Proper management of a business’s finances—and having someone dedicated to that process—is a crucial component of success for startups and small businesses alike.
According to the Bureau of Labor Statistics, about 22% of new businesses don’t make it past year one, and only 35% remain in business 10 years after their launch. Adherence to accounting best practices and hiring or outsourcing a person dedicated to this function can help prevent the cash flow issues that are to blame for many business failures. These best practices also point the way to insights that can lead to business growth.
Key Takeaways
- Strong accounting fundamentals, from bookkeeping to reconciliation, give a small business the accurate financial picture it needs to make good decisions.
- Automating repetitive tasks with AI-powered accounting tools frees up meaningful time without adding headcount.
- Consistent habits, such as a set bookkeeping schedule and regular cash flow monitoring, catch small problems before they become big ones.
- Professional guidance, whether for taxes or bookkeeping, is often worth the cost for a small business without in-house accounting expertise.
- The right accounting method and the right software both depend on where a business is today and where it's headed next.
Accounting 101 for Startups and Small Businesses
Most small business owners started their companies to do the work they love, not to reconcile accounts or prepare financial statements. Yet these practices help keep a business solvent, informed, and able to grow. The good news is that accounting software can handle many of the following functions, freeing owners to focus on the business itself. That said, owners still must understand the fundamentals to stay in control of their finances and make sound decisions.
Bookkeeping
Bookkeeping is the practice of recording and organizing every transaction a business makes. It’s tactical work that covers a wide range of activities, including recording customer sales, paying the company’s bills, reconciling bank information, and creating reports. The bookkeeper’s deliverable is a clean, complete set of books and records that can be handed off to an accountant as the building blocks for bigger-picture analyses, such as financial statements or tax returns. Growing businesses use double-entry bookkeeping, recording each transaction as both a debit and a credit, since it’s required for Generally Accepted Accounting Principles (GAAP) compliance and gives a clearer picture of finances than the simpler single-entry method..
Expense Tracking and Recordkeeping
Expense tracking and recordkeeping mean saving the receipts, invoices, and credit card statements that back up what a business reports on its books. It is important to have proof in order to substantiate a tax deduction or answer an audit question from either the IRS or independent auditors. Many businesses handle this with accounting software that scans and files receipts and invoices automatically, cutting down on lost paperwork and manual entry. The IRS generally recommends keeping tax records for at least three years, though some documents may warrant longer retention.
Cash Flow Management
A company can be profitable on paper and still run short of cash if funds come in more slowly than they go out. This is why cash flow is often considered the truest measure of short-term financial health. Cash flow management tracks the timing of inflows and outflows so that obligations can be met as they come due. A cash flow forecast is a key tool that projects expected income and expenses over the weeks or months ahead. This forward look helps a business anticipate shortfalls and decide whether to draw on a line of credit, delay a discretionary purchase, or accelerate collections.
Accounts Payable and Accounts Receivable
Accounts payable (AP) is the money a business owes to suppliers and vendors. Accounts receivable (AR) is the money customers owe the business for sales made on credit. The AP process includes matching purchase orders with invoices and shipping receipts, as well as obtaining the right line of business approvals before making payment. AR begins with customer billing and carries through until the cash is collected. The processes should be coordinated so that a company doesn’t leave itself short on cash by paying AP faster than customers pay their outstanding AR. The longer an invoice goes unpaid, the harder it can be to collect, which strains cash flow.
Reconciliation
All it takes is one unrecorded bank fee, a payment that clears late, or a transaction entered twice for a business’s books and financial statements to veer from reality. Reconciliation is the process of comparing internal financial records with an outside source to confirm they match. It’s a basic but important internal control. For example, businesses regularly reconcile its bank account against the general ledger cash account, or its credit card statements against AP, to confirm the numbers match. Doing reconciliations by hand is usually tedious, which is why more accounting software platforms have automated this using AI. Bookkeepers typically reconcile accounts monthly, checking that every recorded transaction has a matching entry on the actual statement.
Financial Statement Preparation
Financial statement preparation turns the transactions recorded through bookkeeping into a business’s three core financial documents. The income statement, or “P&L,” shows revenue, expenses, and whether the business made a profit over a given period. The balance sheet shows what the business owns (assets) and owes (liabilities) at a single point in time. The cash flow statement shows the cash balances at the beginning and ending of a period, including the inflows and outflows. Financial statements are used internally and externally by lenders and investors.
