Bookkeeping for Small Business: A Michigan CPA's Guide

Bookkeeping for small business owners is the part of running one that nobody signs up for. You wanted to build decks, photograph weddings, or see clients — not sort a gas-station receipt from four months ago. But the books are what every other financial decision runs on: your tax return, your loan application, your quarterly estimates, and the only question that really matters, which is whether the work you did last month actually made money. This guide covers what to track, how to set it up, which software to pick, and the Michigan-specific pieces that national guides leave out.

What bookkeeping for a small business actually involves

Bookkeeping is the routine of recording every dollar that moves through your business, sorting each transaction into a category, and checking that your records match your bank. Accounting is what happens on top of that — interpreting the numbers, planning around them, and filing returns from them. Bookkeeping produces the raw material; accounting decides what it means.

Stripped of jargon, the recurring work is four jobs:

• Record. Every sale, every expense, every transfer, every owner draw — captured somewhere other than your memory.
• Categorize. A $340 charge is not useful information. "Materials — Hartman job" is. Categories are what turn a bank feed into a tax return and a profit figure.
• Reconcile. Once a month, your books and your bank statement have to agree to the penny. If they don't, something is missing, duplicated, or miscoded — and finding it in month one is a ten-minute job that becomes a three-hour job by month nine.
• Report. A profit and loss statement and a balance sheet, produced on a schedule you actually keep. These are what your CPA, your banker, and your future self read.

Notice what isn't on that list: filing your taxes, deciding your entity structure, or telling you whether to buy the truck. Those are accounting and tax work. If you're unsure which one you're shopping for, the difference between a CPA and a bookkeeper is worth five minutes before you hire anyone.

How to set up bookkeeping for a small business in six steps

Setting up bookkeeping for a small business takes an afternoon. Most of the pain people associate with it comes from skipping step one and paying for it eighteen months later.

1. Open a separate business bank account. This is the single highest-value thing on the list and it costs nothing. Commingled personal and business spending is the number one reason a set of books takes three times as long to clean up as it should — and if you're an LLC, it's also the habit that undermines the liability separation you formed the LLC to get. Add a dedicated business credit or debit card while you're there.
2. Choose cash or accrual accounting. This decides when a transaction lands in your books, and it changes your taxable income. See the next section.
3. Pick your software and connect the bank feed. A live bank connection removes the data-entry step that kills most DIY systems by month three.
4. Put a standing appointment in your calendar. Thirty minutes, same time every week. Bookkeeping is not hard; it is only relentless. The businesses that stay current are the ones that treat it as a recurring appointment rather than something to do when things quiet down, because things do not quiet down.
5. Keep the records behind the numbers. The IRS generally expects you to keep records supporting a return for three years, stretching to six years if you under-report income by more than 25%, and at least four years for employment tax records — the full table is on the IRS recordkeeping page. Photograph receipts and attach them to the transaction in your software; a shoebox is not a filing system, and neither is a truck console.
6. Reconcile every month and produce a P&L. Close the month, look at the report, and ask one question: does this match what I think happened? That habit catches errors while they are still small.

Cash vs. accrual: which one your business needs

Cash-basis accounting records income when the money arrives and expenses when they leave. Accrual records income when you earn it and expenses when you incur them, regardless of when cash moves. Most small businesses can choose, and the choice has real tax consequences.

For a contractor, this is not academic. If you finish a $40,000 job on December 18 and get paid February 3, cash basis puts that income in the following tax year and accrual puts it in the one just ending. That is a real difference in what you owe for tax year 2026. Businesses carrying inventory, and those above certain gross-receipts thresholds, may be required to use accrual — the rules are in IRS Publication 538. Pick deliberately and before you file your first return, because changing methods afterwards means asking the IRS for permission.

Choosing bookkeeping software: QuickBooks Online vs. Xero

For a small business the practical shortlist is two names: QuickBooks Online and Xero. Both connect to your bank, both handle categorization and reconciliation, and both produce the reports your CPA needs. They are close enough that the deciding factor is usually fit, not features.

My honest take after working in both: pick QuickBooks Online if you want maximum optionality about who can help you later, and Xero if the interface is what will decide whether you actually keep up with it. The software you will genuinely use every week beats the software with the better feature list.

One caution when you go looking for help. A lot of the QuickBooks advice online was written years ago for the older installed-software version, which has a different workflow, and that guidance does not transfer cleanly. Check that any guide, template, or tutorial you follow says QuickBooks Online.

What Michigan adds that national guides skip

Every major guide on this topic is written for a national audience, which means it is written for no state in particular. Three things change if your business is in Michigan.

Michigan sales tax is state-only — there is no local layer

Michigan levies a 6% sales tax on taxable retail sales to the final consumer, and — unusually — Michigan does not allow cities or local units to impose sales tax. If you have read a national guide telling you to track sales-tax jurisdictions by delivery address, that work simply does not exist here. One rate, statewide. What your books do need is a clean split between taxable and non-taxable sales, because that split is what a return is built from. Most service work isn't taxable; goods generally are. If you sell both, separate them in your chart of accounts from day one rather than reconstructing it later.

The February 28 annual return catches people out

Michigan Treasury assigns you a filing frequency — monthly, quarterly or annual. Monthly and quarterly returns are due on the 20th. The part that surprises first-year filers is that every filer must also submit an annual return by February 28, regardless of the frequency they were assigned. Filing your four quarterly returns is not the whole obligation. Put the February date in the same calendar as everything else.

