Bookkeeping for Solopreneurs

A Simple Guide to Keeping Your Business Finances in Check

As a solopreneur, managing every aspect of your business is part of the journey. From marketing to client management, you’re wearing all the hats. But one area that can feel particularly daunting is bookkeeping. Whether you love it or dread it, keeping your financial records in order is essential to running a successful business.

In this article, we’ll break down the basics of bookkeeping for solopreneurs and show you how to keep your finances organized without losing hours of your valuable time.

Why Is Bookkeeping So Important?

First, let’s address the big question: Why do you need to stay on top of bookkeeping?

1. It’s a legal requirement. The IRS mandates that businesses keep accurate financial records for tax purposes. Failing to do so could lead to fines or even audits.

2. It helps you monitor your money. Bookkeeping gives you a clear view of your income and expenses, helping you make informed decisions about where to invest, cut costs, or grow.

3. It guides business strategy. Whether you want to scale up or rein in expenses, bookkeeping provides the data you need to steer your business in the right direction.

While many solopreneurs manage their books initially, the goal should be to maintain a system until you’re profitable enough to hire a professional bookkeeper. After all, your time is better spent focusing on what you do best.

What Is Bookkeeping, Exactly?

At its core, bookkeeping is the recording of all of your business transactions. Each time money comes in or goes out of your business, it needs to be tracked.

Here are a few examples:

- You start your business with $5,000? Record it.

- A client pays an invoice? Log the transaction.

- You buy software or pay for supplies? Add it to the books.

By tracking every transaction, you get a clear picture of your business’s financial health. And here's a key tip: **Keep your personal and business finances separate.** If you haven’t already, open a business bank account and get a business credit card. This isn’t just a best practice—it’s vital for legal compliance and accurate bookkeeping.

Choosing a Bookkeeping System

Now that you understand what needs to be recorded, the next step is to choose a system to manage these transactions. If you’re just starting and bringing in less than $1,000 a month, you might get by with an Excel spreadsheet. However, as your revenue grows, dedicated bookkeeping software will save you time and ensure accuracy.

Two popular options are:

- QuickBooks: Known as the industry standard for bookkeeping, this software offers robust features for small businesses.

Quickbooks Online

Wave

- Wave: A great free option for simple bookkeeping tasks, Wave is easy to use and integrates with your bank for automatic transaction imports.

I’ll be diving deeper into both of these tools in future tutorials, so stay tuned!

Getting Started with Bookkeeping

Once you’ve chosen your bookkeeping system, the next step is to gather your financial documents—bank statements, receipts, credit card statements—and start logging transactions. Each entry should include the date, amount, and category.

You’ll want to begin by getting caught up with all transactions that have occurred since your business started. This process can take a handful of hours, depending how long you’ve been in business. If you’d like to avoid doing this “clean up” project, we can do the work for you - just send us an inquiry email!

Speaking of categories, accurate categorization is crucial for both bookkeeping and tax deductions. Here are 10 categories that will cover most of your transactions:

1. Sales Revenue: The total income a business earns from selling goods or services. It represents the money generated before any expenses are subtracted and is a key indicator of business performance.

2. Purchases: The acquisition of goods or services that are necessary for running the business. This can include raw materials, supplies, or other inventory items that are essential to the operations of the business.

3. Accounts Receivable: The money that is owed to the business by customers for products or services that have been delivered but not yet paid for. It is considered an asset on the balance sheet.

4. Accounts Payable: The money that a business owes to suppliers or vendors for goods or services that have been received but not yet paid for. It is considered a liability on the balance sheet.

5. Payroll Transactions: The financial transactions related to compensating employees. This includes salaries, wages, bonuses, and deductions for taxes or benefits.

6. Loan Payments: Payments made toward any borrowed funds, including both the principal and interest. These payments are a liability until the loan is fully repaid.

7. Owner’s Equity Contributions: The funds or assets that the business owner personally invests in the business. This increases the owner’s stake in the company and is recorded as equity on the balance sheet.

8. Owner’s Draw: The withdrawal of funds by the business owner for personal use. It reduces the equity in the business and is typically not considered an expense.

9. Bank Deposits and Transfers: Money that is deposited into or transferred between a business's bank accounts. This includes any cash, checks, or electronic transfers made to the business accounts.

10. Expenses: The costs incurred in the day-to-day operation of the business. These can include rent, utilities, salaries, supplies, marketing, and other operational costs. Expenses reduce the profitability of a business and are subtracted from revenue to calculate net income.

If you’re using software like QuickBooks or Wave, you can connect your bank accounts directly to the platform, allowing transactions to import automatically. Just remember to double-check them for accuracy!

Building a Routine

Bookkeeping is not a one-time task; it’s an ongoing process. The key to staying on top of it is building a routine.

You can choose to:

- Do a quick daily check to log any new transactions (5 minutes).

- Set aside 30-60 minutes once a week to update everything at once.

By blocking out this time in your calendar, you ensure bookkeeping doesn’t get pushed to the bottom of your to-do list. Consistency is critical to maintaining accurate records.

Monthly Reconciliation and Financial Reports

In addition to your weekly routine, you should also reconcile your books monthly. This means comparing your recorded transactions with your bank and credit card statements to ensure everything matches. If there are any discrepancies, fix them immediately to maintain accurate records.

Another important monthly task is generating financial reports, like a “Profit and Loss statement” or “Balance Sheet”. These reports provide a snapshot of your business’s financial health and will help you see how much you’re making, how much you’re spending, and if you’re growing.

For businesses that invoice clients, keeping an eye on accounts receivable is crucial. Make sure you’re getting paid on time and following up on any overdue invoices.

Final Thoughts

Bookkeeping may not be glamorous, but it’s essential for the success of any solopreneur. By getting organized early, you’ll avoid headaches down the line and make smarter decisions about your business.

That said, this doesn’t have to be a permanent job for you. Once your business is profitable, consider hiring a professional bookkeeper to take this task off your plate, allowing you to focus on growth.

If you’re ready to get help with your bookkeeping, head over to the Profit Logic scheduling to learn more and get a quote. Thanks for reading, and remember: staying on top of your books today will set your business up for success tomorrow!

Happy bookkeeping!