DIY Bookkeeping for One-Person Businesses

As a solopreneur, you’re not just wearing multiple hats; you might be wearing the whole wardrobe!

But amidst all this whirlwind activity lies a vital yet often overlooked task: bookkeeping. 

While crunching numbers may not be as thrilling as pitching your latest idea to investors, mastering your finances is what makes or breaks your business. However, bookkeeping doesn’t have to be a sword that looms over your entrepreneurial dreams. 

Whether you’re just starting or looking to refine your approach with self-employed bookkeeping tips, get doola to turn that financial chaos into clarity with tools tailored specifically for the mighty company of one. 

This streamlines your financial processes so you won’t get bogged down in spreadsheets and receipts. With our bookkeeping solution at hand, you’ll not only keep your books balanced but also gain invaluable insights that empower you to grow your business with confidence. 

In this blog, we’ll demystify the art of solopreneur bookkeeping and empower you with simple strategies that will streamline your financial processes, keep those numbers in check, and allow you to focus on what truly matters: growing your business. 

Ready to transform bookkeeping from a chore into an empowerment tool? Let’s get started!

Hey Siri, What’s Bookkeeping?

Bookkeeping involves tracking and recording all of your company’s financial transactions into accounting software, physical books or spreadsheets. This helps you understand where your revenue is coming from and where the business is spending money. 

You need bookkeeping to do your taxes since you need to track your revenue and expenses to calculate your taxable income. Plus, you don’t miss out on any tax deductions by identifying expenses that you can deduct from your taxable income.

While most businesses hire a bookkeeper or accountant for these tasks, one-person businesses prefer handling bookkeeping tasks on their own due to limited resources. It’s like assembling your own IKEA furniture—it’s totally doable, but you might need a few extra hands.

However, Do-it-yourself (DIY) bookkeeping can become too much. Taking on additional tasks like bookkeeping can be overwhelming and may lead to errors and delays, which can be costly. Therefore, it’s best to let the professionals handle it.

​​DIY vs. Professional Bookkeeping

DIY bookkeeping allows solopreneurs to monitor their cash flow, make informed financial decisions, and meet their tax obligations by themselves. But first, you must ensure that you understand what is required to keep your books in tip-top shape.

Most solopreneurs do not have formal training or a background in accounting, which means they have to learn the basics on their own. This can be time-consuming and take your focus away from vital business tasks that could impact your business.

Despite the challenges, handling bookkeeping tasks on your own as a solopreneur has several benefits. One significant benefit is having complete control over your company’s finances. You know exactly where every dollar is going and how much you are spending.

Additionally, doing DIY bookkeeping can save you money since you won’t have to hire an accountant or use expensive software. As a one-person business owner, every expense counts, so being able to manage your finances without extra costs can be a significant advantage.

With proper time management and a willingness to learn basic accounting skills, you can ensure the financial success of your business without additional costs.

Step 1: Separate Your Business and Personal Expenses

The line between personal and business finances can get blurry for solopreneurs. With so much on your plate, it’s easy to mix up your personal and business expenses. However, it is crucial to separate these two categories for accurate financial management and tax purposes.

The first step in separating your business and personal expenses is to open a business bank account. This way, you can track the exact amounts debited and credited to your account to identify income sources, tag tax-deductible expenses and easily prepare your taxes.

Also, it gives your business an extra layer of liability protection. There’s always a chance that you could be held personally liable for any debts incurred by your business if you use your personal bank account.

However, the biggest benefit of having separate bank accounts is that they simplify bookkeeping. By keeping all business transactions within one account, you’ll have a clear record of all income and expenses related to your company.

This will enable you to easily distinguish between the two types of transactions when reconciling statements. So, you won’t have to sift through personal transactions to find business-related ones during tax season.

Step 2: Set Up a Chart of Accounts

When it comes to managing your business finances as a solopreneur, one of the first things you should do is set up a chart of accounts. To start off, let’s define what a chart of accounts is. 

Simply put, a chart of accounts is a list of all the accounts that make up your company’s financial records, including assets, liabilities, equity, revenue, and expenses. The first step in setting up your chart of accounts is to identify the main categories relevant to your business. 

This may vary depending on the nature of your business. Still, some common categories include sales/revenue, cost of goods sold (COGS), operating expenses, assets (such as equipment or inventory), liabilities (such as loans or credit card debt), and owner’s equity.

