Basic Bookkeeping Guide for Tradespeople

When you’re busy fixing pipes, wiring homes, or building decks, bookkeeping might be the last thing on your mind. But keeping track of your money matters just as much as delivering quality craftsmanship to your customers. And here’s the good news: bookkeeping doesn’t have to eat up your time or give you a headache!

This guide cuts through the confusion and gives you the straightforward basics of bookkeeping specifically for folks in the trades—whether you’re a plumber, electrician, carpenter, painter, or any other type of contractor. We’ll skip the complicated jargon and focus on what actually helps your business thrive. Just practical, simple advice you can use right away.

Why Bookkeeping Matters

You might be wondering why you should bother with bookkeeping when you’d rather be on job sites. Here are five important reasons:

1. You Need It To Do Your Taxes

Tax time is stressful enough without having to dig through shoeboxes of receipts or scroll through a year’s worth of bank statements. Good bookkeeping means you’ll have all your income and expenses organized when it’s time to file your taxes. This saves you time, stress, and potentially money (since you’re less likely to make mistakes).

2. It Tells You Where Your Money Is Going

Ever wonder why there never seems to be enough money in your account? Even when you’re working constantly? Proper bookkeeping shows you exactly where your hard-earned cash is going. You might discover you’re spending way too much on tools, vehicle expenses, or other costs that are eating into your profits.

Understanding the difference between your revenue and actual profit is crucial. Our article on Gross Profit vs. Net Profit: What’s the Difference? explains this important distinction.

3. It Ensures That You Don’t Miss Out On Tax Deductions

As a tradesperson, you can deduct many business expenses from your taxes. But only if you track them! Things like mileage, tools, supplies, insurance, and even part of your phone bill might be tax-deductible. Without proper bookkeeping, you’re likely leaving money on the table.

4. You Need It To Borrow Money

If you ever want to get a business loan to buy a new work truck, upgrade your equipment, or expand your business, you’ll need organized financial records. Banks and lenders want to see that you understand your finances before they’ll lend you money.

5. It Helps You Catch Errors Quickly

Good bookkeeping helps you spot problems fast. Like a customer who hasn’t paid, a supplier who overcharged you, or a subscription you’re paying for but don’t use. The sooner you catch these issues, the easier they are to fix.

Take Mike’s plumbing business: He kept receipts in a shoebox and only checked his bank balance to see if he had money.

After a costly tax season with extra accountant fees and missed deductions, he started using accounting software, spent 20 minutes each Friday updating his books, and stored digital receipts. 

Within three months, he discovered he was undercharging for certain jobs, found $7,200 in missed tax deductions, and felt much less stressed. His weekly 20-minute habit saved him thousands.

The First Seven Steps of a Bookkeeping Process

Setting up a bookkeeping system isn’t as hard as it might seem. Follow these steps to get started:

Step 1: Separate Your Business and Personal Expenses

This is absolutely the most important step! Open a separate business checking account and get a business credit card. Never mix your personal and business finances. This separation makes bookkeeping much easier and protects you during tax audits.

Step 2: Choose a Bookkeeping System

You have two main options:

Single-entry bookkeeping: This is the simpler method, similar to balancing a checkbook. You record each transaction once, either as money coming in or going out. This works for many small trades businesses.

Double-entry bookkeeping: This more advanced method records each transaction twice (as a debit and a credit). It’s more accurate but more complex. Most accounting software handles this automatically.

For a better understanding of how transactions are tracked, check out our article on What is a Ledger Balance?.

Step 3: Choose an Accounting Method: Cash or Accrual

You’ll need to decide between two accounting methods:

Cash method: You record transactions only when money actually changes hands. Most trades businesses prefer this simpler approach since it clearly shows your available cash.

Accrual method: You record income when earned (when invoiced) and expenses when incurred (when billed), regardless of when money changes hands. This shows truer business performance but requires more bookkeeping work.

Step 4: Choose the Right Tools

For bookkeeping, you have options. Spreadsheets like Excel or Google Sheets can work for simple businesses but need manual entry.

Accounting software connects to your bank, automatically categorizes expenses, and creates reports. Paper ledgers work but risk errors and take more time. Pick what fits your tech comfort level and business complexity.

Step 5: Make Sure Your Transactions Are Categorized

Organize your income and expenses into categories that make sense for your business. Common expense categories for tradespeople include:

• Materials and supplies
• Tools and equipment
• Vehicle expenses (gas, repairs, insurance)
• Insurance (liability, workers’ comp)
• Labor (employees or subcontractors)
• Office supplies
• Advertising and marketing
• Professional services (accountant, lawyer)
• Licenses and permits
• Travel and meals

Proper categorization makes tax time easier and helps you understand where your money is going.

