Why Recording Income and Expenditure Is Essential to Keep on Top of Your Business Finances
When you run a business, the most essential things you need to record are your income and expenditure. It’s so important to be aware of what’s coming in and leaving your account at all times, especially if you want to feel in control of your business finances.
That’s why it always surprises me how few freelancers actually record their income and expenditure on an ongoing basis. In my experience as a freelance mentor, I see that income and expenditure often get put off in favour of recording invoices or business expenses instead. But while these are important, it’s your income and expenditure that will give you an overview of how your business is performing as a whole.
In this blog post, I’m explaining why it’s important to record your income and expenditure, as well as showing you how to go about it. I hope that by the end of this post, I’ll not only have convinced you that it’s worth your while, but you’ll also know exactly what you need to do to start recording your income and expenditure on a consistent basis.
Why you should be tracking your income and expenditure
1) Your income and expenditure will give you a clear, real-time overview of the financial health of your business
If you always keep track of your income and expenditure, you’ll always know how your business is doing overall. This is crucial if you want to be able to make strategic decisions based on how your business is performing.
Particularly as freelancers, we know all too well that our invoices don’t always get paid straight away. Similarly, if you pay for something using your business credit card or in instalments, your expenses won’t always leave your account straight away either.
Income and expenditure will show you the situation as things stand, not once you’ve been paid for those jobs or once the money’s been taken out of your account for that course.
2) You’ll spot anything that doesn’t look right immediately
By keeping a frequent eye on your income and expenditure, you’ll notice anything untoward almost instantly. Whether that might be money that has left your account that wasn’t supposed to, payments that were due but haven’t yet arrived, or direct debits that were meant to go out but haven’t been taken, it’s important to catch these things and take action as soon as possible.
We all know that asking your bank to make enquiries about a suspicious transaction the next day will stand a greater chance of success than asking them to follow up on something 90 days after the event. It’s always best to resolve any transaction-related issues as soon as you possibly can!
3) You’ll need the data to complete your tax returns
You’re going to need your income and expenditure records to complete your tax returns anyway, so you might as well make life easier for yourself further down the line!
Recording your income and expenditure will not only allow you to keep on top of your finances consistently, it will also mean less work and stress when it’s time to file your taxes. You’ll have all the information you need already there and waiting for you!
4) You can categorise the data and analyse it
As you’re recording your income and expenditure, you can categorise each item so that you’re then able to filter the data and analyse it. I like to break down my income into the different services I offer, such as mentoring, copy editing and translation. That way I can see how much of my income is coming from each of the services I’m providing.
You can do the same thing for your expenditure and divide it into categories too, such as CPD, marketing, outsourced work, professional memberships, etc. In the same way, this enables you to identify what the majority of your money is being spent on.
Categorising the data provides you with crucial information about your business that you can then use to make strategic decisions. For example, perhaps income from a new service I’m offering is steadily rising. If I’m really enjoying it, I might decide to put more time and effort into providing that service. Or maybe, if I’ve noticed that 80% of my expenditure is going on courses and training, I might ask myself if it’s time to rein in my spending in this area.
5) You can keep track of your income goal and budget
Even if you didn’t set yourself a strict income goal for the year, I’m sure you have an idea of how much you’d like to earn over the course of these 12 months. You can keep track of this as you record your income, totalling up the overall amount and seeing how far from your income goal you are. If you realise you’re a long way off considering the amount of time left in the year, you might decide to take corrective action.
The same is true for your expenditure. If you notice that you’re overspending, you might decide to try to cut back on any future expenses.
How to track your income and expenditure
To track your income and expenditure, you need to make sure you’re checking in with your accounts regularly and updating your records on a consistent basis. But you’ll no doubt feel more encouraged to do this if the system you have in place is simple and effective.
The most important thing about your system for recording income and expenditure is that it’s clear, detailed, easy for you to keep on top of and ‘filterable’. If it’s all these things, you’ll be able to use it to look back, analyse your transactions and make strategic business decisions moving forwards.
Income and expenditure sheet
If you don’t think your current system is as good as it could be, I’m sharing my Income and Expenditure Spreadsheet (in GBP, EUR and USD) for you to try. If you think you might find it useful, you can download it to Excel and get working on it straight away!
I’ve created the video below so that you can have a look at my Income and Expenditure Spreadsheet to see if it might work well for you before you download it. When you request it, as well as the spreadsheet itself, you’ll also receive a video and instructions to help you use the sheet to its full potential.
I really hope you’ll find my Income and Expenditure Spreadsheet useful and that it’ll help you stay on top of your business finances and have a clear overview of how your business is performing at all times.
Don’t forget that you can use it not only to keep track of what’s coming into and going out of your business accounts but also to analyse how your income and expenditure are distributed. This can be really valuable information to help you make business decisions based on numbers in the future.
Click on the button below to download my Income and Expenditure Spreadsheet so that you always know where your business is at!