Running a small business means wearing many hats—CEO, marketer, customer service rep, and often, bookkeeper. But with continued supply chain issues, economic uncertainty, and shifting global markets, staying on top of your finances is more important than ever.
Solid ecommerce accounting helps you understand your business’s performance, make informed decisions, ensure tax compliance, and, ultimately, drive growth. Neglecting your books can lead to cash flow problems, missed opportunities, and unnecessary stress.
This article provides 10 essential accounting tips for small business owners. Whether you’re just starting out or looking to refine your processes, these insights will help you manage your books, leverage technology, plan for taxes, and make confident financial decisions.
What is accounting?
Accounting is how you track, organize, and understand the money flowing in and out of your business. Beyond recordkeeping, it’s the foundation for making strategic decisions, managing cash flow, meeting legal obligations, and planning for growth.
Proper small business accounting helps you answer critical questions: Are we profitable? Can we afford to expand? Where can we cut costs? For ecommerce businesses, this includes managing online sales, inventory, and complex sales tax obligations across different regions.
Whether you’re a solopreneur or managing a growing team, understanding the basics—like the difference between bookkeeping versus accounting or how the accounting cycle works—will set you up for success.
10 accounting tips for small business owners
- Separate business and personal expenses
- Use bookkeeping software
- Create a budget
- Keep detailed records
- Understand sales tax laws
- Manage cash flow
- Stay organized, clean up the books
- Choose an accounting method (cash vs. accrual)
- Automate invoicing
- Plan ahead for taxes, stick to deadlines
Ready to take control of your business finances this year? These 10 essential accounting tips can help keep your business’s finances organized and on track for success this year and beyond.
1. Separate business and personal expenses
One of the first and most crucial steps in small business accounting is separating your business and personal finances. Open a dedicated business bank account and use a business credit card for all company expenses. Why is this so important?
- Tax simplification: It makes business deductions easier to track, reducing your tax prep time and liability.
- Accurate financial picture: Mingling funds makes it difficult to assess profitability and make sound financial decisions.
- Liability protection: If your business is structured as an LLC or corporation, keeping finances separate helps maintain the legal distinction between you and your business, which is vital for personal liability protection. Sole proprietors don’t get this separation, but it is still a best practice for clarity and professionalism.
- Credibility: Separation presents a more professional image to lenders, investors, and suppliers.
Consider obtaining an EIN (employer identification number), which is often required to open a business bank account. And establishing a business credit score.
2. Use bookkeeping software
Manual bookkeeping is inefficient and prone to errors. Leveraging modern accounting software is essential for accuracy, efficiency, and visibility into your finances. The rise of AI for business can save you considerable time and effort, making small business accounting easier.
Benefits of using bookkeeping software include:
- Automation: Many platforms automate bank transaction reconciliation, invoice generation, and expense tracking. Some even incorporate accounting automation to categorize transactions or predict cash flow.
- Accuracy: Reduces the risk of manual data entry errors.
- Real-time insights: Cloud-based solutions allow you to access your financial data anytime, anywhere, providing up-to-date reports on cash flow, profit and loss, and more.
- Integration: Most modern accounting software connect with ecommerce platforms like Shopify, payment processors, and payroll systems, keeping your data synced.
- Scalability: Software can typically scale with you, handling more complex transactions and reporting needs.
When choosing software, consider your business size, specific needs (e.g., inventory management for ecommerce), budget, and ease of use.
3. Create a budget
A business budget is your business’s financial roadmap. It details your expected income and expenses over a specific period, typically a month, quarter, or year. Creating a business budget helps you manage spending, allocate resources effectively, and prepare for what’s ahead.
Without a budget, it’s easy to overspend or miss growth opportunities. It provides a benchmark, helping you measure performance and make necessary adjustments to stay on track with your financial goals.
For new businesses, a budget helps clarify startup costs and ongoing operational expenses. For established businesses, it supports planning for expansion, hiring, and new product launches—especially during uncertain economic times.
To get started, list all your anticipated income sources and categorize your expected expenses (fixed, variable, and one-time). Then compare your budget against your actual financial results regularly and adjust as needed. This proactive approach to financial management will help with your long-term sustainability.
📚Learn how to create a business budget and learn how to create a budget to guide you.
4. Keep detailed records
Maintaining organized financial records is a cornerstone of good accounting. This means tracking all income, expenses, receipts, invoices, and statements related to your business. Why is this so vital?
- Tax compliance: Detailed records simplify filing your taxes and substantiating your income and deductions if you’re ever audited.
- Financial analysis: Accurate records allow you to understand your business’s performance, identify trends, and make data-driven decisions.
- Budgeting and forecasting: Historical data helps you create more realistic budgets and financial forecasts.
