How To Use QuickBooks for Small Business Accounting

The life of a small business owner is often filled with passion, innovation, and a commitment to a vision. But what lies beneath effective business operations is the critical, sometimes tough task of managing your business finances.

From sales and expense tracking to navigating taxes and understanding cash flow, the volume of financial data is impressive. In cases like these, accounting software like QuickBooks can be indispensable.

What is QuickBooks?

QuickBooks is an accounting software designed to help small business owners manage their finances. It automates bookkeeping tasks, allowing small business owners to reclaim their time to focus on growth rather than administrative tasks.

Key features of QuickBooks include:

• Invoicing. Create professional invoices, track whether invoices have been opened or paid, and schedule automated payment reminders to ensure your invoices are paid more quickly. You can customize invoice templates to include your logo and brand colors.

• Expense tracking. Categorize business expenses by connecting directly to your bank accounts and credit card statements. You can also upload receipts with the QuickBooks mobile app by snapping a photo of each receipt.

• Inventory management. This includes the ability to track products, manage stock levels, receive alerts when stock is running low, and monitor the cost of goods sold (COGS). This feature is important for ecommerce businesses to keep popular items in stock and optimize purchase orders.

• Reporting. Generate financial reports such as profit and loss (P&L) statements and balance sheets.

• Banking integration. You can connect your business bank account and credit cards to import transactions automatically. This feature is available with most banking institutions.

• Employee payroll. Offered as an add-on service, QuickBooks Payroll can manage employee payroll, calculate payroll taxes, and handle direct deposits, simplifying employee compensation and compliance.

• Sales tax management. Configure and track sales tax so your business is compliant with tax laws that vary across different jurisdictions.

• Time tracking. Track hours for specific clients or projects so you can bill your clients correctly. You can also use QuickBooks to track your own or your employees’ time for payroll purposes. Time can be marked as billable or unbillable.

How to use QuickBooks for small business accounting

1. Sign up for QuickBooks
2. Fill in your company information
3. Connect your business bank account and credit cards
4. Establish your chart of accounts
5. Customize your sales preferences and set up online payments
6. Integrate your ecommerce platform
7. Set up and manage inventory
8. Regularly reconcile your accounts
9. Review financial reports
10. Consult with an accountant

If you set up your QuickBooks account correctly from the start, it ensures accuracy, maximizes automation, and offers you a better understanding of your business’s financial health. For ecommerce businesses in particular, a thoughtful setup can streamline everything from sales tracking to inventory management. Here’s how:

1. Sign up for QuickBooks

When evaluating your options, don’t just pick the cheapest QuickBooks plan. Instead, align your choice with the needs of your business. Successful ecommerce businesses typically need robust features like the ability to add additional users and access to industry-specific integrations. With the free trial, you can try the product before you spend any money.

QuickBooks offers several tiers ranging in price based on the available features and number of users. Here’s a breakdown of the plans:

• QuickBooks Solopreneur. For individuals managing a one-person business, like freelancers or gig workers. This is a simplified solution focused on separating business and personal expenses, tracking income and mileage for tax purposes, and basic invoicing.

• QuickBooks Simple Start. Ideal for very small businesses or freelancers needing basic income and expense tracking. Provides access for one user.

• QuickBooks Online Essentials. Geared toward growing businesses, adds features like bill management and time tracking. Can accommodate up to three users.

• QuickBooks Online Plus. For established ecommerce businesses, provides features like advanced inventory management, project profitability tracking, and adds access for up to five users.

• QuickBooks Online Advanced. Designed for larger businesses requiring more powerful reporting and dedicated support and access for up to 25 users.

Example: Imagine Dedication Nation is an online boutique specializing in customized jewelry and accessories, primarily sold through its Shopify store. The owner selects the QuickBooks Online Plus plan, which is driven by the ability to scale as her business grows.

2. Fill in your company information

Make sure you are accurate when completing your company information since it will auto-populate on your financial statements, invoices, and tax forms. Double-check every detail. A thorough setup process ensures that your financial reporting is reliable.

Example: When setting up her company information in QuickBooks, the owner enters all of Dedication Nation’s legal details: the company name, physical and mailing address, her employer identification number (EIN), and contact information.

3. Connect your business bank account and credit cards

Connecting all business bank accounts and credit cards helps eliminate the need for manual data entry and provides a real-time view of your money. Always use different bank accounts to separate your business and personal finances.

