Which System of Accounting Is Suitable for a Small Business?

The Milestone Team August 11, 2023
which system of accounting is suitable for small business

The hallmarks of small business accounting are not necessarily positive. Messy. Behind. Confusing. Not standardized. Misplaced. These hallmarks come from people wearing too many hats or lacking professional experience. Choosing the right outsourced accounting system and method goes a long way toward getting your financials in good shape. So, what is the best accounting software for small businesses? Let’s take a look.

What Is the Best Accounting Software for a Small Business?

Quickbooks Online is the best accounting software for small businesses. We are not the only people to say so, QBO ranks 1st on G2 for small business accounting. Certain industries, such as real estate management or law, may have industry-specific accounting software, but candidly, these rarely trump Quickbooks. Most accounting software and other competitors, such as Sage and NetSuite, can be more difficult to use. Here are the top 3 reasons we recommend Quickbooks Online as the best small business accounting software.

Reasons to Choose Quickbooks for Your Small Business Accounting Software

  1. Simplicity: Quickbooks Online is one of the easiest accounting software to use. Compared to competitors with similar market share, it ranks highest on G2 ratings for ease of use, with NetSuite not even being in the top 20 for all platforms. 
  2. Quickbooks Ecosystem: Quickbooks open API and fintech integrations are best-in-class. This allows for many different apps and accounting features to integrate with Quickbooks. The advantage of this is typically automation with bill pay, receipt capture, inventory management, expense tracking, and more. It also allows for more robust reporting, forecasting, and industry-specific tools. Quickbooks is cloud-based as well, making it a secure and accessible option for online accounting software. 
  3. Standard: QBO is the standard for small businesses. This means more people know how to navigate it, and training is less difficult. It’s much more likely to find accountants and accounting firms with experience in Quickbooks than any other platform. 

Are There Free Accounting Software Options?

While there are free accounting software options, it’s important to pick the best accounting software for your business needs. This might entail buying cloud-based accounting software for small businesses, or even hiring a small business virtual accountant as the benefits can oftentimes outweigh the cost.

Which Accounting Method Is Best for Small Businesses?

The accrual method is the standard best practice for all businesses. The accrual method reports based on when revenue is earned, or expenses are incurred rather than reporting on the exchange of money. Therefore, the accrual method of accounting is more indicative of a company’s true performance in any given time period than cash basis accounting. 

Why Do Small Businesses Use Cash Basis Accounting?

Small businesses use cash basis accounting for 2 reasons. The first reason is to have a better understanding of their current cash flow. It’s simpler to see but often deceptive. The second reason is someone untrained in accrual accounting is doing it. Cash basis accounting is simpler to learn and keep up with, especially for non-accountants. 

Which Is Better for a Small Business, Cash or Accrual Accounting?

Accrual accounting is better for small businesses because it more accurately shows how a business performs during X time period. 

Cash basis accounting differs from accrual accounting by the way it reports revenue and expenses. Cash basis accounting reports transactions when cash is received or sent. Accrual accounting reports transactions when the anticipated revenue or expense is earned or used. Here’s an example: A business pays $120,000 in January for 12 months of office space. Cash basis accounting would report all $120,000 of that expense in January. Accrual accounting would report $10,000 each month of the year. Thus, a cash basis statement for January would look much higher on expenses in January than is accurate because the office space is for the whole year. 

How Do I Set Up an Accounting System for a Small Business?

The first step in setting up an accounting system is to choose one. As we mentioned earlier, we recommend QBO. Each platform has an implementation team to take you through the onboarding process. The most difficult part can be setting up integrations and the chart of accounts. If you are unfamiliar with these, we recommend outsourcing to a firm or freelancer so they are set up in a way that will fit your business. 

Can I Do My Own Small Business Accounting?

Yes, you can do your own small business accounting. However, we recommend that doing your accounting is a short-term solution. Business owners who do their accounting also tend to have other fires and initiatives in the business. Accounting can often take a back seat leading to financial muddiness or untimely reports and financials. For example, by hiring a small business accountant, you can get help with things like:

  • Accounts payable
  • Financial reporting
  • Inventory management
  • Income and expense tracking

Milestone Simplifies Accounting For Small Businesses

Milestone is an outsourced accounting firm built for small businesses. We love the entrepreneurial journey and believe we can help small business owners achieve their missions by owning their back office. Whether you need help setting up your chart of accounts or recurring bookkeeping, Milestone has you covered. We are a virtual firm, so when you search “accounting for a small business near me,” we couldn’t be any closer. Reach out to us today to find out more. 

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