- Dispute resolution: If a customer or supplier raises an issue, reliable records give you proof.
Use your accounting software to store digital copies of receipts and invoices. Cloud storage solutions offer a secure and accessible way to back up your financial data. Many apps can scan and automatically categorize receipts, further simplifying this process.
Make it a habit to record transactions regularly—daily or weekly—rather than letting them pile up. Consider implementing bookkeeping best practices to ensure your records are accurate and useful.
📚Get 7 tips to streamline your bookkeeping processes.
5. Understand sales tax laws
Sales tax can be one of the most complex areas of accounting for small businesses, especially for ecommerce accounting, where you might be selling to customers in multiple states or even countries. It is crucial to understand and comply with sales tax laws to avoid penalties and back payments.
Key considerations include:
- Nexus: This is your business’s connection with a state. If you meet a state’s economic nexus threshold (usually based on revenue or number of sales), you must collect sales tax, even if you have no physical presence there.
- Taxability: Not all goods and services are taxable, and rules vary by state. You need to determine if what you sell is subject to sales tax in the locations where you have nexus.
- Sales tax rates: Rates can vary by state, county, and city.
- Registration and filing: You’ll need to register for a sales tax permit in states where you have nexus and file regular sales tax returns.
Tools like Shopify Tax can help automate sales tax calculations and collection based on the latest laws. That’s especially helpful if your business does ecommerce accounting in multiple regions
6. Manage cash flow
Cash flow is the lifeblood of any small business—it’s the movement of money into and out of your business. Positive cash flow means you have more money coming in than going out, while negative cash flow can lead to problems, even if your business is profitable on paper. Effective small business finance hinges on diligent cash flow management.
Effective cash flow management ensures you can meet obligations, invest in growth, and navigate slow periods without scrambling for cash. Regular cash flow analysis lets you identify trends and adjust before issues arise.
To manage cash flow effectively:
- Monitor it regularly: Use your accounting software to track your inflows and outflows.
- Create projections: A cash flow statement and forecast helps you anticipate future cash surpluses or shortfalls.
- Invoice promptly and follow up on receivables: The sooner you bill, the sooner you get paid.
- Watch inventory levels: Avoid tying up too much cash in slow-moving stock.
- Control expenses: Regularly review your spending and look for areas to save.
Understanding and proactively managing your cash flow is essential for financial stability and sustainable growth.
Free Cash Flow Statement Template
Balancing your books can be stressful. Take charge of your finances with our free cash flow statement template.
7. Stay organized, clean up the books
Staying organized and regularly “cleaning up” your books is essential for financial clarity. It’s not just about keeping records; it’s about reviewing, reconciling, and resolving issues before they snowball.
Why ongoing organization is important:
- Accurate financial reporting: Regular reconciliation of bank accounts, credit card statements, and loan accounts ensures that your financial statements (like profit and loss and balance sheet) reflect your true financial position.
- Error detection: You’ll catch errors, discrepancies, or even fraudulent transactions early before they escalate into bigger problems.
- Better decision-making: Clean books provide reliable data for making informed business decisions, from pricing strategies to investment choices.
- Reduced stress: Knowing your financials are in order reduces stress, especially during tax time or when seeking financing.
Schedule time regularly (e.g., weekly or monthly) to review your transactions, categorize expenses properly, reconcile accounts, and address any outstanding issues. Consistency prevents backlogs of disorganized data and keeps your data a reliable resource. These are key small business bookkeeping tips for long-term financial health.
8. Choose an accounting method (cash vs. accrual)
When you set up your accounting system, you’ll need to choose between cash basis or accrual basis. This choice determines when you record income and expenses, and how you track profitability.
- Cash basis accounting: You record income when it’s received and expenses when they’re paid out. This method is simpler and ideal for small businesses or solopreneurs because it directly reflects cash flow.
- Accrual basis accounting: You record income when it’s earned and expenses when they’re incurred—regardless of when cash changes hands. This method provides a more accurate picture of a company’s financial performance.
For example, if you invoice a client in December but get paid in January, you’d record the income:
- In January under the cash basis method
- In December when you earned it by providing the service or product under the accrual method
Many small businesses start with a cash basis strategy due to its simplicity. However, if you carry inventory or exceed IRS thresholds, you may be required to use the accrual method. Investors and lenders also prefer accrual based financials.
You may also hear terms like GAAP (generally accepted accounting principles) or IFRS (International Financial Reporting Standards). These are accounting standards used by larger companies. While you don’t need to know them in depth, your accountant can help if these standards become relevant as your business grows.
9. Automate invoicing
Invoicing is a regular task for many small businesses, especially those with recurring clients or service-based work. Automating your invoicing process saves time, reduces errors, improves cash flow, and helps you stay on top of your accounts receivable.