Taxes and Compliance
Taxes and compliance cover what a business owes to federal, state, and local governments, along with the deadlines and rules attached to each filing. This includes income tax, payroll taxes, real estate taxes, and sales tax if the business sells taxable goods or services. Missing a filing deadline or misclassifying income can trigger penalties or interest charges. Many small businesses use accounting software to track these deadlines automatically or work with a tax professional who handles the filings directly.
Top 18 Small Business and Startup Accounting Tips
Every small business needs to follow basic accounting processes for strong financial management practices. They include the following 18 tips.
-
Separate Business and Personal Expenses
One of the first steps a small business should take is opening a business bank account, which it can do after obtaining its Employer Identification Number (EIN); sole proprietors can use Social Security numbers. Business bank accounts offer several advantages over personal ones, including:
- Making it easier to track and substantiate business expenses to take advantage of tax deductions.
- Offering personal liability protection by keeping business funds separate from personal funds.
- Providing the option of a line of credit that the company can use to cover cash gaps.
Businesses should open a checking account, savings account, credit card account, and merchant services account, which allows the company to accept credit and debit card transactions from customers.
-
Get Bookkeeping Software (and a Bookkeeper)
Bookkeeping is a critical component of financial management that makes certain business owners have the information they need to make sound business decisions. For many small business owners, accounting is not in their skill set. Hiring a person dedicated to the task or, for smaller businesses, outsourcing the function is often a wise investment.
Accounting software automates bookkeeping processes that are time-consuming and error-prone when completed manually, and makes it easier to find all of that information to complete financial statements. Small businesses are finding real success with cloud accounting—so much so that cloud-based solutions now make up about 68% of the accounting software market, a share predicted to grow at a 10.15% CAGR through 2031, according to Mordor Intelligence. Although most businesses start with basic accounting software, as they grow and become more complex, they may need to invest in an ERP system. Once a company has an ERP system, it can add modules for other business functions, with everything tied to a single database.
-
Automate Time-Intensive Tasks
Automated software can alleviate the error-prone manual burdens of repetitive, rules-based accounting work, which frees owners and their accountants to focus on interpretation and decisions. But automation doesn’t remove the need for human judgment; it just moves the human effort to where it adds the most value. For example, software can pull transactions directly from connected bank and credit card accounts, then sort them into the appropriate categories using rules or AI. Recurring invoices can be generated and sent on a schedule, and automated reminders can chase overdue payments. Many tools automatically match incoming payments to open invoices. Vendor bills can be captured (often via a photo or emailed PDF), routed for approval, and scheduled for payment.
On the back end, payroll systems can calculate wages, withhold and remit payroll taxes, issue direct deposits, and file the associated forms on schedule. Software tools can apply the correct sales tax rate by jurisdiction at the point of sale and, in some cases, prepare or file returns, which is valuable for businesses selling across multiple states. For financial reporting, income statements, balance sheets, and cash flow statements can be generated on demand or on a set schedule. And by drawing on historical patterns and scheduled payables and receivables, software can project cash position weeks or months ahead and spot potential shortcomings early.
-
Develop a Budget
A budget is the financial representation of a company’s operating plan. It typically takes the form of a budgeted income statement that lays out the intended revenue and costs for a set period, usually the next year. Many companies will prepare the companion budgeted balance sheet and cash flow statement as well. Building the budget starts with realistic revenue projections and a list of anticipated expenses based on planned activities, such as product launches, market share growth, hiring, and operating needs to fulfill the revenue goals. Budgets are static and serve as a measuring stick, benchmarked against actual results, for both leadership and departmental managers. For example, if actual spending runs ahead of the budget, an owner can catch it and make appropriate adjustments. Budgets are also often used to set compensation for bonuses and sales goals. A forecast takes the budget as its starting point but shifts to an objective view of what’s likely to happen based on current information. Budgets and forecasts help guide decisions for when a new hire is affordable, when to delay a purchase, when it’s the right time to raise prices, or when a slow period calls for cutting costs
-
Keep Accurate Business Records
Recordkeeping is one of the most important responsibilities for a small business owner. Accounting software can automate much of the recordkeeping process and digitally store financial records. That makes it easy to document the amount, time, place and business purpose of a transaction when you claim expenses as tax deductions. IRS requirements mandate keeping the records, in general, for at least three years—accountants recommend keeping them for seven years. Records a business needs to maintain are listed in detail in IRS Publication 583. But a few worth calling out for small businesses and startups include:
- Gross receipts are the income you receive from your business. Records include point-of-sale or cash register reports, deposit information (cash and credit sales), receipt books, invoices, and Forms 1099-MISC or 1099-NEC.
