Solo Finance Setup: Banking, Bookkeeping, Taxes (Without Overthinking)

Getting your finances right early saves you from end-of-year panic, surprise tax bills, and those 2am "where did my money go?" spirals.

This guide covers the minimum viable finance setup for solo businesses: banking, bookkeeping, taxes, and runway management. No MBA required.

Disclaimer: This is general information, not financial or tax advice. Requirements vary by location and business structure. When in doubt, consult a qualified professional.

The Core Setup (Week One)

Your finance stack has four components:

1. Separate business banking (keep personal and business finances apart)
2. Basic bookkeeping system (know what's coming in and going out)
3. Tax setup (entity registration, estimated payments, tax accounts)
4. Runway tracking (monitor your cash position and burn rate)

Skip any of these and you'll pay for it later - in stress, penalties, or missed deductions.

1. Banking: Separate Your Money (Non-Negotiable)

Why This Matters

Mixing personal and business finances creates:

• Messy bookkeeping (hours wasted categorizing transactions)
• Tax audit risk (harder to defend business deductions)
• Poor visibility (can't tell if your business is actually profitable)
• Legal issues (in some structures, mixing funds can pierce corporate protection)

What You Need

Minimum setup:

• One business checking account
• One business savings account (for tax reserves)
• One business credit card (optional but recommended)

Where to open accounts:

For simple setups (freelancers, consultants, builders):

• Mercury (designed for startups, good API, no fees)
• Relay (free business checking, unlimited sub-accounts)
• Novo (simple, no-fee business banking)

For traditional setups (agencies, local SMBs):

• Local credit union (relationship banking, easier for local checks/deposits)
• Chase/Bank of America (if you need physical branches)

What to avoid:

• Using your personal account "just to start"
• Opening accounts before you have your entity/EIN sorted
• Picking a bank solely based on signup bonuses

Setup Checklist

• Register your business entity (if applicable)
• Get your EIN from the IRS (free, takes 10 minutes online)
• Open business checking account
• Open business savings account for tax reserves
• Set up automatic transfers: 25-30% of revenue → tax savings
• Get business debit/credit card
• Update payment processors to use business account

Pro tip: Name your tax savings account something obvious like "Tax Reserve - Do Not Touch" to avoid accidentally spending it.

2. Bookkeeping: Simple Systems That Actually Work

The Bookkeeping Mindset

You don't need fancy software on day one. You need consistency.

The goal: Answer three questions anytime:

1. How much money came in this month?
2. How much went out (and to what)?
3. Am I profitable?

If you can't answer these in under 5 minutes, your bookkeeping system is broken.

Three Bookkeeping Approaches (Pick One)

Option 1: Spreadsheet Method (Free, Manual)

Good for:

• First 6-12 months
• Simple businesses (few transactions)
• People who like control

Setup:

• Create a simple income/expense tracker (Google Sheets or Excel)
• Categories: Revenue, Cost of Goods Sold, Software/Tools, Contractors, Marketing, Office, Travel, Meals, Misc
• Log transactions weekly
• Reconcile with bank monthly

Time cost: 1-2 hours/month

Option 2: Bookkeeping Software (Paid, Semi-Automated)

Good for:

• Multiple income streams
• Regular transactions
• Scaling businesses

Recommended tools:

• Wave (free, good for basic needs)
• QuickBooks Online (industry standard, $30-60/month)
• Xero (clean UI, $13-70/month)
• FreshBooks (simple, invoicing-focused, $19-60/month)

Time cost: 30-60 minutes/month (after initial setup)

Need help choosing? Check out our Bookkeeping Stack for Solos guide for detailed tool comparisons.

Option 3: Bookkeeper Service (Paid, Fully Managed)

Good for:

• High transaction volume
• Complex businesses
• People who hate numbers
• Revenue over $10K/month

Recommended services:

• Bench ($299-599/month, includes tax filing)
• Pilot ($499+/month, includes CFO support)
• inDinero ($500+/month, full-service)

Time cost: 15 minutes/month (just review)

What to Track (Minimum)

Income:

• Date received
• Amount
• Client/source
• Project/category
• Payment method

Expenses:

• Date paid
• Amount
• Vendor
• Category
• Business purpose (for tax deductions)

The receipt rule: Keep receipts for anything over $75 (IRS requirement). Store them digitally - use your phone camera and a folder in Google Drive.

