Guide
Accounting for small businesses, for owners starting alone
The short answer: separate your business money from your own, record every sale and expense soon after it happens, keep the proof, and match your records to the bank every month. That habit does more than any software, and it makes later professional help cheaper and more useful.
Five ideas that cover most of it
- Income
- What you earned, whether or not you have been paid yet.
- Expenses
- What it cost to earn it. Buying stock or a machine is treated differently from paying rent.
- Receivables and payables
- Who owes you, and whom you owe.
- Profit is not cash
- You can be profitable and still run out of money, because customers pay late or stock ties up cash.
- Owner's money
- What you put in or take out is not income or expense. Note it separately.
Your first week
- Open a separate bank account for the business, if you can. It keeps personal spending out of the business records and makes the monthly bank check far quicker.
- Choose a simple system. A notebook or spreadsheet can work at first. Software helps once volume grows.
- Number your invoices in one sequence, and keep a copy of each.
- Create one place for bills, paper or digital. See the folder system in our checklist.
- Check your registrations. Find out if you need GST registration. Udyam registration is optional and free on the official portal.
The simplest record that works
If you start with a spreadsheet, you need only this much. The row below is an invented example.
| Date | Party | What for | In | Out | Bank or cash | Bill no. |
|---|---|---|---|---|---|---|
| 3 Nov | Example Supplier | Stock purchase | ₹2,500 | Bank | INV-104 |
A routine you can keep up
| How often | Do this |
|---|---|
| Daily, if you handle cash | Note sales, and count cash |
| Weekly | Enter bills and receipts, and chase overdue customers |
| Monthly | Match your records with the bank statement, list who owes you, and see what you made |
| Quarterly | Look at the trend, and set money aside for taxes |
| Yearly | Close the year, count stock, and prepare for returns |
Three numbers to look at every month
- Cash in the bank, and how many weeks of expenses it covers.
- What customers owe you, and how much of it is overdue.
- Sales compared with last month, and with costs.
When outside help becomes useful
- You are registered for GST or have to deduct TDS, and are unsure what each requires of you.
- You spend more time on records than on the business, or you keep falling behind.
- Your bank, an investor or a large customer asks for financial statements.
- You are hiring staff.
- You have received a notice, or you may need an audit.
You may not need a full-time person or a CA. Read bookkeeping vs outsourced accounting and accountant vs Chartered Accountant.
A note on rules
Law sets record-keeping duties for many businesses, and they vary with your entity, income and registrations. This guide teaches habits and does not tell you what the law requires of you. The income tax thresholds for keeping books, which differ for sole proprietors and for firms and companies, are set out under are you required to keep books? If in doubt, discuss your position with Deepak Mittal.