How to Do Bookkeeping for a Small Business Without Software

What is bookkeeping, in plain words?

Bookkeeping is the habit of writing down every time money enters or leaves your business, so that once a month you can answer five questions: how much came in, how much went out and on what, who still owes you, how much of your bank balance really belongs to the tax office, and whether you are charging enough.

That is the whole job. It does not require an accounting qualification or a software subscription. The US Internal Revenue Service says on its recordkeeping page that you may choose any recordkeeping system suited to your business that clearly shows your income and expenses. A spreadsheet with two lists, backed by receipts and bank statements, meets that description for most freelancers, home businesses and small shops.

Owners who struggle with their books are rarely bad at arithmetic. More often they are capable people who were never shown a system small enough for a business of one to ten people. The steps below are that system.

Should I use cash basis or accrual accounting?

There are two ways to decide when a sale or a cost counts. On the cash basis you record income when the money arrives and expenses when you pay them. On the accrual basis (the UK calls it traditional accounting) you record income on the date you invoice and costs on the date you are billed, even if no money has moved.

For a very small business the cash basis is simpler and harder to get wrong. GOV.UK guidance on business records for the self-employed describes cash basis as the default method for sole traders from the 2024 to 2025 tax year, and the US Small Business Administration notes that the cash method gives a clear view of cash flow and is easy to understand, while accrual gives a more immediate picture of sales but takes more work to manage.

Some businesses must use accrual, particularly larger ones and those holding significant stock, so confirm with a qualified accountant which method applies to you. Whichever you use, keep a separate invoice register, because who owes you money is a question the cash basis does not answer on its own.

How do I separate business and personal money?

Open a second bank account and use it for nothing but the business. Every customer payment goes in, every business cost comes out. Then open a savings pot beside it for tax. Finally, pay yourself a fixed amount on a fixed date by transferring from the business account to your personal one.

This single change does more for your books than any template. A business account balance means something; a mixed account means an afternoon of detective work every month, or a bigger accountant's bill at year-end. When the two pockets touch anyway, for example you buy printer ink on your personal card, record the purchase, mark it as paid from personal money and repay yourself at month-end. The rule is not that money never crosses. The rule is that every crossing gets a line.

Check your bank's terms: in some countries a sole trader can use a second ordinary account, while some banks require a business account for business use.

How do I track income and invoices so I get paid?

Keep two things: an invoice register (what you have billed and whether it is paid) and an income list (money actually received, including cash sales). For each invoice record the number, date, customer, amount, tax, due date, date paid and amount received. A status column that shows Sent, Part paid, Paid or Overdue, and a count of days overdue, turns the register into a chase list.

Most late payment is caused by friction, not bad intent. Remove the friction with a complete invoice and clear terms agreed before the work starts.

• Number invoices in an unbroken sequence and never reuse a number; cancel mistakes with a credit note
• Write the due date as a real date, such as 17 October 2026, not as a code like Net 14
• Include the customer's purchase order or reference and the name of the person who ordered
• Show the amount before tax, the tax and the total, with the currency
• Give exact payment details and state your late-payment terms
• Send the invoice the day the work is delivered, then log it immediately
• Chase on a fixed schedule: a nudge before the due date, a friendly reminder at one day overdue, a firm one at seven days, a phone call at fourteen and a final notice at thirty

What can I charge for late payment?

It depends on your country and your contract, so state your terms in your quote and agreement. As one example, GOV.UK guidance on late commercial payments says that if no payment date is agreed, a business-to-business payment is late 30 days after the customer gets the invoice or the goods or service are delivered, whichever is later, and that a statutory interest rate applies to business-to-business transactions unless the contract sets a different rate. Check the current figure on GOV.UK.

Even where you rarely apply a late fee, stating one tells customers that you notice. More useful still are deposits on larger jobs and a clause that lets you pause work while an invoice is overdue.

How do I record expenses and keep receipts?

Add one line each time money leaves: date, who you paid, what for, category, amount and how you paid. About fifteen categories are plenty, for example stock and materials, subcontractors, software, phone and internet, rent and utilities, travel, marketing, professional fees, bank fees, insurance, training, office costs and wages. Use the same category for the same cost all year.

Three kinds of payment take cash out of the account but are not business costs: paying yourself, paying the tax office and repaying a loan. Keep them in their own categories so they do not distort your profit.

For receipts, the habit that works is to photograph each one before it leaves your hand and send it to a single folder, named with the date, supplier and amount. Keep records for as long as your country requires. GOV.UK tells self-employed people to keep records for at least 5 years after the 31 January submission deadline of the relevant tax year. The IRS says to keep records as long as needed to prove the income or deductions on a tax return, and to keep employment tax records for at least four years.

How much should I set aside for tax?

Think of two separate taxes. Sales tax (GST or VAT in many countries) is added to your prices if you are registered and collected on the government's behalf; it was never your income, so all of it goes into the tax pot. Tax on profit (income tax and, in many countries, social contributions) depends on your total income and local rules.

Because the true figure depends on allowances and bands, ask an accountant for a planning percentage. Many owners begin by setting aside between a fifth and a third of profit and adjust after their first real bill. The discipline matters more than the precision: move the money on the day each customer pays, and check the pot monthly.

Watch your thresholds and dates too. In the UK, for instance, GOV.UK sets a taxable turnover threshold above which you must register for VAT. In the US, the IRS says individuals, including sole proprietors, generally have to make estimated tax payments once the tax they expect to owe passes a set amount. Both figures change, so read the current ones on the official sites. Every country has its own equivalents, so look them up on your tax authority's website. This article is general education, not tax advice.

What should a monthly close include?

Pick the same day each month, such as the first Monday, and give it 45 minutes in five timed blocks.

The matching block is what makes your books true. Go down the bank statement line by line and tick each line against a row in your income or expense list. A statement line with no row is something you forgot to record. A row with no statement line is cash, a duplicate or a payment that has not cleared. If the totals disagree by an amount that divides exactly by nine, look for two swapped digits.

When should I move from a spreadsheet to accounting software?

A spreadsheet is the right tool until volume or rules say otherwise. Consider moving when you send more than about 50 invoices a month, hold meaningful stock, run payroll for several staff, need two people entering data at once, or your tax authority requires digital records or digital filing for a business like yours. A lender or investor may also expect formal double-entry accounts.

The move is far easier from clean books. If your categories are consistent and your months are closed, your spreadsheet becomes the opening data for the software. If you would like the spreadsheet already built, the Small Business Books in a Box kit from Bodhih Training includes an invoice register, ledgers, a monthly profit summary, a 12-week cash forecast, a tax set-aside calculator and a pricing and break-even calculator, with a worked example and a 14-day setup plan.