- Expenses are the costs you incur to operate your business. Records include canceled checks or other documents reflecting proof of payment/electronic funds transferred, cash register tape receipts, account statements, credit card receipts, and statements and invoices.
- Fixed assets need to be recorded to compute the annual depreciation and their gain or loss when you sell them. Asset documents include purchase and sales invoices; real estate closing statements; canceled checks or other documents that identify payee, amount, and proof of payment/electronic funds transferred; credit card receipts; and statements and invoices. Costs related to the purchase of limited life intangible assets are amortized. Other asset categories, such as current or indefinite-life intangible, are neither depreciated nor amortized.
-
Choose an Accounting Method
Every small business and startup must pick a set of rules for determining when to report income and expenses. This provides a consistent accounting method for tax purposes. In general, under changes put in place by the Tax Cuts and Jobs Act, beginning in 2026, small businesses with $32 million or less in annual gross receipts for the three prior tax years can choose between accrual accounting and cash basis accounting. However, because GAAP requires accrual accounting, many companies prefer this method.
Cash basis accounting can be more straightforward and easier to manage for small businesses because revenue is recorded when payment is received. Similarly, expenses are deducted when the money actually comes out of the company’s account. Accrual accounting records the sales when a product ships or a service is delivered. In a retail setting, a sale is recognized at the time of purchase, and in other industries revenue may not be recorded for several weeks or even months after the sale. It requires double-entry bookkeeping. Since accrual accounting takes a long-term view of the business, it generally provides a better picture of a company’s financial health.
-
Keep the Books Up to Date
Without keeping the books current, owners and employees don’t have a clear picture of the company’s financial state. Automating receipt and invoice capture is one way to confirm the books are always up to date. Another important step is to link bank accounts with your accounting software. Businesses can download credit card and bank statements and manually import them as CSV (Excel), but some accounting systems offer a plug-in that will pull information from your bank account and automatically retrieve daily bank transactions and statement files. The business can define the matching rules in their system to reconcile the statements, which makes the reconciliation process much easier. Some accounting software offers a direct integration to banks, so the business owner can manage and complete all banking tasks in the accounting system without also logging into their bank account portal.
-
Consider a Bookkeeping Schedule
Even with automation handling much of the data entry, someone still needs to review the books on a set cadence. A bookkeeping schedule breaks that review into a daily, weekly, and monthly rhythm so nothing piles up. For example, checking the cash balance takes just a few minutes each day and can catch a problem before it grows. Weekly tasks include recording new transactions, filing receipts, following up on unpaid invoices, and reviewing cash flow at a glance. Monthly tasks include reconciling every account, closing the books for the period, generating financial statements, and comparing actual results to the budget.
-
Optimize AP Terms and AR Invoicing
To hold on to cash longer, take advantage of credit terms from key suppliers. Pay bills on a schedule that maximizes your cash flow, and when possible, pay early with vendors that offer a discount for doing so. To promote steady cash flow, do everything possible to encourage on-time payment from customers. That could include offering discounts for early payment, running credit checks on potential customers before doing business with them and, when necessary, revoking credit terms. Accounting software that can automate invoicing processes by automatically sending out bills and follow-up reminders could also help prevent outstanding invoices from piling up.
-
Separate Accounting Functions
Public companies must follow regulations that require controls to assure segregation of duties. Small businesses are more likely to have a single person handling many accounting functions, but this creates an environment that introduces the risk of accounting fraud. However, owners can minimize this risk by putting some simple controls in place. One effective control is to make sure that the same person who cuts the checks doesn’t sign the checks and reconcile the bank statements.
