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Small Business Accounting Best Practices for 2025

Small Business Accounting Best Practices for 2025


Running a small business can feel like juggling multiple responsibilities at once. If your finances aren’t in order, everything can start to feel shaky.

It’s essential to separate your personal and business accounts, manage cash flow effectively, select the right software, and prepare for tax time. This goes beyond just balancing the books; it's about creating systems that support your growth.

While many guides offer general finance tips, this blog digs deeper into what truly works for small businesses. You’ll find practical advice on strategic procedures, forecasting, and hiring.

If you want to move from reacting to your financial situation to making informed decisions, this blog is for you.

Best Practices of Accounting for Small Businesses That You Can Actually Use

Foundational Accounting Practices: For Beginners

The success of a small business greatly relies on a solid accounting foundation. 60% of owners lack confidence in their financial abilities, and over 70% do not hire an accountant. Getting your finances right from the start boosts your success and keeps you out of compliance-related troubles. In this context, here are some beginner’s tips:

Tip 1: Separate Business and Personal Finances

One of the most frequent and expensive mistakes that entrepreneurs make is mixing personal and business expenses. To keep things organized and stress-free, it’s a good idea to open a dedicated business bank account and get a separate credit card for your business transactions. This not only simplifies your tax preparation but also helps maintain clear financial reports. Plus, it offers an extra layer of protection for your assets in the event of audits or legal challenges. Keeping your finances separate can save you a lot of headaches down the road!

Tip 2: Understand Cash vs Accrual Accounting

Cash accounting is straightforward! You record income when it is received and expenses when they are paid. This simplicity makes it especially appealing for startups. On the other hand, accrual accounting offers a more nuanced view by recording income and expenses when they are earned or incurred, regardless of whether cash has changed hands. This method can provide a clearer picture of your business’s profitability, which is particularly valuable as your company expands. The good news is that if your annual earnings are under $25 million, you typically have the flexibility to choose either method in most countries.

Tip 3: Set Up the Right Chart of Accounts

Your chart of accounts is crucial to the functioning of your accounting system. It’s like a map that helps you sort through all your financial transactions, whether it’s sales, expenses, assets, or liabilities. A well-organized chart not only simplifies your reporting but also empowers you to make informed decisions for your business. Yet another small business accounting best practice.

Also Read: Finding the Best Online Bookkeeping Services for Your Business

Tip 4: Reconcile Accounts Weekly

Reconciling your accounts involves ensuring that your records align with your bank statements. If you do this weekly, you’ll catch any missing payments or mistakes early on, plus it helps keep fraud at bay. It only takes about 15 to 30 minutes each week, using a straightforward checklist, to keep everything in check.

Tip 5: Automate Invoicing and Payment Tracking

Handling invoices manually can significantly hinder your cash flow and result in missed payments. Instead, consider using accounting tools like QuickBooks, Zoho Books, or Wave. These platforms can automate your invoicing process and send timely reminders, making it easier for your clients to pay on time. This approach not only helps keep your revenue on track but also saves you valuable time that you would otherwise spend following up on overdue invoices. It’s all about making your life easier and ensuring your business runs smoothly! The best accounting hacks start with these tricks.

Check Our Accounting Case Study!

Bookkeeping vs Accounting: Who Does What?


As yor business grows, so does the complexity of your finances. Knowing the difference between bookkeeping and accounting is one of the small business accounting best practices that helps you decide what to manage yourself, what to delegate, and when to bring in expert support. Here's a clear breakdown:

Core Differences Between Bookkeeping and Accounting

Function

Bookkeeper

Accountant

Primary Role

Records day-to-day transactions

Interprets data, prepares reports, and handles compliance

Tasks

Invoicing, categorizing expenses, bank reconciliation, payroll entries

Tax filing, budgeting, financial analysis, forecasting

Tools Used

QuickBooks, Xero, Wave

Same tools + Excel, ERP systems, forecasting software

Timing

Ongoing, weekly or daily

Monthly, quarterly, or annually

Goal

Accuracy in records

Insights for business decisions and compliance

 

Role Guidance: Solopreneur vs Small Team

Business Size

What You Need?

Why It Works?

Solopreneur

Basic bookkeeping can be DIY with software or delegated to a virtual assistant

Keeps costs low while maintaining control

Team of 2–5

Bookkeeper + part-time accountant (or outsourced support)

Balances daily management with financial planning

Scaling Business

Full-time bookkeeper + accountant or CFO-level advisor (outsourced or fractional)

Prepares for investment, funding, and strategic growth

 

When to Outsource: Key Triggers & Red Flags

Red Flag

Why It’s a Problem?

