How to Set Up Accounting for Your Solo Business

Set up accounting systems for solo businesses with chart of accounts, bookkeeping software, and cash flow tracking.

1. Build your chart of accounts. Create 15-25 account categories: 5-8 revenue streams, 10-15 expense categories, and basic balance sheet accounts (checking, savings, credit cards, loans). Use 4-digit numbering: 1000s for assets, 2000s for liabilities, 3000s for equity, 4000s for revenue, 5000s for expenses. Track cost of goods sold separately if you sell physical products.
2. Select accounting software. Choose cloud-based software with bank feeds, invoicing, and basic reporting. Entry-level plans run $15-30/month for solos. Look for automatic bank reconciliation, expense categorization, and profit/loss reporting. Avoid desktop software—you need access from multiple devices and automatic backups.
3. Connect bank feeds and credit cards. Link all business accounts to your software for automatic transaction import. Use separate business checking and credit card accounts—mixing personal and business transactions creates tax headaches. Set up rules to auto-categorize recurring expenses like software subscriptions and rent.
4. Establish monthly close procedures. Reconcile bank accounts, categorize uncategorized transactions, and review profit/loss by the 10th of each month. Track key metrics: gross margin (if applicable), operating expenses as percentage of revenue, and cash runway in months. Flag any expense categories growing faster than 10% month-over-month.
5. Set up quarterly tax planning. Calculate estimated taxes every quarter using 25-30% of net profit as a starting point. Transfer tax money to a separate savings account immediately. Track deductible expenses: home office (simplified method: $5/sq ft up to 300 sq ft), business meals (50% deductible), and equipment purchases over $2,500.