For a deeper understanding of your business finances, you might want to learn about What Are Financial Projections and How To Do One to plan for future growth.

Step 6: Choose a System for Storing Your Documents

Keep all financial documents for at least 7 years for taxes. Digital storage is convenient—scan receipts to cloud services or your accounting software, with many apps offering mobile capture features. 

Physical storage works too, using a filing cabinet organized by month or category, though papers can get lost. Many trades pros use a hybrid approach: physical copies for major purchases, digital for everything else. Choose a system simple enough that you’ll actually stick with it.

Step 7: Organize Your Deductions

As a tradesperson, you likely have many business expenses that are tax-deductible. Keep special track of:

• Vehicle mileage for business use
• Home office expenses if you run your business from home
• Tools and equipment purchases
• Work clothes and protective gear
• Licensing and certification costs
• Insurance premiums
• Business phone and internet costs

Our Invoice Maker tool can help you create professional invoices that make it easier to track your income and get paid faster.

Step 8: Make Bookkeeping a Habit

Consistency is key for effective bookkeeping. Set aside a specific time each week (like Friday afternoon) to:

• Record all transactions
• Send invoices
• Pay bills
• File receipts
• Review your financial position

Doing a little bit regularly is much easier than trying to catch up on months of bookkeeping all at once.

Expert Small Business Bookkeeping Tips

Here are some pro tips to make bookkeeping even easier:

1. Use your smartphone: Take pictures of receipts immediately so they don’t get lost. Many accounting apps have mobile versions that make this simple.
2. Set up bank feeds: Most accounting software can connect directly to your bank account and automatically import transactions. This saves tons of time on data entry.
3. Consider a business credit card: This gives you an automatic record of expenses and often provides year-end summaries categorized by expense type.
4. Create a simple filing system: Whether physical or digital, have a place for invoices, receipts, bank statements, and tax documents.
5. Track mileage in real-time: Use a mileage tracking app or keep a notebook in your vehicle to log business trips. This is a valuable tax deduction many tradespeople miss.
6. Review financial statements monthly: Take a few minutes each month to look at your profit and loss statement and understand where you’re making and spending money.

Understanding how to track your progress toward financial goals is important. Our article on the Break-Even Point Formula can help you determine when your business becomes profitable.

Small Business Bookkeeping Pitfalls to Avoid

Watch out for these common bookkeeping mistakes:

1. Waiting too long between updates: Trying to do months of bookkeeping at once is overwhelming and leads to errors. Stay current with weekly updates.
2. Mixing personal and business finances: This creates a mess at tax time and might cause you to miss deductions. Keep everything separate!
3. Not keeping receipts for small purchases: Those $20 supply runs add up and are deductible, but only if you have the receipts to prove them.
4. Forgetting to reconcile accounts: Regularly compare your records to your bank and credit card statements to catch errors or missing transactions.
5. Misclassifying workers: Make sure you properly classify employees versus independent contractors, as this affects your tax obligations.
6. Not backing up your data: Whether you use software or spreadsheets, make sure your financial data is backed up regularly.

For businesses that have employees, understanding payroll documentation is crucial. Our article on What is a Pay Stub? explains this important aspect of financial management.

DIY vs. Professional Bookkeeping

The DIY Approach

Many tradespeople handle their own bookkeeping, especially when first starting out. The DIY approach works well if:

• Your business is relatively small and straightforward
• You have a small number of transactions each month
• You’re comfortable with basic financial concepts
• You’re willing to spend a few hours each month on bookkeeping
• You use user-friendly accounting software

Even with the DIY approach, it’s still worth consulting with an accountant at tax time to make sure you’re claiming all possible deductions.

Outsourcing to a Professional

As your business grows, you might consider hiring a bookkeeper. This makes sense when:

• Your time is better spent on revenue-generating work
• Your business has grown more complex
• You have employees or subcontractors
• You dislike or struggle with financial tasks
• You find yourself falling behind on your bookkeeping

A professional bookkeeper typically costs $30-$50 per hour, but many tradespeople find the expense well worth it for the time saved and potential tax savings.

Final Thoughts

Good bookkeeping doesn’t have to be a headache! Start with the basics – keep your business money separate from your personal cash. Pick a simple system that feels right for you, and make it part of your regular routine. Just 20 minutes a week can save you from that tax-time panic and show you what’s really happening with your business.

Remember that the goal of bookkeeping isn’t just to satisfy the tax authorities. It’s about giving yourself a clear picture of your financial health so you can build a stronger, more profitable trades business. When you understand your numbers, you can make smarter choices about your pricing, where you’re spending, and how to grow.

Going the DIY route? Let technology help you out! There are plenty of user-friendly apps and software options that make tracking much easier. Setting up a basic system today means less stress and scrambling when April rolls around!