Many accounting platforms now include built-in invoicing tools that let you:
- Generate and send invoices automatically, based on preset schedules or project milestones
- Accept online payment options, making it easier and quicker for clients to pay you
- Send automatic payment reminders for overdue invoices without manual followup
- Track invoice status so you know what’s sent, viewed, paid, or overdue
Automation also reduces the risk of errors and makes your invoicing look more professional with branded templates.
For businesses that need a quick solution, a free invoice generator can also be a starting point.
10. Plan ahead for taxes, stick to deadlines
Taxes are one of the most important areas to plan for as a small business owner. Failing to plan for taxes or missing deadlines can result in significant penalties, interest, and stress.
Put together an effective tax management strategy:
- Understand your obligations: Know which taxes apply to your business (income tax, self-employment tax, sales tax, payroll tax, etc.) and their respective deadlines. Consulting the how to file small business taxes guide for an overview.
- Make estimated tax payments: If you expect to owe $1,000 or more in federal income tax, you’ll likely need to pay estimated taxes quarterly. This avoids a large tax bill (and potential underpayment penalties) at year end. Set aside a portion of your income regularly to cover these payments.
- Keep accurate records: Detailed records are crucial for claiming all eligible deductions and accurately calculating your tax liability.
- Stay informed about tax law changes: Tax laws can change, so it’s important to stay updated or work with a tax professional who can advise you.
- Meet all deadlines: Mark tax deadlines on your calendar and file and pay on time.
By planning throughout the year, keeping good records, and understanding your obligations, you can manage your taxes more effectively and avoid unpleasant surprises. Working with a tax professional can also be a valuable investment, especially as your business grows or if your tax situation is complex.
Get expert help with small business accounting
Even with the best accounting tips and tools, there may come a time when you need professional assistance. A qualified accountant, tax professional, or bookkeeper can offer valuable expertise, save you time, and help you avoid costly mistakes, especially as your business grows or faces more complex financial situations.
They can assist with tax preparation, financial planning, audit support, and long-term planning advice.
Don’t hesitate to get expert advice when you need it. Investing in professional accounting support can be one of the best decisions you make for the long-term health and success of your business.
Don’t sweat your sales tax
Navigating the complexities of sales tax, especially for ecommerce businesses selling across multiple states, can be daunting. Shopify Tax helps simplify this by automatically calculating and collecting the right amount of sales tax at checkout, based on up-to-date tax rules. It’s an easy way to save time, reduce risk, and help ensure compliance.
Accounting tips FAQ
What are the 3 golden rules of accounting?
While often simplified, the core principles of double-entry bookkeeping can be summarized as:
- Debit the receiver, credit the giver (for personal accounts)
- Debit what comes in, credit what goes out (for real accounts, like assets)
- Debit all expenses and losses, credit all incomes and gains (for nominal accounts)
These rules ensure the accounting equation (Assets = Liabilities + Equity) always balances.
What is the best way to do accounting for a small business?
- Separate business and personal finances
- Use accounting software suited to your needs
- Keep detailed, accurate records of all transactions
- Review financial reports regularly
- Plan for taxes and meet all deadlines
- Consult a professional when needed
How do I do accounting for my Shopify store?
Accounting for a Shopify store involves tracking sales, inventory, cost of goods sold, transaction fees, shipping costs, marketing expenses, and sales tax. Shopify provides sales reports and integrates with accounting software like QuickBooks or Xero to streamline data entry. Many general ecommerce accounting principles apply here.
How do I manage my small business finances?
- Create and stick to a budget
- Monitor your cash flow closely
- Keep business and personal finances separate
- Use accounting software to track income and expenses
- Review financial statements regularly
- Plan for taxes and set aside funds for payments
- Understand your financial metrics
- Know when to seek advice from professionals
You can also explore business tax deductions to ensure you’re maximizing your eligible write-offs.
What are the first accounting steps a new business owner should take?
- Open a separate business bank account and credit card
- Choose an accounting method (cash or accrual)
- Select and set up accounting software
- Develop a system for tracking income and expenses
- Learn your basic tax obligations
- Create an initial budget
How can AI help with small business accounting?
- Automating data entry and categorization
- Improving accuracy
- Providing advanced analytics and forecasting
- Enhancing fraud detection
- Streamlining reconciliation
Many modern accounting platforms are incorporating AI tools to offer these capabilities.
Are cloud-based accounting solutions secure?
- Data encryption: Encryption in transit and at rest
- Secure data centers: Protected physical and digital storage
- Regular backups: Frequent backups prevent data loss
- Multifactor authentication: Added login security
- Compliance with standards: Industry protocols and certifications
Cloud accounting is often more secure than local storage, provided you use strong passwords and MFA with a reputable provider.
