Accounting for Entrepreneurs: The Definite Guide

Accounting for Entrepreneurs: The Definite Guide

Did you know that 90% of New Year’s resolutions are abandoned in a few months? According to VeryWell Mind’s guide, “As humans, we do tend to be optimistic in the face of the evidence.”
While many people know the high failure rate of New Year’s Resolutions, they tend to go for it. But they fail because their resolutions lack a solid plan and structure.
We know you’d think, “This is some kind of clickbait. I clicked on the Accounting for Entrepreneurs guide. Why are they talking about New Year’s resolutions?”
No, this is not clickbait; we are drawing an analogy here. Think about it: When anyone starts a business, they have passion and big ideas and want to become a successful startup (New Year’s resolutions). However, many startups don’t know about accounting, and that’s why many small businesses fail (lacking any plan).
So, let’s take a deep dive into accounting for entrepreneurs. If you are running a small business or want to start one, this guide can be your roadmap to mastering business finances.

Accounting for Entrepreneurs: Why You Need to Know About it?
When you imagined running your own business, you probably pictured landing big clients and building something amazing. What you didn’t picture was creating spreadsheets, tracking invoices, and figuring out cash flow.
But accounting isn’t just some random task. It’s the backbone of every smart business decision you’ll make. Whether you’re applying for a loan, paying your team, negotiating with vendors, or convincing investors.
And if hiring an accountant isn’t in the budget yet? That means you are the accountant. Even if you bring in a pro down the road, understanding the basics will help you avoid costly mistakes.

How Do I Set up a Small Business Accounting System?
When you start your business, you have to wear many hats. You must dedicate your time to some of the boring business aspects, like finance and accounting.
However, setting up accounting for entrepreneurs doesn’t have to be like trigonometric equations. So, let’s see how you can build a small business accounting system.
Open a Business Bank Account
When starting a business, the first thing you should do is create a business bank account. Mixing personal and business finances can lead to chaos and confusion.
A business checking account is your go-to for managing daily transactions, while a savings account can help you set aside cash for taxes, emergencies, or future investments.
Keeping things separate makes bookkeeping easier, helps you track expenses, and gives your business a professional edge.
Speaking of business bank accounts, if you haven’t got one, Ramp provides corporate cards. Through them, you can pay bills, manage business expenses, send invoices, and so much more. Plus, thanks to our partnership with them, you get a $500 sign-up bonus. So, make sure to check out the link here.
Choosing an Accounting Method
Before you start tracking every dollar, you need to decide how you’ll record transactions. There are two main approaches:
Cash Basis Accounting
This is the simpler option. You record income when you receive money in your account and expenses when you pay for something.
If a customer pays you today, you record the revenue today. This method works well for freelancers, solopreneurs, and small businesses with straightforward cash flow.
Accrual Basis Accounting
This is a complex method but is widely used. With this method, you record revenue when you make a sale, even if you haven’t been paid yet. Similarly, you record expenses when they happen, not when the cash leaves your account.
This method gives a more accurate picture of your finances but requires double-entry bookkeeping (recording each transaction in two places).

Compile a Chart of Accounts
The chart of accounts is the ultimate cheat sheet for your business finances. It’s a categorized list of all your financial transactions—your revenue, expenses, assets, liabilities, and equity—neatly organized so you can track every dollar moving in and out.
Why does this matter? Because your chart of accounts is what feeds into your financial statements. It helps you measure profitability and makes tax season less painful.
Determine Your Payment Terms
Not every business operates on a pay-now model. Maybe you’re offering services, selling products in bulk, or working with clients who prefer invoicing over immediate payments.
In that case, you’ll need to set clear payment terms to avoid cash flow problems.

Do You Need an Accountant for Your Small Business?
Short answer? If you can afford one, yes.
Long answer? It depends on how much time you want to save.
As we mentioned earlier, when starting, you have to manage everything. You are the sales, marketing, customer service, and financial person.
While you can handle your books, hiring an accountant can take a burden off your shoulders and help you avoid costly mistakes.
Here’s how an accountant can make your life easier:
- Business Formation & Planning – They can help you draft a solid business plan that makes financial sense.
- Choosing the Right Business Structure – Sole proprietorship, LLC, S-Corp? The right choice can save you thousands in taxes.
- Getting the Right Licenses – From sales tax permits to business licenses, an accountant ensures you’re fully compliant.
- Setting Up Your Accounting System – Don’t want to hire a bookkeeper yet? An accountant can set up QuickBooks or another system for you.
- Compliance & Sales Tax – Because the government doesn’t play when it comes to tax mistakes.
- Handling Payroll & Labor Costs – Ensuring you pay employees correctly and comply with labor laws.
- Meeting Creditor & Licensing Requirements – If you need business loans or industry licenses, accountants know how to get your books in order.
- Managing Inventory Records – Track purchases, stock numbers, and pricing to keep your business running smoothly.

What If You Can’t Afford an Accountant?
If a professional accountant isn’t in the budget right now, automating your accounting is the next best thing. Cloud-based software like QuickBooks, Xero, or Wave can handle invoicing, expense tracking, and basic tax prep.

Best Practices for Small Business Accounting
Following best practices helps minimize errors, makes tax season less stressful, and keeps your business running smoothly.
While every business is different, these five fundamental practices should be non-negotiable:
- Keep Business and Personal Finances Separate—One of the biggest accounting nightmares is mixing personal and business transactions. Open a dedicated business bank account and credit card to make tracking expenses easier and avoid legal or tax issues.
- Stay on Top of Record-Keeping – Sloppy records lead to financial chaos. Track every invoice, expense, and payment so you’re never scrambling when tax season rolls around.
- Review Financial Statements Regularly – Don’t wait until the end of the year to check your numbers. Monthly reviews of your income statement, balance sheet, and cash flow statement will help you spot problems early.
- Get Professional Help When Needed – Even if you handle most of your bookkeeping, consulting an accountant for tax planning, compliance, and financial strategy can save you from costly mistakes.
Final Thoughts
So, now you know that accounting for entrepreneurs isn’t scary, and you need to become aware of it.
Having a solid accounting system is non-negotiable whether you’re just starting or running a business already. It keeps your cash flow in check and helps you make smarter financial decisions.
The good news is you don’t have to become a CPA overnight. You can build a successful business by following the best practices we’ve outlined—separating finances, tracking records, reviewing statements, and seeking professional advice when needed.
If you feel like you can’t manage accounting with other tasks, why not outsource some of the burden?
Tangent Consulting is your go-to source for outsourcing your accounting department. We can help you prevent cash flow leaks by understanding your business. So, you don’t sleep worrying about your business accounting.
P.S. If you are reading this, it means you can have access to our free consultation for your business. Avail this for free today before we change our mind
FAQs
How do accountants help entrepreneurs?
Accountants help entrepreneurs manage finances, ensure tax compliance, track expenses, and provide financial insights.
What is the accounting cycle in entrepreneurship?
The accounting cycle includes identifying transactions, recording them, posting them to the ledger, preparing trial balances, adjusting entries, and generating financial statements.
What are the 5 basic accounting principles?
The five basic principles are Revenue Recognition, Expense Matching, Historical Cost, Full Disclosure, and Conservatism.