Iota Finance Blog

How to Create an Efficient Monthly Accounting Process for Your Small Business or Startup

Written by Igor Tutelman, CPA | Sep 26, 2024 10:40:19 AM

How to Create a Monthly Accounting Process for Your Small Business

Running a small business or startup often means wearing many hats, and accounting can feel like one of the most overwhelming tasks. Whether it's keeping track of receipts or preparing documents for your CPA, falling behind on your bookkeeping can quickly become a headache. But with the right process in place, managing your finances can be a breeze.

Below, we break down the key steps in creating an efficient monthly accounting process, and we've even included a few free resources to help get you started.

  1. What is a Monthly Accounting Process?
  2. Essential Software and Tools for Small Business Accounting
  3. Internal Controls: Safeguarding Your Finances
  4. Documenting and Delegating the Accounting Process
  5. Reviewing Financial Statements and KPIs
  6. Continuous Improvement
  7. Conclusion

What is a Monthly Accounting Process?

The monthly accounting process—or monthly accounting cycle—is a systematic approach to managing your financial records. It's designed to ensure your financial data is accurate, up-to-date, and complete. Your monthly accounting process includes categorizing transactions, reconciling bank accounts and credit cards, making journal entries, and producing your monthly financial statements.

By staying on top of your books monthly, you’ll reduce errors, mitigate fraud risks, and avoid scrambling at year-end.

Key components include:

    • Journal Entries: Record all transactions in your general ledger to ensure they are properly categorized. This is usually referred to as categorizing transactions if you use an online bookkeeping system like QuickBooks Online, Xero, or Wave.
    • Accruals and Deferrals: This doesn’t apply if you are considered “cash-basis” (which most small businesses are). If you are accrual-basis, use accrual accounting to match revenues and expenses to the periods in which they occur, not when payments are made.
    • Reconciliation: Regularly reconcile your bank statements to your internal records to catch any discrepancies.
  • Checks & Balances: Occasionally double-checking your work or your staffs’ work to make sure everything is being recorded properly and completely.

To help streamline this, we’ve created a monthly accounting checklist you can download below. Setting a schedule, such as the first week of each month, helps ensure consistency.

 

Essential Software and Tools for Small Business Accounting

Automation and the right tools can make all the difference in how smoothly your accounting process runs. Here are some tools to consider:

  • QuickBooks Online, Xero, or Wave: All three are great for small to medium-sized businesses and offer robust features like invoicing, expense tracking, and financial reporting.
  • Google Drive or Dropbox: For document management and keeping your financial records accessible and organized.
  • Google Sheets or Microsoft Excel: For those who prefer a custom approach to tracking and analyzing their finances.

Integrating your accounting software with other systems, such as a CRM or ERP, reduces manual data entry and ensures accuracy. We’ve included a bookkeeping tracking template in the file below that you can download and use for your business. It’ll even create a profit and loss statement for you.

 

Internal Controls: Safeguarding Your Finances

Establishing strong internal controls is essential for preventing fraud and minimizing errors. This involves:

  • Segregation of Duties: No single person should control an entire transaction, reducing the likelihood of fraud or error.
  • Authorization Requirements: Ensure significant transactions require approvals to confirm legitimacy.
  • Regular Audits: Periodic audits help detect discrepancies and strengthen your internal controls.

We’ve created a segregation of duties and audit template to help get you started with setting up internal controls.

 

Documenting and Delegating the Accounting Process

For your business to grow, you need to transition from handling every task yourself to delegating. Proper documentation of your accounting process ensures consistency and scalability, allowing you to bring others on board more easily.

  • Document Procedures: Create step-by-step guides for tasks such as reconciliations, journal entries, and financial reporting.
  • Delegate Responsibilities: Assign tasks based on expertise, ensuring each task is handled by the right person.
  • Training: Make sure your team is trained to handle these tasks effectively.

With clear documentation and delegation, you'll be able to focus more on strategic growth rather than day-to-day accounting. We’ve created a delegating accounting procedures template below to help get you started with setting up internal controls.

 

Reviewing Financial Statements and KPIs

Regularly reviewing your financial statements and key performance indicators (KPIs) is essential for monitoring the health of your business. Key statements include:

  • Balance Sheet: Shows your assets, liabilities, and equity.
  • Income Statement: Outlines revenues, expenses, and profits.
  • Cash Flow Statement: Tracks the flow of cash in and out of your business.

KPIs like revenue growth, profit margins, and liquidity ratios help assess your business performance. Compare these metrics to industry benchmarks to identify areas for improvement.

Continuous Improvement

As your business grows, so should your accounting process. Regular reviews and incremental updates help maintain efficiency and accuracy without overhauling your entire system at once. Startup bookkeeping is different from small business bookkeeping is different from mid-sized business bookkeeping. Same thing goes for small business accounting, payroll, and tax strategy.

It’s important to review your processes at least annually to make sure you’re scaling your business processes as much as your scaling your business.

Conclusion

Implementing an efficient monthly accounting process is critical for maintaining financial health and avoiding last-minute stress. With these steps in place, you’ll have a solid foundation to grow your business while ensuring your financial records are accurate, complete, and ready whenever you need them.

Plus, don’t forget to download our free templates and checklists to make your monthly accounting process smoother!

 

Stay on top of your business’s financial health—because it’s not just about taxes, it’s about strategy.

 

About The Author

Igor Tutelman, CPA is the Managing Partner of Iota Finance and the writer behind Not Your Father’s Accountant™. Igor started his career working for large corporations in tax and corporate finance roles before leaving for the world of tech startups. After a successful exit, he took some time off and returned to the accounting industry to build the firm he wished he had as an entrepreneur - Iota Finance. Iota Finance is a remote accounting firm that focuses on helping startups and small businesses with taxes, accounting, bookkeeping, payroll, and fractional CFO services.

 

Have questions or need more detailed guidance? Contact us at Hello@Iota-Finance.com or Schedule a Free Consultation, and we’ll help you get started.