The Simple Intro Guide to Accounting for Small Businesses

JuanCarlos Chavez
JuanCarlos Chavez
Posted underEntrepreneurship

When you create a business the first step is to register your business with your state. Each state has different processes fortunately (or unfortunately) that you could learn to do yourself but it can get clunky and weird. If you have some extra money (around $500) it’s highly recommended that you start your business with a company that specialized in that such as “LegalZoom”. There are others companies who do something similar but the important part of accounting is what kind of business entity you are setting up your business.

The 5 Types of Legal Businesses

  • Sole Proprietor
  • LLC
  • Partnership
  • Corporation
  • Non-Profit

Assuming you are going into business to make money by selling a product or service, you are not going to open a “Non-Profit”. And if this your first time starting a business, you are most likely going to open a Sole Proprietor if you are going into this as a solo entrepreneur or an LLC or Partnership if you are starting a business with less than a $1,000,000 dollars.

There are tons of nuances around types of business so if you would like to learn more, I would reach out to a CPA so see what they would recommend for your specific business idea. For the sake of the blog, I am going to touch on LLC businesses, specifically Multi-Member LLC partnerships.

Do I have to learn accounting as a small business owner?

The truth is: many small business owners do not do their own accounting, even those who are solo entrepreneurs. The tax system is so granular for each business type, each state, and even each year. Why is it this complicated? There are always new regulations coming from Uncle Sam and a lot of the time, it’s the business owners with multi-millions lobbying to do things differently so that can continue to dodge taxes. So the accounting and tax world is an ever change landscape that is difficult to keep up with.

There are some common principals that all small business owners should learn such as the income statement, balance sheet, and common terms such as assets and liabilities. In order to learn that, I recommend getting at least 1 or 2 books on small business accounting, and just grind through it.

I recommend “Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Reports” by Thomas Ittelson. His book includes a sample business with samples of the financial statements so you can understand how the money moves in a business.

DIY Accounting Software

If you’ve down any research on accounting you’ve probably heard of Quickbooks, Waves, Xero, and many more. They market that you can DIY for your book keeping and accounting for you business, but that is far from the truth. Every small business owners needs a tax preparer to actually submit their documents in each year.

On top of this, many small business owners have a book keeper who goes in each month and categorizes the businesses income and expenses. But many soloprenuers or small businesses do this themselves which is definitely doable with accounting software that range from being “free” to $100s of dollars per month. The tax preparer is the only real necessity which will usually charge you around $100 – $1000 to preparer and submit your business tax documents.

Do I need accounting software?

Simple answer: no. You can use a piece of paper or even an excel sheet. There is nothing wrong doing it this way as long as you keep accurate and detailed records when it comes to submitting your taxes.

Now what?

At the point you might seem overwhelmed thinking about all this, especially with the fear of the “tax man.” The steps I would follow if you have no ideas where to start or what to do next is:

  1. Legally create your business with LegalZoom. (or similar company.)
    1. Create a Single-Member LLC if you are starting this by yourself, or a Multi-Member LLC if you are starting this with others. This will help protect your personal assets if somebody where to sue your business and help scale as your business gets larger.
  2. Find a local CPA
    1. Open up google and search “cpa tax accountant near me”. You don’t have to use a local CPA, but I think it’ll be better in case your need to visit, sign documents, or just build a relationship.
  3. Ask your CPA what is recommended for book keeping?
    1. Sometimes your accountant also offer services for book keeping. If you would like to do it yourself, it’s best you use a similar program or system that your CPA and tax preparer can understand and modify if needed.
  4. Get 1-2 books on “Small Business Accounting”
    1. Be sure you understand some of the terminalogy and the financial statements since that will be the life line of your business. Not understanding these kinds of measurements is the same as not understanding the simple fundamental “health” of your own body.
  5. Try DIY accounting software or with a spreadsheet
    1. Research the differences between QuickBooks, Xero, Waves and others and see if this is something you want to learn and take on, or pay someone $100-200 a month to do for you.

You can do it!

That basically the gist of it, even though it seems like a lot. The important part is to tackle this one thing at a time. Don’t feel like you need to understand EVERYTHING before you get started. A lot of business owners just figure this stuff out along the way. Feel comfortable with not knowing everything, and moving forward anyways!

Get notified about tech, design, and entrepreneurship posts:

Subscribe to our newsletter to get to know about my latest projects and posts.


More Stories

Youtube, Podcast, & Life Updates – March 2021

The beginning of the quarter of the year is always a hectic time for me. We’re just coming off from holidays, getting back into work, & preparing for tax season. I always tend to feel refreshed and ready to attack the year in Jan & Feb with my list of goals in hand, being filled […]

JuanCarlos Chavez
JuanCarlos Chavez

How To Code a Personal Website STEP by STEP for Beginners! With FREE Hosting 2021 Edition

Have you ever wanted to learn to code but didn’t know where to start? You are in the right place. This blog is to help accompany the video above as a written guide. Who is this guide for? This tutorial is designed for those who are total beginners to web development and coding. Have you […]

JuanCarlos Chavez
JuanCarlos Chavez

Working on my second Youtube Video

I am at the beginning of my content creation journey and I have to admit, it’s asking me a lot deeper questions of myself and who am I more than I thought. Some questions come to mind: What kind of stuff do you want to share with the world? What would you do if you […]

JuanCarlos Chavez
JuanCarlos Chavez

2021 Goals

This is the year that I’ve decided to be more open than ever especially in the digital space. One way of doing this is by sharing the goals I am attempting to accomplish this year. It was tough trying to balance setting achievable goals and ambitious goals. I, as the pragmatic type, try to lean […]

JuanCarlos Chavez
JuanCarlos Chavez

How I created my first video & launched my YouTube Channel

First of all, Happy 2021! I know the craziness still exists but man it feels good that a fresh new number was added to the year ? Why start a YouTube Channel? There are 5 main reasons why I decided to finally hit record & upload: I want to be a producer rather than a […]

JuanCarlos Chavez
JuanCarlos Chavez

Recreating NASA’s UI for their Mission Control Tech

It’s pretty cool that NASA has an open-source javascript project that anyone can contribute to. You can actively write some code with the mission of space exploration & scientific discovery with some HTML, CSS, and JavaScript! This was my first glimpse into NASA’s openMCT program where they are determined to create a universal mission control […]

JuanCarlos Chavez
JuanCarlos Chavez

How I Coded Up My Own Blog with NextJS and WordPress

If you are reading this post before in 2020 or 2021, odds are the website you are reading is built with the technologies I will be mentioning. I say this since you can inspect the code on this page pretty easily by right clicking any where on the page an hitting “inspect” and be able […]

JuanCarlos Chavez
JuanCarlos Chavez

Creating a project proposal for an agency in Notion

I have been using Notion for all list keeping including clients for the web design agency I am working to build over at omadesign.co My objective was to create a template “Project Proposal” plan for my future clients. I’ve looked at other samples and watched a few explanations on YouTube can came up with my […]

JuanCarlos Chavez
JuanCarlos Chavez