Bookkeeping has a reputation for being dull, and it is, a little. It is also the only way to know whether your business makes money, how much tax to set aside, and whether you can afford the next decision. For a one-person business, good bookkeeping does not require accounting training or expensive software. It requires a separate account, a consistent record and a short weekly routine. This section shows how to set that up and keep it going.
The three foundations
Almost every bookkeeping problem traces back to one of these being missing:
- A separate business account. All business income goes in and all business expenses go out from it. Mixed accounts turn bookkeeping into detective work.
- A ledger. A record of every business transaction: date, amount, who it was with, what it was for and which category it belongs to. A spreadsheet works; so does accounting software.
- Supporting documents. Invoices you issued, receipts and bills you paid, and bank statements, kept in an organised way.
With those in place, everything else in this section is refinement.
Categories that match your tax return
Sorting expenses into categories as you go makes tax time much simpler. The most practical categories mirror the expense lines on the tax form you will file, such as advertising, supplies, insurance, travel and professional fees. When categories match from the start, the year-end summary almost writes itself.
Cash or accrual
Most very small businesses keep books on a cash basis: income is recorded when received and expenses when paid. It is simple and matches the bank account. Accrual accounting, which records income when earned and expenses when incurred, gives a different picture of performance and is required in some situations, such as certain businesses with inventory. The guides explain the difference and when it matters.
A weekly and monthly routine
Bookkeeping is easiest in small, regular amounts:
- Weekly: record transactions, file receipts, check which invoices are due or overdue.
- Monthly: reconcile the ledger against the bank statement, review income and expenses against the previous month, and move money aside for tax.
- Yearly: close the year, summarise by category, and gather what you need for the tax return.
Half an hour a week usually keeps a one-person business current.
Cash flow is not profit
A business can be profitable on paper and still run out of cash, because payments arrive late, expenses come in lumps, and tax bills fall on fixed dates. Tracking cash separately from profit, keeping a buffer, and paying yourself a steady amount rather than whatever arrives in a given month protects you from the swings that are normal in self-employment.
How long to keep records
Records need to be kept for as long as they may be needed for tax purposes, which is several years and longer in some situations. The guides in this section give the official guidance and a practical filing system, paper or digital.
Software or spreadsheet
Accounting software can connect to your bank, sort transactions and produce reports, which saves time as the business grows. A spreadsheet costs nothing and is perfectly adequate for a simple service business. The right choice is the one you will actually keep up. The guides compare the trade-offs without recommending a particular product.
When to bring in help
A bookkeeper or accountant can help with set-up, catching up on a backlog, or year-end work. Even if you do the day-to-day yourself, a professional review once a year can catch mistakes before they become expensive.
Start here
If your books are not set up yet, start with a separate account and a simple ledger this week. If they are behind, catch up one month at a time, starting with the most recent.
Guides in this section
- Bookkeeping for the self-employed: a simple system you will keep up
Bookkeeping for self-employed people: the records the IRS expects, a simple ledger, categories, a weekly routine, monthly reconciliation and retention.
- Cash vs accrual accounting for a small business, in plain terms
Cash vs accrual accounting for a small business: when income and expenses count, constructive receipt, inventory, pros and cons, and changing methods.