-
Monitor Cash Flow
Cash flow and profitability are related, but both need to be monitored separately. A business can look profitable and still come up short at payroll time if too much cash is tied up in unpaid invoices. Continuous cash flow reviews give a business more time to react. A simple cash flow snapshot lists the current cash balance, the payments expected to come in, and the bills due to go out over the next few weeks. If cash is tight but the business’s gross margin (revenue minus cost of goods sold, divided by revenue) is still healthy, the issue is usually just timing of cash flows, and collecting faster or renegotiating payment terms can solve it. But if gross margin is also slipping, the problem may run deeper.
-
Keep an Eye on Certain High-Cost Expenses
Labor costs are the largest expense for most small businesses, and inventory is often another. To reduce labor expenses, many small businesses outsource work to contractors that bill at an hourly rate. This can be cheaper because the contractors may not need 40 hours/week to complete your work, and they don’t require benefits. Time-tracking software can help leaders understand how much certain tasks are costing the business, enabling the business to better budget and find ways to control these expenses. Companies can lower inventory costs by tracking inventory carrying costs, inventory turnover ratio, amount lost to obsolete inventory, and other key metrics.
-
Plan for Major Investments
By consistently tracking expenses and revenue, the business can identify the best time for large investments and establish the credit it may need to cover the cost. Business credit cards can help an organization establish a credit history so it has a better chance at qualifying for financing (and optimal financing terms), including lines of credit and loans, when it needs more capital. Securing these funding sources is important to a company’s overall financial health. In the Federal Reserve’s “2025 Small Business Credit Survey,” 86% of firms use financing, but only 42% of financing applicants received the full amount they sought, and 22% received none at all, underscoring how much a strong credit history can affect access to capital. Additionally, credit cards offer perks for the business, such as business or travel rewards.
-
Carefully Monitor Tax Preparation
The IRS generally requires that sole proprietors, partners, and S corporation shareholders make estimated tax payments if they expect to owe taxes of $1,000 or more when their return is filed. There are specific employment tax records you must keep (detailed in IRS resources on Recordkeeping and Reporting (opens in new tab) and Employer’s Tax Guide (opens in new tab)). The IRS provides worksheets in Form 1040-ES, Estimated Tax for Individuals (opens in new tab). Corporations calculate estimated tax using the instructions for Form 1120. Businesses should also check the IRS tax calendar (opens in new tab). The tax calendar includes due dates and actions for every month. A business can sign up for email reminders or even import reminders into Outlook.
-
Seek Professional Tax Preparation Guidance
According to the National Small Business Association’s “2025 Small Business Taxation Survey,” most small business owners spend 20-plus hours a year dealing with federal taxes—and the vast majority still pay an external tax practitioner to handle them. The same survey found that complexity and administration, not the dollar amount owed, is the biggest burden small businesses report, and more than half said it’s difficult to get clear answers directly from the IRS. A tax professional who already knows the rules can absorb both of those headaches. There are even more benefits here for a sole proprietor, as the cost of hiring someone to prepare your business’s tax return is deductible.
-
Be Sure Inventory Data Is Accurate
To prepare financial statements, the business needs accurate inventory data. It must calculate the cost of goods sold (COGS) for the income statement and the value of inventory on hand for the balance sheet. Physical inventory is tracked either by manually counting items on a regular basis or pairing counts with an inventory management system that can automatically adjust the numbers as sales happen if it’s integrated with the point-of-sale system and accounting software. Inventory management software not only makes it much easier to track inventory, but also makes the information more accurate.
-
Use Financial Statements to Evaluate Business Performance
The income statement, balance sheet, and cash flow statement each captures a different view of a company’s financial situation, making them essential tools for management’s evaluation. It is also why lenders and investors typically want to see all three before extending financing. In addition to the statements themselves, more granular evaluation happens by pulling pieces into key performance indicators (KPIs). KPIs are measurable benchmarks tracked from period to period that show relationships reflecting profitability, efficiency, liquidity, leverage, and valuation. A few examples include net profit margin, which shows how much of every dollar in sales becomes profit after all expenses; the current ratio, which shows whether the business can cover its short-term bills; and return on assets, which shows how effectively the business puts what it owns to work generating profit. Tracking these KPIs over time reveals trends, such as a shrinking margin or tightening liquidity, so it is important to choose the right ones for your business model.
