Financial guide to starting a small business - start smart series part 4 : Accounting Systems
A business can survive a slow month. It can survive a tough client. What it can’t survive long-term is poor financial information.
Your accounting system isn’t just about taxes, it’s how you understand profitability, make decisions, and protect yourself if the IRS ever asks questions. Done right, it becomes one of your biggest advantages as a business owner.
Let’s walk through how to build an accounting and recordkeeping system that actually supports your business.
1. Bookkeeping Is Not Optional (Even Early On)
Many new business owners think bookkeeping is something they’ll “deal with later.” That mindset usually leads to:
Missed deductions
Inaccurate tax filings
Cash flow surprises
Expensive cleanup work later
Bookkeeping is simply the process of capturing what actually happened financially — accurately, consistently, and in a way that can be proven.
If your records don’t tell a clear story, neither will your tax return.
2. Choose an Accounting Platform That Fits Your Business
You don’t need enterprise software — but you do need a system. For most startups, cloud-based accounting software is the right choice:
Allows real-time access
Integrates with banks and credit cards
Supports clean reporting
Makes collaboration with your accountant easy
The key is not which software you choose — it’s using one consistently from day one.
Planning tip: Choose software that can grow with you. Switching systems later is far more painful than starting correctly.
DISCOUNTS!: Ask us about discounts! Hiatt Accounting Group has referral codes for most major software platforms offering you, as the subscription holder, additional discounts.
3. Set Up a Proper Chart of Accounts
Your chart of accounts is the structure that organizes your financial data. Think of it as the filing cabinet for your business’s money.
A good chart of accounts:
Separates income streams clearly
Groups expenses into logical, deductible categories
Supports clean financial statements
Aligns with how the IRS expects expenses to be reported
Common startup mistake: Dumping everything into generic categories like “Miscellaneous” or “Other.” This weakens reporting and raises red flags during audits.
4. Understand Cash vs. Accrual Accounting (and Choose Intentionally)
Most startups default to cash-basis accounting, meaning:
Income is recorded when money is received
Expenses are recorded when paid
This is simple and often appropriate early on.
Accrual accounting records income when earned and expenses when incurred — regardless of when cash moves.
Why this matters:
Your accounting method affects timing of income and deductions
Some businesses are required to use accrual
Changing methods later requires formal IRS approval
This is a decision worth making intentionally, not accidentally.
5. Build a Recordkeeping System That Holds Up Under Scrutiny
Good records do two things, support your deductions and provide varying levels of protection to you in an audit
What you should be saving:
Receipts for all deductible expenses
Invoices sent to clients
Bank and credit card statements
Mileage logs
Asset purchase documentation
Payroll and contractor records
IRS reality: If you can’t substantiate it, you can’t deduct it — no matter how legitimate the expense was.
Digital records are acceptable, but they must be organized and accessible.
6. Reconciliation: Where Accuracy Actually Happens
Reconciliation is where your bookkeeping goes from “probably right” to actually correct.
At least monthly, you should:
Match bank transactions to your books
Resolve duplicates or missing entries
Confirm balances match statements
Skipping reconciliations is how errors compound and how inaccurate tax returns get filed.
7. Why Clean Books Save You Real Money
When your accounting system is dialed in:
Tax prep is faster and less expensive
Estimated taxes are more accurate
Cash flow decisions improve
Loan and credit applications are easier
Stress drops dramatically
Messy books don’t just cost time, they cost profitability.
8. The “I’ll Fix It Later” Trap
Fixing bookkeeping retroactively often means:
Rebuilding months (or years) of data
Losing deductions you can’t prove
Paying for cleanup work instead of growth
The cost of starting correctly is almost always less than the cost of fixing it later.
Accounting & Recordkeeping Setup Checklist
Before your business gains momentum, make sure you’ve:
Chosen an accounting platform and connected bank feeds
Set up a clear chart of accounts
Selected a cash or accrual method intentionally
Established a digital receipt storage system
Scheduled monthly reconciliations
Defined a process for tracking income, expenses, and assets
Next in the Series
Part 5 – Startup Costs and Funding: Tracking Your Initial Investments
We’ll break down how to properly track startup costs, owner contributions, and early funding and how those decisions impact deductions and future taxes.
Strong businesses are built on clear information, not guesswork.
Most small business owners are specialists in what they do, not in accounting systems or IRS documentation rules. Without the right structure in place, even profitable businesses can struggle with cash flow, compliance, and costly mistakes.
At Hiatt Accounting Group, we help business owners across Colorado and the U.S. build accounting and recordkeeping systems that provide clarity, confidence, and long-term stability. We don’t just help you stay compliant, we help you understand your numbers and use them to make better decisions.
Call or text us: (720) 595-9473
Email: ahiatt@hiattaccountinggroup.com
Visit: www.hiattaccountinggroup.com
