Bookkeeping for small businesses, especially those that are service-based, doesn’t have to be confusing. So they say. But “they” aren’t busy business owners without bookkeeping training or the time to pour over spreadsheets. So most small business owners do one of three things: ignore their finances, muddle through miserably, or hire a bookkeeper.
Whether you still consider your business a side hustle or your craft or service is full-time supporting your family — or anywhere in between — your books matter. It’s time to treat your enterprise like the grown up business she is, and part of that means accurate bookkeeping.
The days of tracking receipts in a shoebox or only paying attention to your transactions in the mad pre-tax season scramble are coming to an end. Take care of your books correctly year-round and you can save money, make smarter business decisions, and enjoy (okay maybe just not dread) tax season.
So what does small business bookkeeping look like for you in this stage and the future? We’ll walk you through that below.
Treating Your Income Like a Business
You may be waiting until you hit six figures to treat your service income like a business. But the reality is no matter how much you’re making, the IRS expects you to report it as income. And if you’re going to report the money you make, you darn well want to track the money you’re spending to make it (expenses and COGS – we’ll get into that later) so you don’t overpay in taxes.
So whether you still consider your business a side hustle or you’re rocking the solopreneur game (that’s a service-based business like dog walking where you offer a service and likely don’t have a lot of obvious supply costs), it’s worth your time to spend time building your small business bookkeeping system.
Do You Need to Track Affiliate Income?
The short answer is yes, you need to track all income sources including Patreon, affiliate programs like Amazon Associates, and advertising income if you have ads on your site.
For example, if you’re an interior designer and you make a few bucks from decor or paint color affiliate links in your social posts, that’s income. The IRS expects you to track and report it.
Hey IRS? It’s Not All About You
While referencing the IRS might “scare you straight,” having accurate bookkeeping is really for your benefit. While it is important to keep the IRS happy (or just off your back), we care about you. Accurate small business bookkeeping enables you to:
- Know exactly how much you’re making (not just the money that hits your account after processing fees)
- Make informed business decisions because you know exactly where you stand financially
- Save for taxes all year so the April 15th tax bill ain’t no thang
- Use your business income to make rockin’ personal moves (like buying a house)
Bookkeeping for Service-Based Small Businesses: What It Looks Like For You
Tracking Your Income Streams
Small business owners are hustlers. Chances are, you have multiple income streams that may include:
- Product Sales
- Recurring and/or One-time Services
- Memberships
- Affiliate Commissions
- Brand Partnerships
- Sponsored Content or Ads
- Online Courses
- Dropship Products or Merch
That’s a lot to track, especially when it comes to you from different payment methods like Venmo, personal checks, ACH transfers, and a payment portal like Stripe. Having one place that it all flows to and is recorded makes it much easier to understand exactly how much you are making. That “one place” is your accounting system.
We typically recommend Quickbooks, but we always work with our clients to determine the best accounting system for their small business.
Should You DIY or Hire a Bookkeeper for Your Small Business?
If you’re making more than $50k or if your income comes from multiple platforms or if you are spending more than 8 hours/month on your books, it’s time to ask yourself if handling your own bookkeeping makes sense. This is especially true if you hate doing your bookkeeping, work in a highly regulated industry where compliance is critical, if your time is super tight already, or if you hate bookkeeping (oh, did we put that twice? Well that’s because we hear it all the time from successful small business owners like you).
DIY Bookkeeping: Pros
- Cheaper in the short-term
- Good for people who like to have their hands on all aspects of their business
DIY: Cons
- Time-consuming
- Small mistakes can snowball over time
- Easy to miss deductions which means overpaying on taxes
- Stressful at tax time
When to Bring in a Bookkeeper (Especially for S-Corps)
If you’ve elected S-Corp status (or you know you’re headed there), that’s a smart, savvy choice. But with that upgrade comes extra requirements—like reasonable payroll, clean monthly reconciliations, and quarterly tax filings.
You need a small business bookkeeper who understands the mechanics of running a service-based company with s-corp status, not just someone who enters transactions. Our firm helps service-based leaders like you by:
Prepping Tax-Perfect Books
Delivering clean, compliant financial records directly to your tax professional.
Optimizing Owner Compensation
Ensuring you pay yourself “the right way” (that W-2 salary) to maximize FICA tax savings without inviting IRS scrutiny.
Implementing Critical Systems
Catching potential compliance red flags before they become expensive penalties.
Focusing exclusively on profitable service firms gives us data and insights you simply cannot get doing it yourself. For example, we can answer the gutsy questions that drive true growth:
What’s your current Return on Investment (ROI) for your contract labor spend (e.g., consultants, VAs, fractional staff)? Where does your net profit margin fall compared to other high-performing firms in your industry?
We give you the financial data and the industry comparison, so you stop guessing and start leading with smart, savvy choices.
The Bottom Line
The Bottom Line? Accurate bookkeeping is the non-negotiable step required to transition your side hustle or small, service-based business into a savvy, profitable, and tax-efficient enterprise.
If you own a service-based business and you’re ready to ditch the financial fatigue and get clear on your finances, let’s talk.
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