6 Key Steps Every Business Owner Should Know
Running a business without a clear view of your financials is a bit like driving with your eyes closed—you’re bound to miss something important. That’s where the accounting cycle comes in. It’s a step-by-step process that helps keep your financial records organized, accurate, and ready to guide your decisions.
Whether you’re a solo entrepreneur or managing a growing team, understanding these six steps can give you greater control over your numbers and more confidence in your next move.
🔷Identify, Categorize & Post Transactions
This is where it all begins. Every sale, purchase, bill, or bank deposit—if it moves money, it needs to be recorded. The key is to correctly categorize each transaction (like income, cost of goods sold, office expenses, etc.) and post it to your general ledger using double-entry bookkeeping. Think of this as building the foundation for accurate financial reporting.
🔷Reconcile Transactions & Balance the Books
Next, it’s time to reconcile the transactions. This means matching transactions in your bank statement to those in your systems account, ensuring accuracy and identifying any discrepancies. Regular reconciliation not only keeps your books clean but also protects your business from errors or fraud. This is a critical step which is often overlooked.
After transactions are reconciled and you know the categories are accurate, you’ll want to formally balance the bank statements, credit cards statements, and other source documents. This is a separate step from reconciling (above).
🔷Prepare the Unadjusted Trial Balance
Once your accounts are reconciled and balanced, you’ll run an unadjusted trial balance—a report that lists every account and its current balance. This is a checkpoint to make sure your debits and credits are in balance and helps flag anything that might need a closer look before finalizing your books.
🔷Make Adjusting Journal Entries
Some transactions don’t show up until after the fact—like depreciation, accrued expenses, or corrections to earlier entries. Adjusting journal entries ensure your books reflect the true financial picture for the period. This step helps ensure nothing gets missed and your reports are complete.
🔷Prepare Financial Statements
Now that your data is clean and up to date, you can generate your financial reports:
- Profit & Loss Statement – tracks income and expenses over time
- Balance Sheet – shows what you own (assets), what you owe (liabilities), and what’s left (equity)
- Cash Flow Statement – shows how money is moving in and out of your business
These reports give you critical insights into your business’s performance and are essential for making informed decisions, filing taxes, or applying for loans.
🔷Close the Books
The final step is to officially “close the books” for the period—whether that’s monthly, quarterly, or annually. This process locks in your data, resets temporary accounts like revenue and expenses, and sets you up for a clean start in the next cycle. It’s a key part of keeping your financial records trustworthy and audit-ready.
💡FINAL THOUGHTS
The accounting cycle isn’t just a behind-the-scenes process–it’s the heartbeat of your business’s financial health. Following these six steps consistently can give you the clarity and confidence you need to grow your business. If you’re not sure where to start or feel overwhelmed by the details, partnering with an experienced accounting professional can make all the difference.
Have you thought about having a freelance bookkeeper/accountant that includes some financial insights and advice? It can be like a fractional CFO with a fraction of the cost!