Monthly Reconciliation (Non-Optional)

Once a month:

1. Download bank/credit card statements
2. Match every transaction to your books
3. Categorize anything missing
4. Check for errors or fraud
5. Calculate profit/loss for the month

Why this matters: Catching a $500 error in January is easy. Catching it in December when you're prepping taxes is hell.

3. Taxes: Set It Up Right From Day One

Choose Your Entity Structure

Your entity affects your taxes, legal liability, and paperwork.

Common structures:

Sole Proprietorship:

• Simplest (no separate filing)
• No liability protection
• Income taxed as personal income
• Good for: testing an idea, very small operations

Single-Member LLC:

• Simple filing (taxed as sole prop by default)
• Liability protection for personal assets
• Can elect S-Corp status later
• Good for: most solo businesses starting out

S-Corporation:

• Tax savings potential (pay yourself salary + distributions)
• More paperwork (payroll, corporate filings)
• Only worth it if profit exceeds ~$60K/year
• Good for: profitable solo businesses, agencies

Not sure which to choose? See our Tax Checklist by Entity Type for detailed breakdowns.

Tax Setup Checklist

Federal:

• Register entity (if not sole prop)
• Get EIN from IRS
• Understand your quarterly estimated tax schedule
• Set up tax reserve account (save 25-30% of revenue)

State:

• Register business with state (if required)
• Get state tax ID (if applicable)
• Register for sales tax (if you sell taxable goods/services)
• Check franchise tax requirements

Local:

• City/county business license (if required)
• Local taxes or permits

Estimated Quarterly Taxes

If you're self-employed, you pay taxes quarterly (not just at year-end).

Due dates:

• Q1: April 15
• Q2: June 15
• Q3: September 15
• Q4: January 15 (following year)

How much to save:

• Federal: 15-25% (income tax) + 15.3% (self-employment tax)
• State: 0-10% (varies by state)
• Total: 25-40% of net profit

Safe harbor rule: If you pay 100% of last year's tax liability (110% if high earner), you avoid penalties - even if you owe more this year.

Pro tip: Automate transfers to your tax savings account. Every time you get paid, move 30% to savings immediately. Treat it as already spent.

Common Tax Deductions for Solos

Don't leave money on the table. Track these:

• Home office (if you have dedicated space)
• Software and tools
• Hardware (computers, monitors, etc.)
• Internet and phone (business portion)
• Contract labor and freelancers
• Professional development (courses, books, conferences)
• Travel (client meetings, conferences)
• Meals (50% deductible for business meals)
• Health insurance premiums (if self-employed)
• Retirement contributions (SEP-IRA, Solo 401k)

The rule: If it's "ordinary and necessary" for your business, it's probably deductible. Keep receipts and document the business purpose.

When to Hire a CPA

DIY is fine if:

• You're a sole prop with simple income/expenses
• You're comfortable with tax software (TurboTax, FreeTaxUSA)
• Your revenue is under $75K/year

Hire a CPA if:

• You have an S-Corp (payroll requirements)
• You have multiple income streams
• You're claiming home office, vehicle, or complex deductions
• Your revenue exceeds $100K/year
• You want tax planning (not just filing)

Cost: $500-2,000/year for basic filing, $2,000-5,000+ for planning and complex returns.

ROI: A good CPA often saves you more than they cost through deductions and planning.

4. Runway Math: Know Your Burn Rate

The Numbers That Matter

Monthly burn rate:

Personal expenses + business expenses = Total burn

Current runway:

Cash on hand ÷ Monthly burn = Months of runway

Example:

• Personal expenses: $4,000/month
• Business expenses: $1,000/month
• Total burn: $5,000/month
• Cash on hand: $20,000
• Runway: 4 months

Why this matters: Runway determines how long you can operate before you need revenue. Four months is tight. Six months is comfortable. Twelve months is safe.

Want help calculating your runway and first 90 days? Use our Runway Math Calculator to model different scenarios.

