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Running a business online gives you flexibility, lower overhead, and access to a global customer base. But once you start accepting payments, paying for tools, or hiring help, things can get messy without a solid system in place.
Whether you’re freelancing, running an eCommerce shop, or selling digital services, accurate bookkeeping is essential for keeping your finances in good order. We’ll give you a step-by-step guide showing you the basics of keeping your books on track.
Start with the Right Setup
Every online business needs a reliable way to track income and expenses, and the right tools make this much easier from day one. If you’re just getting started, self employed bookkeeping software can help you set up your system, categorize transactions, and stay organized without needing an accounting background.
Start with these key steps:
- Open a business bank account. Keeping business and personal finances separate is essential, so get a separate business bank account and credit card as soon as possible.
- Set up a basic chart of accounts. This is the list of categories you’ll use to organize your income, assets, and expenses. Your COA will form the backbone of your bookkeeping system and include everything from product sales to bank account balances to advertising costs. Most bookkeeping software will walk you through the process of setting one up.
- Set a weekly bookkeeping time. Block out 30–60 minutes once a week to log expenses, upload receipts, and review transactions. Keeping up regularly is much easier than playing catch-up at tax time.
Choose the Right Bookkeeping Method
Next, decide how you’ll record your financial activity. Small businesses can choose one of these two methods:
- Cash basis accounting: Record income when you receive it and expenses when you pay them. This method is simple and works well if you don’t carry inventory.
- Accrual basis accounting: Record income when it’s earned and expenses when they’re incurred, regardless of when money changes hands. This gives a fuller picture of your finances but takes a bit more setup.
For many solo business owners, cash basis accounting is the easiest way to start. Most business owners eventually change to accrual as their revenues grow, but the simplicity of cash often makes it a good choice for brand-new businesses.
Keep Your Financial Records Organized
Online businesses often deal with multiple income streams, platforms, and tools, making organized record-keeping even more important than usual. These should be key focus areas for new business owners:
- Invoices: Number them clearly, include payment terms, and use your invoice software to track which ones are still unpaid.
- Receipts and subscriptions: Save digital copies of all business purchases. For tools and subscriptions, make it a habit to download statements or use apps that capture them automatically.
- Bank and credit card statements: Reconcile these monthly to make sure your records match up.
- Tax forms: If you pay any freelancers more than $600 during the year, you’ll need to file Form 1099-NEC. And if you use platforms like Stripe or PayPal, you may receive a 1099-K once you hit a certain amount of total payments.
Keep everything organized by year and category using cloud storage or bookkeeping software with document storage features.
Use Automation to Make Things Easier
You don’t have to do everything manually. With the right tools, you can set up systems that do a lot of the work for you. These are some places to start:
- Connect your bank account to your bookkeeping software so transactions appear automatically. All you have to do is review and categorize them.
- Create rules for common expenses so they’re categorized the same way each time—for example, you can tag your monthly email software charge as “Marketing.”
- Use a mobile app to scan and match receipts on the go. This is especially helpful for tracking expenses while traveling or working remotely.
- Set up recurring invoices and payments if you have regular clients or contractors. It saves time and helps avoid missed payments.
There are plenty of software options out there, so take a little time to compare small business bookkeeping tools and pick one that fits how you work.
Stay on Top of Your Tax Obligations
Even if your business is fully online, you still need to follow standard tax rules. Here are the basics:
- Make quarterly estimated tax payments if you expect to owe $1,000 or more in income tax. Use IRS Form 1040-ES to figure out what you owe and when it’s due.
- Plan for self-employment tax to be about 15.3% of your net income. This covers Social Security and Medicare taxes that would otherwise be split with an employer. It’s common for self-employed business owners to build this into the prices they charge for goods and services.
- Watch for 1099-K and other forms from payment processors. If you collect payments through apps or platforms and pass a specific mark, you’ll likely receive a 1099-K. Compare it to your own records so nothing gets missed.
If you sell products in different states, you might also need to register and collect sales tax based on where your customers live. Businesses that sell only on big platforms like Amazon and Etsy have sales tax collected for them thanks to marketplace facilitator laws, but if you sell directly to customers, you may be required to collect sales tax. Double-check your obligations as your business expands.
Know When to Bring in a Pro
You don’t have to manage everything on your own forever. Local accountants can offer valuable help, especially when:
- You’re setting up your bookkeeping system for the first time
- You want to make sure you’re taking all the business expense deductions you’re entitled to
- You’re dealing with multi-state or international sales tax
- You’re preparing to hire new employees
- You’re preparing for tax season and want a second set of eyes
You don’t necessarily need to hire someone full-time. Even a one-time review or annual check-in can be a big help.
Managing the financial side of your online business doesn’t have to be overwhelming. With a clear system, a few helpful tools, and a regular routine, you can keep your books in good shape and focus on nurturing your small business.