Recommended Action

You’re spending more time on books than running your biz

Opportunity cost is high

Hire a VA or outsource bookkeeping

Tax season = panic

Indicates a lack of organized records

Work with an accountant quarterly, not annually

Cash flow surprises

Often caused by delayed entries or no forecasting

Use tools + outsource cash flow management

Late or missed invoices

Hurts revenue and trust

Automate and delegate to a VA

 

Virtual accounting assistants offer a flexible and affordable solution for growing businesses. They’re often part of the best accounting services for small businesses, helping with day-to-day financial tasks without the cost of a full-time hire.

Cash Flow Management: Best Practices

Cash Flow Management


In 2019, the UK-based healthy snack brand Primal Pantry closed due to cash flow mismanagement, despite having solid sales. Delayed payments and rising production costs outpaced their cash inflows, which ultimately led to the closure. 82% of small businesses fail due to poor cash flow management. Then, the solution? Here are some simple practices for cash flow management that small businesses can feasibly maintain:

·         Monitor the weekly inflows and outflows:

Leverage tools like Zoho Books and QuickBooks to stay updated on your cash inflows and outflows. This will keep you safe from any future financial surprises!

·         Set a 3-month cash flow forecast goal:

Forecasting is one of the most overlooked cash flow accounting best practices for small businesses. Use a simple spreadsheet or cash flow template from SCORE to project future income and expenses.

·         Keep an emergency reserve aside:

To protect yourself from delayed client payments and seasonal lows, set aside an emergency fund (e.g., three months of fixed operating costs).

·         Develop clear payment terms and SOPs:

Create detailed payment terms with as many pointers as you want, as long as you’re clear and legally sound. Automate invoice reminders and assign someone (or a VA) to follow up consistently.

Accounting Software & Tools: What Actually Works

When it comes to managing finances effectively, selecting the right accounting software can truly make a difference for startups and growing businesses alike. Whether you're handling invoices independently or collaborating with a dedicated financial team, it's essential to find software that strikes a balance between accuracy, automation, and flexibility. You want a tool that simplifies your processes without bombarding you with unnecessary features. The ideal accounting software should help you feel in control of your finances, making your work smoother and more efficient.

Tool

Best For

Pricing (Starts At)

Key Features

Ideal For Business Size

QuickBooks

All-rounder, robust features

$30/month

Invoicing, payroll, tax, inventory

Solo to 50+ employees

Xero

Collaborative accounting

$15/month

Unlimited users, expense tracking

Freelancers to SMEs

Zoho Books

Automation-focused businesses

$0–$15/month

Workflow automation, client portal

Startups & online biz

Wave

Solopreneurs needing free tools

Free

Basic invoicing, accounting

Solo & micro businesses

 

Tax, Compliance & Reporting

Tax season is an ongoing commitment for any business owner. It’s not just a once-a-year event! Staying organized and proactive throughout the year is crucial to avoid the last-minute chaos that often comes with filing.

Here’s a helpful guide to keep you on track:

·         Quarterly Filing Checklist: Regularly monitor your income, expenses, payroll, and estimated tax payments. This proactive approach can alleviate stress when deadlines approach.

·         Managing Taxes Like GST/VAT/Sales Tax: Consider using tools like Avalara or TaxJar to simplify your tax calculations based on your location. Automating this process can save you time and headaches.

·         Watch Out for Industry-Specific Red Flags: Different industries have unique challenges. If you’re in retail, pay close attention to inventory write-offs. If you provide services, be cautious when classifying contractors versus employees to ensure compliance with applicable laws.

·         Collaborate with CPAs: Working with a knowledgeable CPA can make a world of difference. They can help you streamline your bookkeeping, guide you through quarterly reviews, and prepare you for any potential audits.

Top 10 Tax Deductions You Might Be Overlooking

1.      Home office expenses

2.      Software subscriptions

3.      Business meals

4.      Startup costs

5.      Training

6.      Travel

7.      Health insurance

8.      Retirement contributions

9.      Marketing tools

10.  Depreciation

By implementing these best practices for tax reporting and compliance, you can save thousands and avoid costly audits. With a bit of preparation and diligence, you’ll set your business up for financial success.

Scaling Your Accounting Process

Hire Smart

If you find yourself spending more than five hours a week tangled up in finances, consider hiring a bookkeeper or a virtual assistant. This can free up your time to focus on what drives your business forward.

Track Growth KPIs

Keep a close eye on key performance indicators such as Gross Margin, Burn Rate, and Net Profit Percentage. Regularly tracking these metrics will provide you with valuable insights into your business's health and performance.

Wrapping Up

You already understand the essentials, such as having clear Standard Operating Procedures, organized financial records, the right tools at your fingertips, proactive tax strategies, and effective cash flow management. But knowing what to do is only the first step.

That's where we come in. At Brickwork, our team of virtual administrative assistants specializes in accounting and bookkeeping, so you don't have to juggle hiring a full-time team or getting lost in endless spreadsheets. We partner with founders, freelancers, and finance leaders to create sustainable processes tailored to your needs, helping you grow, regardless of your business size or industry.

Let Brickwork be your trusted partner, quietly supporting you as you take your next big leap forward. 

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