Accounting Services for Small Business: A Guide to Manage Finances for SMEs

According to Statista, approximately 64.4% of small business owners use accounting software. How can small businesses optimise their accounting practices for long-term success?

Table of contents: 

• Introduction 
• Importance of accounting services for small business
• Types of accounting services for small businesses
• How to choose the right accounting services for small business
• Best accounting software for small businesses
• Final thoughts 

62% of small businesses employ in-house accountants. At the same time, 30% of small business owners choose to use external accountants. 8.64% of business owners manage their own bookkeeping, while 64.4% make use of accounting software.

It shows that proper financial management is crucial for small business owners as well as for entrepreneurs. A wide range of valuable services offered by accountants can greatly influence a business’s potential for future growth. 

Whether an online legal and accounting service is used, a full-time accountant is employed, or accounting tasks are outsourced to a third party, the expertise and experience of accounting professionals help in managing financial complexities. 

This guide explores various accounting services available to SMEs, their importance, and how small businesses can optimise financial management.

Importance of accounting services for small business

Accounting services for small businesses play a vital role in managing financial records, tracking cash flow, and ensuring compliance with tax rules. Small business owners often juggle multiple tasks, and outsourcing accounting functions allows them to focus more on core business activities. Some of the main advantages of using professional accounting services include:

• Accurate financial records: Proper bookkeeping ensures financial records are kept up to date and are correct.
• Regulatory compliance: Professional accountants help businesses follow tax regulations, which reduces the risk of penalties.
• Cash flow management: Managing cash flow is important, as 43% of small business owners identify cash flow as a challenge.
• Informed decision-making: Financial reports and analysis help business owners make better strategic decisions.
• Efficiency and cost savings: Outsourcing accounting services can be more affordable than having an in-house team

Types of accounting services for small businesses

Small businesses have different accounting needs depending on their size, industry, and financial structure. Below are the main accounting services for small business that can be helpful for SMEs:

a) Bookkeeping services: Bookkeeping is the foundation of accounting. It involves recording daily financial transactions, keeping track of ledgers, and reconciling bank statements. Small businesses need accurate bookkeeping to monitor expenses, manage cash flow, and prepare financial statements. Key bookkeeping tasks include:

• Recording income and expenses
• Reconciling bank statements
• Managing invoices and receipts
• Handling payroll records

b) Tax preparation and filing: Tax compliance is crucial for businesses to avoid legal issues. Accountants help small businesses with tax planning, preparation, and filing to ensure all tax responsibilities are met on time. They also assist in identifying tax deductions and credits to reduce liabilities. Common tax services include:

• Filing annual and quarterly tax returns
• VAT registration and reporting
• Payroll tax calculations
• Managing tax audits

c) Payroll processing: Payroll processing involves calculating salaries, tax deductions, and employee benefits. Small businesses must ensure accurate payroll management to comply with employment laws and tax regulations. Payroll services include:

• Calculating wages and salaries
• Deducting income tax and National Insurance contributions
• Managing pension contributions
• Issuing payslips to employees

d) Financial reporting: Regular financial reporting provides valuable insights into a business’s financial health. Accountants prepare reports such as profit and loss statements, balance sheets, and cash flow statements. Financial reports help businesses:

• Monitor revenue and expenses
• Assess profitability and growth
• Secure loans or investment
• Plan for future expansion

e) Budgeting and forecasting: Budgeting and financial forecasting help businesses plan their finances effectively. Accountants analyse past financial data to predict future income and expenses. Key aspects of budgeting include:

• Setting financial goals
• Allocating resources efficiently
• Predicting potential financial challenges
• Planning for business growth

f) Advisory services: Accounting firms offer financial advisory services to help small businesses make informed decisions. These services include cost analysis, investment strategies, and financial risk management. Financial advisors assist with:

• Business expansion plans
• Investment opportunities
• Risk assessment and management
• Cost-cutting strategies

How to choose the right accounting services for small business

Choosing the right accounting services for small business depends on the specific needs of the business and its budget. Here are the important factors to consider when selecting an accounting service provider:

a) Identify business requirements: Businesses must first decide if they need full accounting services or only specific functions, such as bookkeeping or tax preparation. Understanding the exact requirements helps in choosing the right provider.

b) Consider outsourcing vs. in-house accounting: Small businesses can choose between hiring an in-house accountant or outsourcing accounting services. Outsourcing is often more cost-effective for small businesses, as it avoids the need for full-time salaries and benefits.

c) Check qualifications and experience: It is important to choose an accountant who has relevant qualifications and experience. An experienced accountant can provide better financial advice and ensure that the business complies with regulations.

d) Look for industry-specific expertise: Some accounting firms specialise in certain industries. This expertise can be helpful in dealing with industry-specific financial challenges and ensuring accurate and relevant advice.

e) Compare costs and service packages: Accounting service providers offer different pricing options, such as hourly rates, fixed fees, or subscription-based plans. Business owners should compare costs and services to find a provider that fits within their budget and meets their needs.

f) Ensure sata security: Since financial data is sensitive, businesses must ensure that the accounting firms they choose follow strict security protocols to protect their financial information from potential breaches.

