Large vs Small Business Accounting: What You Need to Know

Imagine a sumo wrestler and a karate black belt.

The sumo wrestler is large and grounded: as stubborn as an immovable boulder. The black belt is lithe and precise, moving almost faster than the eye can follow.

Though these athletes are both practicing a type of martial art, nobody would mistake them for one another, or suggest they train with similar methods.

It’s the same with the finances of large and small businesses. You would no more try to fit the black belt’s gi onto the huge sumo wrestler than you would manage the finances of a large corporation in the manner of a small business.

That would look extremely silly.

Understanding the differences between the bookkeeping, operations, and maneuverability of large and small businesses can give small business owners some foresight into how scaling might affect their finances. It can also help you understand what financial services are necessary at different stages of growth.

So gird your mawashi (sumo loincloth), and we’ll lay out the major differences between large and small business accounting.

Large and small businesses are accountable to different people.

Have you ever checked out the financial statements of huge multinational corporations? Aside from the ridiculous amounts of money they’re dealing with, large public companies must also consider their profits in terms of cash funneling to shareholders.

Big business is the sumo wrestler: slower, more powerful, and let’s be real… probably needing to eat more. Big business is also accountable to levels upon levels of important people. Boards. Shareholders. The SEC.

As a small business owner, you start out with greater responsibility to yourself and your business, but ultimately less accountability to the world at large. And this can be freeing! At the beginning, as long as you’re smart, you can move your finances around more quickly and easily. You can experiment with your business model without having to justify it to eighteen execs.

You’re the black belt. So take advantage of it while you can.

Large and small businesses track and report finances differently.

For small businesses, the black belt status means that tracking and reporting requirements are also a bit more relaxed. At the beginning, it’s enough to track cash transactions as they happen. Get a dollar, report a dollar.

Pretty simple.

As you get to sumo wrestler business status, however, this gets much more complicated. Large companies must use the accrual method of accounting. This means that transactions are recorded when they are agreed upon, often long before any dollar-dollar bills have changed hands.

This method of accounting is more finicky, and larger companies are subject to more rules and far more complicated tax requirements. And it’s all because, as we mentioned, these behemoths are accountable to greater outside scrutiny.

But before you go feeling too smug about your small business status…

Small businesses have a harder time getting outside financing.

Big businesses have proven themselves, and made a name. This makes getting business loans an easier proposition, because they have more leverage (not to mention dedicated accounting departments).

Small businesses have a tougher time acquiring outside financing. Investors and banks are often more hesitant to loan money to a small business, because it is risky to fund a new company.

How does this relate to accounting? Well, as a smaller business, don’t rely on getting a loan to keep you afloat if you end up in a sticky situation.

Speaking of…

Small businesses run on thinner margins.

This may seem obvious, but the ramifications for financial stability are beyond count.

Say you’re a small business owner running a rubber ducky store. A flood comes along, and all your duckies are washed away. Catastrophic, if adorable. If you forgot to pay flood insurance that month… whump. Entire business down the sewer. Literally.

For small businesses with less financial padding for emergencies, staying on top of your financial picture is vital. Any accounting mistake has the potential to turn catastrophic, which is why small business owners need a solid understanding of their accounts.

In big business, there’s simply more room for error. Not even the CEO needs to know every nook and cranny of the company finances for things to run smoothly, because there’s more specialization, resources, and margin padding.

Because of this disparity in assets, finding the right accountant is crucial for small business owners at a certain point in their development. Come tax season, you want quick, accurate reporting to the IRS that puts you in no danger of getting audited or fined.

Large and small businesses use different types of accounting services.

The largest multinational organizations are, of course, going to have their own in-house accounting departments, filled with tons of accountants, legal advisors, and a junior VP or two strutting around in Armani.

For smaller businesses just starting out, you’ll probably have a limited number of vendors and customers of which to keep track. At the very beginning, it’s possible to maintain a simple general ledger by yourself. Financial statements are straightforward to produce and track (if you know what you’re doing.)

As you grow, (and sell more rubber duckies), volume and complexity increase. And one month, you’ll probably find yourself getting overwhelmed with invoices and receipts. Paperwork will start piling up, and tracking your accounts will be more effort than it’s worth.

At that point, it’s time to outsource to a qualified accountant or bookkeeper.

Finding the right accountant for you is extremely important. Make sure you’re partnering with someone who understands your size, needs, and growth expectations. A great accountant will also help you self-educate about the complexities that come hand-in-hand with business expansion.

Small businesses deserve boutique care.

As you can see, large and small businesses have drastically different accounting needs and resources. Contact Know Your Numbers Accounting today for services that are specialized for your growing small business, and are as quick and accurate as a karate black belt.