How to Manage Accounting for a Small Business: Software or Accounting Firm?

In Brief:

• A small business can choose between four accounting models - from complete self-service to outsourcing with an accounting firm or hiring an accountant.
• Accounting software is a good solution if you want to save time and automate processes while maintaining control.
• An accounting firm is more suitable if the number of transactions increases or regular tax consultations are needed.
• There is no one-size-fits-all solution - the most important thing is to choose a model that suits the size, budget, and development plans of the business.

Starting your own business is a dream for many people, and when it becomes a reality, you want to dive in full force. While creating a product or service is exciting, you can't escape the fact that entrepreneurship involves complying with various laws, paying taxes, and submitting reports. Accounting is indispensable in business, and you need to think about managing it from day one.

How Can a Small Business Organize Its Accounting?

Small businesses in Latvia can organize accounting in several ways depending on the number of transactions, business structure, and the level of involvement of the entrepreneur. These can be divided into four different models:

• The entrepreneur handles accounting without specialized software;
• The entrepreneur handles accounting with accounting software;
• An accountant is hired within the company;
• An accounting firm (outsourcing).

Each of these models is an excellent choice if the business and its daily needs are properly assessed. Therefore, let's look at when each is most suitable and what to pay attention to before making a final decision.

The Entrepreneur Handles Accounting Without Software

This model is a common choice for micro-businesses or simple service businesses where the number of transactions is very small. Records can be kept in Excel spreadsheets, Google Sheets, or even on paper, storing invoices and receipts in folders.

When It Works:

• 1–2 transactions per day or less;
• No employees;
• The entrepreneur wants to minimize costs.

Pros:

• Very cheap (only the entrepreneur's time);
• Complete control over data;
• Flexibility in choosing forms and formats.

Cons:

• Easy to make tax errors;
• Difficult to prepare tax reports;
• Time-consuming as transactions increase.

The Entrepreneur Handles Accounting with Software

This model is the next level in accounting, where many processes and reports are handled by software. For example, it is possible to automate invoice issuance, expense entry, reports, VAT calculations, etc.

When It Works:

• Small or medium number of transactions;
• No employees or only a few employees;
• The entrepreneur wants to maintain control while automating record-keeping.

Pros:

• Time savings compared to manual record-keeping;
• Reduced risk of errors;
• Data accessible at any time.

Cons:

• Basic accounting knowledge is still required;
• Software subscription or license fees may be disproportionate.

Accounting Firm (Outsourcing)

In this model, the business entrusts accounting to an outsourced accountant who works with professional accounting systems. This is especially useful for companies that want to focus on business development rather than accounting.

When It Works:

• Medium and larger transaction volumes;
• The company has multiple employees;
• Tax optimization and regular consultations are needed.

Pros:

• Professional expertise;
• Lower risk of errors;
• Time savings;
• Includes tax consultations.

Cons:

• Regular and sometimes variable costs;
• Less daily control over records.

Hiring an Accountant Within the Company

This model is an excellent choice for small businesses that have the resources to keep accounting in-house and hire a knowledgeable accountant. It is usually chosen by rapidly growing companies with many transactions, employees, and a need for regular financial analysis.

When It Works:

• Large number of transactions;
• Full-time financial management is needed;
• Detailed record-keeping and analysis are important for the company.

Pros:

• The accountant fully understands the company's processes;
• Quick communication and report preparation;
• Ability to conduct detailed financial analysis.

Cons:

• Highest costs (salary, taxes, workspace);
• Administrative management is required.

How to Choose Accounting Software for a Small Business?

If you've assessed all your business needs and concluded that you want to handle accounting with software, it's important to understand how to choose the most suitable one. Just because an accountant prefers a particular software doesn't mean it's the best choice for your business - choose what works best for you.

Regardless of whether you handle accounting yourself or entrust it to an in-house accountant, let's look at the basics to focus on. The right software reduces the risk of errors, saves time, and makes it easy to prepare reports.