Once you have determined these categories, it’s time to create subcategories under each one. For example, under operating expenses, you may have subcategories such as rent/lease payments, utilities, advertising/marketing costs, etc. 

The goal here is to categorize every transaction accurately so that you can generate meaningful reports later. So, take your time with this step and consider how best to group different types of income or expense items together.

Step 3: Choose a Bookkeeping System

When it comes to DIY bookkeeping, choosing the right system helps you maintain accurate financial records on your own. While there are so many options available in the market, there are primarily two types of bookkeeping methods: single-entry and double-entry bookkeeping.

Single-entry Bookkeeping

It is the simplest form of record-keeping used by solopreneurs and small businesses. Each transaction is recorded only once as either an expense or income. Assets and liabilities (like inventory, equipment, and loans) are tracked separately. 

Every time money enters or leaves your business, it’s recorded as a positive (income) or negative (expense) value. If you are doing your books on your own and running a small, simple business with a low volume of transactions, single-entry is right for you. 

Double-entry Bookkeeping

Double-entry is more complex than single-entry bookkeeping. It is based on the principle that every transaction will have two entries—a debit and a credit entry. This means that if you reconcile all the debits and credits in your books, they should be equal to each other. 

Since it is more complex and challenging to maintain alone, solopreneurs often avoid it. Therefore, larger businesses with high transaction volumes mainly hire professional bookkeepers or accountants to use this method to maintain their books.

While both systems have their pros and cons, we highly recommend opting for bookkeeping software designed for freelancers or sole proprietors with basic accounting needs. 

Step 3: Choose the Right Bookkeeping Tools

As a solopreneur, you can only do so much on your own with limited time and resources. You need to categorize every transaction in your spreadsheets manually. That doesn’t sound much until you have to enter hundreds of these and make a mistake or forget to add one.

But when tax season comes a few months later, you may not be able to recall an unmarked expense for lunch at a restaurant. Was it a client lunch or a treat to your employees, which is a tax-deductible expense lost forever?

Therefore, it is crucial to choose the right tools for your bookkeeping needs. So, you can automate mundane bookkeeping tasks and reduce administrative burdens while still being in control.

While you can use any popular bookkeeping solutions, like QuickBooks, Xero, or Wave, these tools can help you if you know what you’re doing. Without any bookkeeping experience or learning it from scratch, they could stress you out more than they help you. 

However, if you want dedicated tools and support to handle your bookkeeping and taxes, you can get started with doola Bookkeeping. 

Our one-stop solution will do everything for you: prepare financial statements, give you actionable financial insights, and file your taxes for you. 

Step 4: Organize Your Books

Once you have your bookkeeping system in place, it’s time to start organizing your transactions. The first step is to assign each transaction the appropriate category. To simplify things further, bookkeeping software has pre-defined categories that you can customize.

You can organize receipts and categorize expenses according to their purpose (e.g., office supplies vs. travel expenses) to ensure they are accounted for. This will help you understand what qualifies as a deductible expense. 

Generally, any expense that is necessary and ordinary for the operation of your business can be deducted. This includes things like office supplies, marketing and advertising costs, professional fees, and travel expenses related to business activities.

To make sure you don’t miss out on any potential deductions, it’s important to keep thorough records of all your business expenses throughout the year. This can include receipts, invoices, credit card statements, and bank statements. 

DIY vs. doola Bookkeeping: How We Can Make A Difference

Most one-person businesses or solopreneurs will prefer to do their books themselves due to their limited budget and resources. However, once business starts growing and the number of transactions keeps increasing, bookkeeping turns into a hassle. 

Even if you find the time to get your books in order every month, you may still need to consult with a CPA or bookkeeper just to make sure you’re doing everything right. That’s why doola has brought an all-in-one bookkeeping solution that has everything you need under one roof.

Get started with doola Bookkeeping, an easy-to-use software to automate record-keeping, produce financial statements, keep track of your daily expenses, and help make tax time a breeze.

If you need a more hands-on approach, you can rely on our bookkeepers to handle all your financial transactions, ensuring that your books are always up-to-date and compliant with tax laws.

As a company of one running a solo enterprise, investing in doola’s Bookkeeping services can provide you with more time to focus on growing your business while leaving the financial management to the experts.

Book a demo to look under the hood and learn how doola can manage all aspects of your finances without taking up much of your time.