Grand Rapids and Walker have a city income tax

Twenty-four Michigan cities levy their own income tax, and two of them are here in Kent County: Grand Rapids and Walker. If you have employees working inside either city, your payroll carries a city withholding line that a business in most states never has to think about — and it applies based on where the work is performed, so an employee who lives in Grandville but works on a job site in Grand Rapids is in scope. The rates and filing details sit in our Michigan and Grand Rapids tax center. Get this into your payroll setup at the start; unwinding a year of missed city withholding is unpleasant for everyone, employees included.

Bookkeeping for trades and service businesses

Most of the businesses I work with are in trades and construction, and the rest are service professionals — therapists, photographers, people making a living in social media. The four core jobs are identical for all of them. What differs is the one number each business needs its books to produce.

A contractor needs job costing. A profit and loss statement that says you made money last quarter is nearly useless if three jobs carried the whole thing and two lost money. The fix is to tag every material purchase, subcontractor invoice, and labor hour to a job, so each one has its own margin. Both QuickBooks Online and Xero support this through classes or tracking categories. It takes about ten extra seconds per transaction and it is the difference between guessing at your bid pricing and knowing it. It also stops the most common cash-flow trap in construction, which is funding the materials on job four out of the deposit on job five.

A service practice needs the personal-business line held. A therapist with a home office, a photographer whose camera body is both a business asset and a hobby, a creator whose phone bill is genuinely half business — these are the businesses where the books get muddy, not because the volume is high but because the boundary is soft. Separate accounts do most of the work. The rest is a habit of writing down the business purpose at the moment of the expense, when you still remember it. A line item labeled "Amazon — $214" is a deduction you will probably talk yourself out of claiming in April, and you'd be right to.

Do your own bookkeeping or hire someone?

An honest answer from someone who does this for a living: plenty of businesses should do their own bookkeeping, at least for a while. If you are a sole proprietor with one bank account, no employees, no inventory, and a manageable number of transactions a month, the work is a genuine half-hour a week in decent software. Paying someone to do it buys you time, not accuracy you couldn't reach yourself. If you want a structured way to start, our bookkeeping tracker is built for exactly that stage.

Four things change the answer. Any one of them is a reasonable trigger to get help:

• You hired someone. Payroll brings withholding, filings, deadlines and penalties. This is the most common tipping point.
• You're behind. Once you're several months back, catch-up is a project, not a routine — and projects are what people avoid indefinitely.
• You have inventory, multiple entities, or work across state lines. Complexity compounds.
• You're making decisions on numbers you don't trust. If you can't answer "was last month profitable?" without a caveat, the books have stopped doing their job.

There is also a distinction worth knowing before you shop. A bookkeeper records and categorizes; a CPA-reviewed process also looks at the work for tax implications before the period closes, which is where problems get caught while they're still fixable. That's the model we use for bookkeeping services in Grand Rapids, and it's the reason the books and the tax return come out of the same place.

What bookkeeping costs a small business

Bookkeeping is priced by monthly transaction volume far more than by industry, and in Michigan the market runs from a couple of hundred dollars a month for a simple sole proprietorship up to several times that for a business with payroll, multiple accounts and real complexity. Catch-up work for prior periods is normally quoted separately as a one-time project.

Rather than repeat the detail here, we've written it up properly: what a CPA and monthly bookkeeping actually cost in Michigan breaks the tiers down by transaction volume and explains what moves a quote up or down.

FAQ

What is an easy way to do bookkeeping for a small business?

The simplest reliable setup is a dedicated business bank account, cloud software with the bank feed connected, and a standing thirty-minute appointment each week to categorize and file receipts. That combination removes manual data entry and stops a backlog forming. Reconcile once a month and the year-end work takes care of itself.

Can I do my own bookkeeping for my small business?

Yes — many owners should, especially sole proprietors with one bank account, no employees and modest transaction volume. Doing it yourself is realistic as long as you keep up weekly. The usual triggers to hand it off are hiring an employee, falling several months behind, adding inventory or entities, or losing confidence in your own numbers.

Is $300 a month reasonable for monthly bookkeeping?

For a sole proprietor or single-member LLC with one bank account, no payroll and roughly 50 to 100 transactions a month, $300 sits squarely in the normal Michigan range. It becomes low once payroll, several accounts or a few hundred monthly transactions are involved. Volume, not industry, is what moves the price.

How much should a small business spend on bookkeeping?

Enough that the books are current and reconciled every month — that's the real standard. In practice most Michigan small businesses land somewhere between a few hundred dollars a month and roughly a thousand, scaling with transaction count, payroll and number of accounts. Our Michigan CPA cost guide sets out the tiers.

Can ChatGPT do my bookkeeping?

Not as a system of record. A general-purpose AI tool can explain a concept, draft a chart of accounts, or help you think through a categorization question, but it has no connection to your bank, no audit trail, and no accountability for what it produces. Bookkeeping needs a reconciled ledger that ties to your statements — use real software, and use AI to understand it.

Do I need to track sales tax in my Michigan bookkeeping?

If you sell taxable goods to end consumers, yes. Michigan charges a single 6% state rate with no city or county add-on, so you don't need to track jurisdictions — but your books do need taxable and non-taxable sales separated, because that split builds your return. Remember the February 28 annual return applies to every filer, whatever frequency you were assigned.