Ease of Use

Small businesses often lack a professional accountant, so the software must be intuitive and easy to understand. This will also facilitate work in cases where there is an internal accountant - tasks can be completed faster and more efficiently.

Pay attention to:

• Invoice and receipt entry;
• Automatic VAT calculation;
• Report generation with one click.

Compliance with Latvian Legislation

Accounting software that does not comply with Latvian legislation will cause more problems than benefits.

The software must be tailored to Latvian accounting and tax requirements, such as:

• VAT tracking and declaration preparation;
• Annual report generation;
• Salary and social insurance calculations, if necessary.

And the software provider must continuously update features according to legal changes.

Automation and Integrations

Nowadays, many systems collect data and automate processes with one goal - to create transparent business management. Therefore, it is important that the chosen accounting software can be integrated with various other systems:

• Banks – automatic import of incoming and outgoing payments;
• E-invoice systems – invoices automatically added to records;
• E-commerce platforms – direct data transfer from the store.

Price and Scalability

For small businesses, price is a very important factor, so attention must be paid to every element for which a fee will be charged.

Evaluate both initial and long-term costs:

• Subscription or license fee;
• Additional module costs (e.g., inventory or payroll);
• Importantly - the software must be able to grow with the business.

Support and Documentation

Purchasing software is just the beginning - it needs to be installed, used daily, and technical problems may arise.

Good software offers:

• Customer support via email or chat;
• Tutorials, videos, and answers to frequently asked questions.

User Reviews and Experience

A useful source of information is the experience and reviews of other users. What is said in advertising slogans or mentioned on the website does not always match reality.

Before making a choice:

• Check reviews online or in Facebook groups;
• Ask other entrepreneurs how the software works for them.

How to Choose an Accounting Firm for a Small Business?

An accounting firm (outsourcing) is a good solution if the entrepreneur wants to focus on business development rather than accounting. The right choice helps reduce the risk of errors, save time, and receive professional consultations on taxes and financial matters.

But even here, it is important to conduct research to ensure the service received meets expectations.

Experience and Specialization

• Does the firm work with similar businesses or industries (e.g., e-commerce, service companies, manufacturing)?
• How long has the firm been operating in Latvia?
• Are the accountants certified?

Scope of Services

• Does the firm prepare only accounting records or also annual reports?
• Are salaries and social contributions calculated?
• Does the firm provide proactive tax consultations?

Price and Payment Model

• How much does it cost per month? Is the price fixed or variable based on the number of transactions?
• Are additional services (consultations, declarations) included in the price or charged extra?

Communication and Availability

• Does the firm respond quickly to questions?
• Is there a specific contact person to approach?
• Is communication clear and understandable even for entrepreneurs without accounting experience?

Reviews and Reputation

• Check other entrepreneurs' reviews online
• Ask friends or colleagues which firms they recommend

Accounting That Helps Growth, Not Slows It Down

Most small businesses start managing accounting manually using Excel and gradually transition to software or an accounting firm. There is no universal solution that works for every business. And the initial choice may not remain relevant as the business grows. It's important to evaluate how much time and resources you're willing to dedicate to accounting and then find the most suitable solution.

Frequently Asked Questions

Can a small business handle accounting itself?

Yes, a small business can handle accounting itself, especially if the number of transactions is small and there are no employees. This can be done manually (e.g., Excel) or with the help of accounting software. However, the entrepreneur must understand basic accounting principles and keep up with tax requirements.

Can accounting software replace an accountant?

Accounting software can be a great assistant, but it does not fully replace an accountant. The software automates calculations and reports, but the responsibility for data accuracy and tax application still lies with the entrepreneur or accountant. In more complex cases (e.g., with employees or higher turnover), professional consultation is often necessary.

How much does accounting cost for a small business?

Accounting costs for a small business can vary greatly depending on the chosen solution. If the entrepreneur handles accounting themselves, costs may only include the accounting software subscription (approximately 15–50 EUR per month). On the other hand, accounting firm services typically cost between 100 and 300 EUR per month, depending on the number of transactions and the scope of services. Hiring an accountant is the most expensive option, as it involves salary and taxes.