Bookkeeping Basics for Small Business Owners (free template!)

So many entrepreneurs start online businesses but don’t take the time to understand their business finances or to create a system to keep them organized, which often leads to overwhelm, wasted time,… and even failed businesses. 

And, when tax season rolls around (as it does, every year…), they’re scrambling to remember all their purchases, find the receipts, and put everything together in a neat and tidy package for their accountant. 

This doesn’t have to be you. Don’t let bookkeeping scare you! With the right system, bookkeeping can be fairly easy to maintain as a small business owner.

You may not be ready to jump in and hire a bookkeeper to work for you, so how can you do your own bookkeeping in just a few minutes per week with a simple system and free tools?

In this article, I’ll walk you through three important reasons to keep up on your bookkeeping and share a simple system and strategy you can use in your own business so that you can confidently use your financial report as a standard for growth. 

three important reasons to keep up on bookkeeping

The last thing you want to think about is the backend finances of your business because you’re more interested in the creation and marketing process. 

I get it.

But, if you’re interested in growing your business to five figures and beyond, then establishing quality bookkeeping practices to keep your finances in order is essential. It is way easier to do a little bookkeeping every day or week than to try and do it all at once at the end of the month or worse – at the end of the year. 

1) consistent bookkeeping keeps you organized

What happens when you need to find something quickly, but it’s missing? You scramble to find it, your stress levels heighten, and tension builds. That’s what can happen when your books aren’t kept up adequately. Unorganized financials lead to missed deadlines or small errors that may go unnoticed but could actually make a big difference. 

No matter how small or large your business is, you really can’t afford to make mistakes in your bookkeeping. Act as if. Do you want a large business? Treat your books and organization like you’re already there. Then, as your business grows, that system will grow with you and the team you bring on.

Having a system, keeping it organized, and maintaining the finances will help you in the long run.

2) organized books enable you to make better-informed business decisions

If you’re not immersed in the financial side of your business, it will be harder to verify if you’re meeting the targets you set for yourself. The profit and loss statement is a great tool for setting new goals based on where you’re at and the projected growth you desire. 

Seeing where your expenses incur helps you determine if you need to adjust anywhere you’re spending, whether it’s to cut out a piece of software or to hire some additional help. Wise decisions can’t be made without seeing the whole picture.

3) up-to-date books help you save money on taxes

Let’s face it, we don’t like paying taxes, but it’s a reality we share. What if you could organize your finances in such a way that you are able to leverage your expenses so that you can pay less in taxes? 

A perk of being a small business owner is that you open yourself up to being able to write off most expenses you incur. When your income and expenses are tracked well, it’s easier to be able to find the places you can take deductions.

RELATED: 6 things you must do before launching your business – set yourself up for success from the start 

What bookkeeping software should I use?

When it comes to bookkeeping, there are an array of software options you can choose from, like Quickbooks, Xero, or Wave. These tools provide additional features that can help you manage your finances as your business becomes more complicated. 

But, when you’re first starting out, I really wouldn’t recommend using any of those tools. Not only can they be expensive, but they tend to overcomplicate the process. 

And, while the automations are nice to have later on… it’s actually important to be more hands-on with your finances and transactions in the first few years of running your business so that you can see exactly how your business is making money and what you’re spending money on. This will help you ensure everything is properly organized and ready for growth.

That’s why a spreadsheet, like this free one I created in Google Sheets for you, is actually going to be the BEST tool to use when you’re getting started with bookkeeping for your business.

“Bookkeeping doesn’t need to be fancy to be effective” 

Did you know that the IRS mandates that you have a bookkeeping system? They do — but they don’t have many requirements for what your system needs to look like. (And a simple spreadsheet fits the bill!) 

RELATED: How I build my business in just 20 hours a week

How to do your business bookkeeping with a spreadsheet

All you need is a simple spreadsheet — you can make your own or download the simple startup bookkeeping spreadsheet I made to help you out. 

On your spreadsheet, you’ll want to have two main separate tabs: transactions and income statement

You’ll spend most of your time in the transactions tab, where you’ll track what your company spends and earns.

In the transactions section, you’ll want to create four columns: 

  1. Description
  2. Date
  3. Amount
  4. Category

For expense transactions, here’s how you’ll fill out the four columns: 

  • Description – this is where you’ll write what you purchased
  • Date – this is where you’ll write down when you purchased the item(s)
  • Amount – this is the actual price you spent (make the dollar negative for expenses)
  • Category – this is where you’ll choose the type of expense

For income transactions, here’s how you’ll fill out the four columns: 

  • Description – this is where you’ll write what was sold
  • Date – this is where you’ll record when the income was received
  • Amount – this is the actual dollar amount you earned
  • Category – this is where you’ll choose to track income by the method of payment the customer used or based on the type of product the customer purchased. I recommend tracking based on product so you can more clearly see how much you’re making per individual product you have for sale.

If using the simple startup bookkeeping spreadsheet, the transaction tab will “talk” to the income tab, automatically generating an accurate profit and loss statement so you can see how your company is faring each month. 

How do I pay a vendor, supplier, or contractor?

Are you looking at hiring a contracted team member that you pay monthly? Or maybe you need to pay a vendor or supplier but you’re unsure how to keep things simple and streamlined?

A few months ago I hired a new contractor who lives in Canada, so I searched for a way to streamline my outgoing payments and avoid high fees. That’s when I found Melio. It worked so well for my business relationship with my Canadian contractor, that I decided to use it to pay all my contractors!

Melio is simple and easy to use. It’s also free! And (one of my favorite parts) the person you’re paying doesn’t have to create a Melio account to accept payment from you. They get paid how they want to get paid – whether that’s a direct deposit, international transfer, credit card, or even with a check in the mail. 

If you choose to pay via credit card you can earn points or keep your cash flow positive throughout the month, the vendor will still receive the payment how THEY want to. Or you can avoid all transaction fees by using ACH transfers from your bank account.

Melio is a perfect match for this simple bookkeeping system we’re talking about today, and it also seamlessly integrates with Quickbooks and Xero, if you end up going that route eventually. If you’re looking for an easy way to pay vendors and contractors (or for your clients to pay YOU) then you can check it out here:

A few minutes a day makes a big difference

This whole simple startup bookkeeping system literally will take you a couple of minutes a day to maintain, but it will ensure all your books stay completely organized, up-to-date, and categorized how the IRS wants it organized.

My recommendation? Set aside a couple of minutes at the end of each workday to quickly record your transactions. This small step will save you a whole lot of time and headache when tax season comes around!

Gillian Perkins

Hi, I’m Gillian! I’m a marketing strategist who helps online entrepreneurs 10X their sales with FB ads + sales funnels. I love combining tech, analytics, and psychology to create powerful marketing systems. When I’m not helping my clients scale their businesses, I’m spending time with my husband and two little boys, exploring new places, or seeking out choice espresso.