-
Generate Financial Projections
A financial projection estimates future income and expenses based on a specific scenario, such as taking on a new loan, launching a product, or reorganizing the staff. Unlike an ongoing financial forecast, which continually updates based on what’s actually happening, a projection is typically built once for that specific scenario, using financial modeling techniques to layer assumptions on top of the business’s historical financials. The result is often a set of pro forma financial statements, which include a projected income statement, balance sheet, and cash flow statement that show what the business would look like under that scenario. Internally, projections are used to decide whether the business should attempt the scenario before committing to it. Lenders, investors, and other stakeholders often request a projection before extending financing or considering an acquisition, since it answers the question they care about most—what the business will do with the money and how it will pay it back.
Financial projections help businesses estimate future income and expenses to anticipate if they need financing or should make capital expenditures. Financial forecasts help business leaders estimate cash flow and determine when to change pricing or production plans.
Forecasts provide important financial information to external stakeholders when the business seeks a loan or funding, or if the business is the target of an acquisition. A company can also use these forecasts to create pro-forma financial statements, which are projected income statements, balance sheets, and cash flow statements. Projections are based on financial modeling techniques and provide the answers to questions that may come from lenders, investors, or other business stakeholders. At their basic level, they provide the answer to a question like, “If we lend you this money, what will you do with it and how will you pay it back?”
How Frequently Should Small Businesses Review Their Finances?
There’s no single right answer to how often a small business should review its finances. Generally speaking, the more often owners look at the numbers, the sooner they can catch problems and act on opportunities while there’s still time to make a difference. The right cadence depends on the business, driven by:
- Cash position: A business running with a thin cash cushion or a short runway benefits from watching cash weekly, or even daily, so a shortfall never comes as a surprise. One with ample reserves may be comfortable with a monthly look.
- Transaction volume: A high-volume retailer or busy service firm may need to review weekly, or even daily, so errors and discrepancies don’t pile up between checks. A business with only a handful of transactions a week can review less often.
- Stage and growth: Early-stage startups and fast-growing companies tend to review more frequently, since their numbers change quickly and decisions come fast. A stable, established business may find a steadier rhythm sufficient.
- Seasonality: A business with sharp seasonal swings may ramp up review during its peak and busy build-up, then ease off in the quiet months.
- Outside obligations: Loan covenants, investor reporting, or payroll and sales-tax deadlines can set a minimum cadence regardless of preference.
The Right Accounting Software Can Do All the Heavy Lifting
The 18 accounting tips in this article become much easier to implement when the right software does the heavy lifting. NetSuite Cloud Accounting Software brings bookkeeping, AP, AR, reconciliation, and tax management into a single system, where the data updates in real time for an accurate view of cash position, profitability, and financial performance. The system automates reconciliation, using AI to match transactions and flag only what needs a human eye. As a result, owners can close the books faster at period-end, generate financial statements on demand, track profitability and other key metrics through role-based dashboards, and lean on AI-driven forecasting to project cash flow weeks or months ahead. Automated invoicing, payment processing, and collections bring cash in sooner, while built-in tax management applies the right rules and keeps reporting audit-ready. As the business grows and its needs become more complex, the scalable platform can add capabilities and users without forcing a disruptive switch to a new system down the road.
By establishing strong accounting processes from the start, small businesses and startups increase their likelihood of success. Bookkeeping may not be the passion of most owners, but the practices covered here—including separating accounting functions, developing a budget, staying on top of cash flow, and leaning on the right software—give them the clear financial picture needed to make sound decisions and pursue growth.
Small Business Accounting Tips FAQs
What are a few common accounting tasks for small business owners?
Common accounting tasks include recording daily transactions, tracking expenses, invoicing customers, and paying vendor bills. Owners also reconcile their bank and credit card accounts, prepare financial statements, and manage tax obligations throughout the year. Accounting software can handle much of this work, so owners spend less time on data entry and more on running the business.
What is the best way to account for a small business or startup?
Many small businesses and startups do well by adopting cloud-based accounting software that automatically records transactions, categorizes expenses, reconciles accounts, and generates financial statements. The right system also scales as the business grows and keeps records accurate and audit-ready.
What are the accounting requirements for a small business or startup?
Requirements vary by business structure, location, and industry. Most small businesses and startups need to file federal and state taxes and report income appropriately for their entity type, whether a sole proprietorship, partnership, LLC, or S corporation. Businesses with employees also have payroll tax obligations, and those selling goods may need to collect and remit sales tax.