Example: The owner signs on to her QuickBooks Online account and connects Dedication Nation’s business checking account, savings account, and the credit card used for purchasing supplies. QuickBooks automatically imports past transactions (typically 90 days or more) from most banks, and continues to pull in new ones, keeping her financial data up to date.

4. Establish your chart of accounts

The chart of accounts forms the structure of your bookkeeping system. It’s a list of accounts or categories (sorted by income, expenses, liabilities, and equity) that form how you categorize every single transaction. Tailor it to your business to get granular insights. For ecommerce, you’ll likely use detailed categories for expenses like shipping, merchant fees, and cost of goods sold.

Example: The owner navigates to the chart of accounts section. She customizes the default list to reflect the needs of her business. She adds accounts like Online Sales, Shipping Expenses, Payment Processor Fees, Raw Material Purchases, Online Advertising, and Packaging Supplies.

5. Customize your sales preferences and set up online payments

At this stage, you’ll determine how you pay invoices and decide if you want to accept payments through QuickBooks Payments. You’ll also configure your sales tax settings based on your state.

Example: The owner personalizes her sales receipt and invoice templates in QuickBooks with Destination Nation’s logo and branding. She makes sure that her sales tax settings are configured based on sales volume and locations where she does business.

6. Integrate your ecommerce platform

For ecommerce platforms, including Shopify, QuickBooks integration minimizes manual data entry and ensures your QuickBooks account accurately reflects your sales and expenses.

Example: The owner accesses the “Apps” or “Integrations” section within her QuickBooks Online account to connect her Shopify store using an app like QuickBooks Sync. With this integration, QuickBooks can automatically import daily sales data, product details, customer information, refunds, and associated fees, which will be categorized into the correct accounts.

7. Set up and manage inventory

Keeping a close eye on your inventory helps you avoid stockouts and identify consumer trends. Beyond tracking, inventory management within QuickBooks can provide financial insight that complements your ecommerce platform.

Platforms like Shopify offer powerful inventory tracking. Specialized apps like Shopify’s Stocky app excel at operational tasks such as managing purchase orders, receiving inventory, and optimizing stock for in-store sales (especially when using Shopify POS). QuickBooks integrates this data directly into your accounting records.

This integration impacts your COGS and reflects your inventory’s real-time value on the balance sheet. This means QuickBooks can help automate the calculation of COGS as sales occur and generate detailed financial reports that go beyond simple stock counts. These insights can provide a complete picture of your product flow.

Example: The owner connects her Shopify store to QuickBooks using an app like QuickBooks Sync. This syncs her inventory and pricing information with QuickBooks. For her popular items, she sets reorder points, so QuickBooks can send her low stock alerts, prompting her to order more beads or clasps.

8. Regularly reconcile your accounts

Reconciliation is a non-negotiable step to keep your financial data current and accurate. You’ll be able to catch missed transactions, duplicate entries, and even fraudulent activity more easily, providing clean books for tax season.

Example: Every month, the owner diligently reconciles her accounts and credit card accounts in QuickBooks against her actual bank statements. She goes through each transaction, matching them off. If a discrepancy arises, she investigates it immediately, ensuring her QuickBooks balances exactly match her bank’s records.

9. Review financial reports

Don’t just input data—use the software’s features to generate reports. QuickBooks offers dozens of customizable reports. Analyzing your financial information regularly helps you identify sales trends and inefficiencies, plan budgets, and strategize for the future growth of your business.

Example: The owner regularly generates and reviews her company’s financial reports, like the P&L to assess monthly profitability. She also looks at the cash flow statement in order to monitor the funds flowing in and out of Destination Nation. She generates specific reports like “Sales by Product” to identify her bestselling jewelry lines and “Expenses by Vendor” to track her expenses for each supplier.

10. Consult with an accountant

Even if you manage your daily bookkeeping tasks, speaking with an independent accountant or a QuickBooks Online Accountant can be very useful. They can provide expert guidance, ensure compliance, and interpret complex financial reporting, among other things. They can often save your business time and money in the long run, especially if you are dealing with the nuances of accrual accounting or multi-state sales tax.

Example: While the owner handles her company’s day-to-day bookkeeping, she has enlisted the expertise of an accountant who specializes in ecommerce accounting for QuickBooks users. This accountant reviews Destination Nation’s books on a quarterly basis, offers advice on maximizing tax deductions, ensures sales tax compliance, and handles year-end tax filings. The owner grants her QuickBooks Online Accountant direct access to her account.