How should a small business manage accounting: software or an accounting firm?

In brief:

• Small businesses can choose from four accounting models, ranging from full self-service to outsourcing to an accounting firm or hiring an in-house 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 if you require regular tax consultations.
• There is no single right solution; the most important thing is to choose a model that aligns with your company's size, budget, and growth plans.
  

Starting your own business is a dream for many, and once it becomes a reality, you want to dive in at full speed. While creating a product or service is what drives you, you cannot avoid the fact that running a business involves complying with various laws, paying taxes, and submitting reports. Business cannot function without accounting, and you must think about how to manage it from day one.

How can a small business organize its accounting?

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

• The entrepreneur handles accounting personally without specialized software;
• The entrepreneur handles accounting personally using accounting software;
• An in-house accountant employed by the company;
• An accounting firm (outsourced service).

Each of these models is an excellent choice if the company and its daily needs are correctly assessed. Therefore, let us examine when each is most appropriate and what to pay attention to before making a final decision.

The entrepreneur handles accounting personally without software

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

When it is suitable:

• 1–2 transactions per day or fewer;
• no employees;
• the entrepreneur wants to minimize costs.

Pros:

• very low cost (only the entrepreneur's time);
• complete control over data;
• flexibility in choosing forms and formats.

Cons:

• easy to make tax errors;
• difficult to prepare reports for the SRS;
• time-consuming as transaction volume increases.

The entrepreneur handles accounting using software

This model represents the next level of accounting, where many processes and reports are handled by software. For example, it is possible to automate invoicing, expense entry, reporting, VAT calculation, and more.

When it is suitable:

• a small or medium number of transactions;
• the company has no employees or only a few;
• 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 disproportionately high.

Accounting firm (outsourced)

In this model, a company entrusts its accounting to an external provider that utilizes professional accounting systems. This is particularly beneficial for businesses that prefer to focus on growth rather than bookkeeping.

Best for:

• medium to high transaction volumes;
• companies with multiple employees;
• those requiring tax optimization and regular consultations.

Pros:

• professional expertise;
• lower risk of errors;
• time savings;
• includes tax advisory services.

Cons:

• regular and sometimes variable costs;
• less day-to-day control over records.

In-house accountant

This model is an excellent choice for small businesses with the resources to manage accounting internally and hire a qualified accountant. It is typically chosen by rapidly growing companies that handle a high volume of transactions, manage many employees, and require regular financial analysis.

Best for:

• high transaction volume;
• full-time financial management needs;
• companies that prioritize detailed record-keeping and analysis.

Pros:

• the accountant has a complete understanding of company processes;
• rapid communication and report preparation;
• the ability to perform detailed financial analysis.

Cons:

• highest costs (salary, taxes, workspace);
• requires administrative management.

How to choose accounting software for a small business?

If you have weighed all your company's needs and concluded that you want to manage your accounting using software, it is important to understand how to choose the most suitable one. The fact that a hired accountant may prefer a specific program is not a reason to use it yourself—choose the one that is best for your specific business.

Regardless of whether you manage the accounting yourself using software or entrust it to an in-house accountant, let us look at the fundamentals you should pay attention to. The right software reduces the risk of errors, saves time, and allows for easy report preparation.

Ease of use

Small businesses often do not have a professional accountant, so the software must be intuitive and easy to understand. This will also facilitate work when you have an in-house accountant, as tasks can be completed faster and more efficiently.

Pay attention to:

• invoice and receipt entry;
• automatic VAT calculation;
• one-click report generation.

Compliance with Latvian legislation

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

The software must be adapted to Latvian accounting and tax requirements, for example:

• VAT accounting and declaration preparation;
• Annual report generation;
• Salary and social security calculations, if required.

Furthermore, the software provider must continuously update features in accordance with legislative changes.

Automation and integrations

Today, a wide variety of systems are available that collect data and automate processes with a single goal: to create transparent business management. Therefore, it is essential that the chosen accounting software can be integrated with various other systems:

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

Price and scalability

For small businesses, price is a critical factor, so it is necessary to pay attention to every element for which a fee will be charged.

Evaluate both initial and long-term costs:

• subscription or license fees;
• costs for additional modules (e.g., inventory or payroll);
• important – the software must be able to grow alongside the company.

Support and documentation

Purchasing the software is only the beginning – it must be installed, used daily, and technical issues may arise.

Good software offers:

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

User reviews and experience

The experience and feedback of other users are valuable sources of information. What is stated in advertising slogans or on a website does not always reflect 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?

Outsourcing accounting is a sound solution for entrepreneurs who want to focus on business growth rather than bookkeeping. Making the right choice helps minimize the risk of errors, saves time, and provides access to professional advice on tax and financial matters.

However, it is important to conduct research to ensure the service received meets your expectations.

Experience and specialization

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

Scope of services

• Does the firm handle only bookkeeping, or do they also prepare annual reports?
• Are payroll and social security contributions also calculated?
• Does the firm provide proactive tax consulting?

Price and payment model

• What is the monthly cost? Is the price fixed, or does it vary based on the number of transactions?
• Are additional services (consultations, declarations) included in the price, or are they charged separately?

Communication and availability

• Does the firm respond to inquiries promptly?
• Is there a specific contact person to reach out to?
• Is the communication clear and understandable even for a business owner without an accounting background?

Reviews and reputation

• Check online reviews from other business owners
• Ask friends or colleagues for their recommendations

Accounting that helps you grow, not hold you back

Most small businesses start managing their accounting manually using Excel and eventually transition to software or an accounting firm. There is no one-size-fits-all solution that works for every company. Furthermore, your initial choice may no longer be suitable as your business grows. It is important to evaluate how much time and resources you are willing to dedicate to accounting and then find the solution that best fits those needs.

Frequently asked questions

Can a small business handle its own accounting?

Yes, a small business can handle its own accounting, especially if the number of transactions is low and there are no employees. This can be done either manually (e.g., in Excel) or with the help of accounting software. However, it is important to note that the business owner must understand the basics of accounting and stay up to date with tax requirements.

Can accounting software replace an accountant?

Accounting software can be a great tool, but it does not fully replace an accountant. While software automates calculations and reports, the responsibility for the accuracy of the data and the correct application of taxes remains with the business owner or accountant. In more complex cases (such as when you have 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 significantly depending on the chosen solution. If the business owner handles the accounting themselves, costs may be limited to an accounting software subscription (approximately 15–50 EUR per month). Conversely, services from an accounting firm typically range from 100 to 300 EUR per month, depending on the number of transactions and the scope of services. Hiring an in-house accountant is the most expensive option, as it requires covering salary and taxes.