or let the pros handle taxes.
Using Software or Hiring the Experts for Your Small-Business Accounting Needs
Once you have an understanding of bookkeeping, you’ll likely want to use a software solution to handle your small-business accounting needs. For example, QuickBooks is one of the more popular software options, as it has a long history of providing a solid product. Even so, many people still get frustrated with this product, just as they would any other software.
Before you understand what you’re doing, I recommend either hiring a part-time bookkeeper or bringing in a certified public accounting (CPA) firm to help keep your books for you. These options may be expensive, but they’ll be cheaper than messing up your company’s books.
When I was a CPA, fixing bookkeeping mistakes often took longer than starting from scratch.
A CPA firm or bookkeeper should be able to help you get started with payroll, as well. They may even be able to train you to take over this function if you ask. Other alternatives include using QuickBooks’ payroll feature or hiring a company like Paychex to manage your payroll for you.
Income taxes, meanwhile, are extremely complex to begin with. They get even more complicated when you start dealing with businesses. If you’re brave and have a good understanding of income taxes, you can attempt to use software like TurboTax to complete your tax returns.
However, I highly recommend hiring a professional to do your taxes for you. CPAs are the gold standard, but there are plenty of other income tax preparation options out there, too. These people know tax law and can sometimes save you a significant amount of money. They may even work with you throughout the year to plan business events in a tax-efficient manner.
Learn How to Do Small-Business Accounting Through Online Courses
If you’re looking to boost your finance skills, but don’t have time to sit down in a traditional classroom setting, these online courses can get you up to speed on your own schedule:
- Udemy offers introductory bookkeeping courses targeted at small-business owners who want to gain an understanding of accounting fundamentals. It offers 4.5 hours of lectures, plus a supplementary course on how to use tools like Excel to manage your company’s expenses, for less than $24.
- Khan Academy has free lessons teaching accounting and financial statements, complete with practice questions and video instruction, great for small-business owners looking for a quick, no-cost introduction.
- Coursera also offers university-grade financial accounting courses, including classes like Finance for Non-Financial Professionals, for as little as $29. It also comes with a seven-day free trial and lets you pick your own schedule, allowing business professionals to learn on their own time.
- Ed2go is another good choice for those seeking to strengthen their knowledge of accounting in addition to receiving intermediate- or advanced-level training. You can take short, 24 course-hour classes like Accounting Fundamentals and move up to a six-month online program like Certified Bookkeeping. It’s a great resource for business owners looking to take that next step in building their accounting literacy.
The Bottom Line on How to Do Small-Business Accounting
Your involvement in your small-business taxes should be determined by an honest assessment of your own skills in accounting. If you have a nuanced understanding of bookkeeping, but don’t know the first thing about tax law, tackle the former on your own, but employ a professional for the latter.
Attempting to handle your business’s accounting may seem like a budget-savvy move, but mistakes can be costly later on. Use the correct tools and professional resources to get the job done right.
Additional reporting by Connor Beckett McInerney.