How to Set Up a Simple Bookkeeping System From Scratch

Written By Natalie Harp

Starting your business bookkeeping doesn't have to be overwhelming. Here's how to create a small-scale system that actually works—for real people, not accountants.

🧠 Why This Matters

Many small business owners avoid bookkeeping because it feels too technical or time-consuming. But with a simple, structured setup, you can stay organized, reduce stress, and make smarter business decisions—without hiring a full-time bookkeeper.

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🔧 Step 1: Choose Your Bookkeeping Method

Start by choosing between two common approaches:

1. Spreadsheet-based system (Excel or Google Sheets)
Ideal for:

  • New or very small businesses

  • Businesses with fewer monthly transactions

  • Those comfortable with DIY tracking

We have a FREE Google Sheets Bookkeeping spreadsheet for you! Download your bookkeeping spreadsheet here.

2. Bookkeeping software (like QuickBooks or Wave)
Ideal for:

  • Growing businesses

  • Needing reports and automation

  • Wanting to invoice, accept payments, and categorize easily

Pro tip: Don’t wait until you’re overwhelmed. Start simple now—you can always upgrade later.

🗂 Step 2: Separate Business and Personal Finances

Open a dedicated business checking account and business credit card.
Mixing personal and business expenses makes taxes harder and could put your legal protections at risk (especially if you're an LLC).

🧾 Step 3: Set Up a Transaction Tracking System

No matter what method you choose, track:

  • Date

  • Vendor - aka the person or company you’re paying.

  • Amount

  • Category (e.g., rent, supplies, advertising)

  • Payment method (credit card, bank, etc.)

  • Notes or receipt references

If you're using Excel, make a template with these columns (again, we have a free Google Sheets spreadsheet you can download for free.
If you're using software, sync your bank account and review transactions weekly.

📦 Step 4: Choose Your Chart of Accounts

This is the list of categories used to organize your income and expenses. For a service-based business, common accounts might include:

Income:

  • Service Income

  • Product Sales (if any)

Expenses:

  • Rent

  • Software

  • Advertising & Marketing

  • Professional Services

  • Travel

  • Supplies

Don’t overcomplicate it—just use what you need and build from there.

🧮 Step 5: Reconcile Monthly

Every month, compare your records to your bank and credit card statements to ensure accuracy. This is called reconciliation—and it’s a must-do if you want your books to stay clean. If you need help reconciling, we have a collection of helpful YouTube bookkeeping tutorials here.

📊 Step 6: Run Monthly Reports

Even if you're DIYing, you can (and should) review your numbers monthly:

  • Profit and Loss Statement (P&L)
    Shows income vs. expenses.

  • Balance Sheet
    Shows what your business owns, owes, and is worth.

  • Cash Flow Statement
    Helps you understand your money in/money out patterns.

Most bookkeeping software will generate these automatically. If you're using Excel, you can create basic reports manually or use templates.

🧠 Final Tips for Success

  • Block 1–2 hours each week for bookkeeping

  • Keep digital or physical copies of receipts

  • Back up your spreadsheet or data

  • Consider working with a bookkeeper quarterly or annually to review your work

📍Need Help?

If you’re looking for an affordable bookkeeper (👋 like us!), we can help set up or review your system—even if you’re not ready to fully outsource yet.

Natalie Harp
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