Extending Your Runway

Increase cash:

• Pre-sell services or products
• Take on consulting work
• Raise a small friends-and-family round (rare for solos)
• Keep your day job longer while building

Decrease burn:

• Cut discretionary spending
• Negotiate lower rates on recurring expenses
• Move to lower cost-of-living area
• Delay hiring or major purchases

The goal: Maximize runway so you have time to find product-market fit without panicking.

Monthly Finance Review (15 Minutes)

Do this every month:

1. Check runway: How many months of cash do I have left?
2. Review profit/loss: Am I profitable this month?
3. Reconcile accounts: Do my books match my bank?
4. Check tax reserve: Have I saved 30% of revenue?
5. Update forecast: What does next quarter look like?

Template:

Month: January 2025
Revenue: $12,000
Expenses: $5,000
Net Profit: $7,000
Tax Reserve: $3,600 (30%)
Runway: 8 months

The Finance Stack Summary

Banking:

• Business checking (Mercury, Relay, Novo)
• Business savings (tax reserve)
• Business credit card (optional)

Bookkeeping:

• Spreadsheet (free) OR
• Software (Wave, QuickBooks, Xero) OR
• Bookkeeper (Bench, Pilot)

Taxes:

• Entity registration + EIN
• Quarterly estimated payments
• 30% tax reserve
• CPA (if needed)

Runway:

• Monthly burn calculation
• Cash position tracking
• 6-12 month buffer (ideal)

Total cost: $0-500/month depending on choices

Common Mistakes (Avoid These)

1. Mixing personal and business finances

• Opens you up to audit risk
• Makes bookkeeping impossible
• Creates tax headaches

2. Not saving for taxes

• Results in surprise tax bills
• Creates cash flow crises
• Triggers penalties and interest

3. No bookkeeping system

• Can't tell if you're profitable
• Miss valuable deductions
• Year-end panic and expensive rush fees

4. Waiting too long to hire help

• DIY works at first, but doesn't scale
• Time spent on books is time not earning
• Bad books cost more to fix than prevent

5. Ignoring runway

• Run out of cash unexpectedly
• Make desperate decisions under pressure
• Quit too early because of poor planning

Your First Week Action Plan

Day 1: Banking

• Register entity (if needed)
• Get EIN
• Research business bank options

Day 2-3: Banking (continued)

• Open business checking
• Open business savings
• Set up auto-transfer to tax reserve

Day 4: Bookkeeping

• Choose your method (spreadsheet, software, or bookkeeper)
• Set up system
• Create expense categories

Day 5: Taxes

• Confirm entity is registered
• Mark quarterly tax due dates in calendar
• Calculate your estimated tax amount

Day 6: Runway

• Calculate monthly burn rate
• Calculate current runway
• Set 3-month and 6-month cash goals

Day 7: Automation

• Set up recurring transfers to tax savings
• Create monthly finance review calendar reminder
• Bookmark this guide for reference

When You're Ready to Level Up

After your first profitable quarter:

• Consider upgrading from spreadsheet to software
• Get a CPA consultation (tax planning)
• Open business credit card (build business credit)
• Set up retirement account (SEP-IRA or Solo 401k)

After your first profitable year:

• Hire a bookkeeper or accountant
• Evaluate S-Corp election (if profitable enough)
• Implement cash flow forecasting
• Build 6-12 month cash reserve

After consistent profitability:

• Work with CPA on tax optimization
• Consider separate operating/savings accounts
• Implement financial dashboards and KPIs
• Explore business line of credit (safety net)

The Bottom Line

Good finance hygiene is boring. It's also essential.

The best time to set this up is day one. The second-best time is today.

You don't need a perfect system. You need a system that:

• Separates business and personal money
• Tracks income and expenses consistently
• Saves for taxes automatically
• Gives you visibility into runway

Start simple. Stay consistent. Upgrade as you grow.

Your business will thank you.

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Ready to dial in your finances? Check out these related guides:

• Bookkeeping Stack for Solos - Compare tools and find the right fit
• Tax Checklist by Entity Type - Entity-specific tax requirements
• Runway Math for Your First 90 Days - Financial planning and scenarios

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