5 Simple Steps to Setting up Your Accounting System

5 Simple Steps to Setting Up an Accounting System for Your Service-Based Business

As a service-based business owner, you wear many hats—CEO, marketer, customer service rep, and everything in between. But one hat that often gets overlooked is that of a bookkeeper. Without a solid accounting system in place, it’s easy to lose track of income, expenses, and overall profitability. The good news? Setting up an accounting system doesn’t have to be complicated. Follow these five simple steps to get your finances organized and set your business up for success.

1. Choose an Accounting Method

Before you dive into bookkeeping software, you need to decide on an accounting method:

• Cash Basis Accounting: Records income and expenses when money is received or spent. Best for small businesses with straightforward finances.

• Accrual Basis Accounting: Records income when earned and expenses when incurred, regardless of when money changes hands. Ideal for businesses with accounts receivable or payable.

For most small service-based businesses, cash basis accounting is the simplest way to start. However, if you plan to scale, accrual accounting provides a clearer financial picture.

2. Select the Right Accounting Software

Manual spreadsheets can work initially, but as your business grows, a reliable accounting software will save time and reduce errors. Popular options include:

• QuickBooks Online – A widely used platform with robust features for small businesses.

• Xero – A user-friendly option with automation capabilities.

• Wave – A free option for businesses with basic accounting needs.

Choose software that fits your business size, budget, and reporting needs.

3. Set Up a Business Bank Account

Mixing personal and business finances can create major headaches when it’s time to track expenses or file taxes. Open a dedicated business bank account and, if necessary, a business credit card to streamline financial management. This step will also make reconciling transactions easier when using accounting software.

4. Establish a Chart of Accounts

Your chart of accounts (COA) is the backbone of your accounting system. It categorizes every financial transaction into groups such as income, expenses, assets, and liabilities. A well-organized COA helps you track business performance and ensures accurate financial reporting.

Typical accounts for service-based businesses include:

• Revenue (e.g., consulting income, service fees)

• Operating expenses (e.g., marketing, office supplies, software subscriptions)

• Payroll (if you have employees or contractors)

• Taxes (e.g., sales tax payable, estimated tax payments)

Most accounting software provides a default chart of accounts that you can customize to fit your business.

5. Develop a Bookkeeping Routine

Consistency is key to maintaining an organized accounting system. Set aside time weekly or monthly to:

• Record income and expenses

• Reconcile bank and credit card statements

• Review financial reports (like Profit & Loss and Cash Flow statements)

• Set aside money for taxes

If bookkeeping feels overwhelming, consider outsourcing to a professional. A bookkeeper can help ensure accuracy and compliance, allowing you to focus on growing your business.

Final Thoughts

Setting up an accounting system doesn’t have to be daunting. By following these five simple steps, you’ll create a financial foundation that supports your business growth and keeps you stress-free come tax season. Need help getting started? Clever Bookkeeping Services specializes in helping service-based business owners gain clarity and confidence in their finances.

Contact us today to learn how we can help your business thrive!