Best accounting software for small businesses

For businesses that prefer managing their own accounts, accounting software provides an efficient solution. The right software helps automate bookkeeping, generate reports, and track financial transactions.

a) QuickBooks

QuickBooks is a popular accounting software that is widely used for its flexibility and easy-to-use design. It provides various features that are ideal for small businesses, freelancers, and larger companies, helping them manage their finances smoothly with helpful automation tools.

Key features:

• Create customised invoices and accept payments online.
• Track expenses with automatic bank feeds and receipt scanning.
• Automate payroll, tax filings, and manage employee benefits.
• Prepare and file taxes, making sure the business stays compliant with tax regulations.
• Keep track of stock levels and manage purchase orders.
• Access accounting information from mobile devices, allowing for easy management on the go.

Pricing:

• Simple Start: £24/month
• Essentials: £48/month
• Plus: £72/month
• Advanced: £160/month

b) Xero

Xero is cloud-based accounting software that offers a wide variety of tools for small businesses. It’s especially useful for companies that need accounting services, as it provides real-time financial tracking and connects smoothly with banks.

Key Features:

• Automatically reconcile bank transactions for accurate financial tracking.
• Generate balance sheets, profit and loss statements, and other financial reports.
• Handle transactions in different currencies, with automatic updates of exchange rates.
• Create and send invoices, and set up reminders for late payments.
• Manage payroll and calculate tax deductions easily.
• Integrate with third-party business tools for added functionality.

Pricing:

• Starter: £14/month (limited transactions)
• Standard: £30/month (unlimited transactions)
• Premium: £42/month (multi-currency support)

c) FreshBooks

FreshBooks is a straightforward and easy-to-use accounting solution for freelancers, service-based businesses, and small companies. It offers essential tools for invoicing, time tracking, and expense management, making it perfect for businesses with project-based billing.

Key Features:

• Track billable hours and automatically convert them into invoices.
• Create and send professional invoices with personalised branding.
• Categorise and track expenses with automatic expense management.
• Collaborate on projects with clients and team members.
• Automate tax estimates and generate reports for tax purposes.
• Accept online payments via credit cards and payment gateways.

Pricing:

• Lite: £15/month (up to 5 clients)
• Plus: £26/month (up to 50 clients)
• Premium: £48/month (unlimited clients

d) Sage Accounting

Sage Accounting is an affordable accounting solution for startups and small businesses. It provides cloud-based services to help manage cash flow, invoicing, payroll, and tax preparation effectively.

Key Features:

• Sync bank transactions automatically in real-time with bank feeds.
• Monitor real-time cash flow insights to see how the business is performing.
• Create and send professional invoices with reminders for payment.
• Automate payroll, tax calculations, and ensure tax compliance.
• Prepare and file VAT returns according to tax regulations.
• Access accounting data securely from anywhere.

Pricing:

• Sage Accounting Start: £10/month
• Sage Accounting: £22/month

e) Zoho Books

Zoho Books is an affordable accounting solution with many features, designed for small businesses. It includes automation, client management, and advanced reporting tools, making it a good choice for businesses needing accounting services.

Key Features:

• Automate tasks to reduce manual data entry and streamline processes.
• Handle multi-currency transactions with live exchange rate updates.
• Efficiently manage customer interactions and transactions.
• Generate detailed financial statements and cash flow reports.
• Prepare VAT, GST, and other tax filings easily.
• Integrate with the Zoho ecosystem and other third-party applications.

Pricing:

• Free Plan: Available for businesses with revenue below £40K per annum.
• Standard: £16/month
• Professional: £40/month
• Premium: £56/month

Final thoughts 

Accounting services for small business owners play a crucial role in financial management. Whether through in-house accountants, outsourced firms, or accounting software, proper financial management ensures stability, growth, and compliance with regulations. By selecting the right accounting services, SMEs can maintain accurate financial records, optimise cash flow, and make informed business decisions.

For small businesses looking to improve their financial management, investing in professional accounting services or reliable accounting software is a strategic step towards long-term success.