Do you know how much money you made last week in your business? Last month? The uncomfortable truth is that numbers and finances are the backbone of any thriving business. Knowing how to track your income and expenses can seem overwhelming with all the responsibilities that you have as an entrepreneur over and above the million and one things on your “mom” to-do list, especially when starting up.
The good news is, you can end your overwhelm right now, pick up your pen and notebook, and start taking these notes on how to get your finances in order and to start tracking your income and expense, like a boss! Or, you could hire someone to do it all for you. BUT, you are better off learning the basics of your business finances (like I mentioned in this post) because an understanding of the hard-fact numbers could help you in making better business decisions.
Heard of the phrase “numbers don’t lie”? The numbers from the financial performance of your business will tell you whether:
- you are making enough money given the investment that you have made in your business
- which products/ services are profitable
- you need to set money aside for taxes (if your income is higher than your expenses)
- you have reached your financial goals for your business
Either way, it is important to put in a routine on how you will track your income and expenses. Otherwise, how would you know whether you have a 7-figure business if you can’t tell how much money you made (or lost) last month!
Here is a step-by-step guide on how you can start tracking your expenses and income on a weekly basis, starting today!
Step 1: File all your receipts, invoices and payment documents
The first step is to create a method for filing all your business-related income and expenses. This could be an online file, e.g. if all your transactions go through your bank account and an online version of your bank statement is available. Make sure you update this file at least weekly; this way you will not get to the end of the month or year and experience overwhelm in trying to find where you kept all your financial records (which are very expensive and time-consuming to retrieve from the bank I must say!).
Quickbooks is one of the most widely used online accounting/ bookkeeping systems for recording, uploading, tracking and reporting of financial data. They also have an app which you can use to
- Take photos of your physical receipts;
- Upload them to Quickbooks;
- Record the expense or income item and store it in your account
Step 2: Open a business bank account
Open a business bank account or a new personal account if it’s not feasible to open a business account immediately. Remember to still open a business account as soon as you possibly can. Separating your personal expenses from business expenses will make weekly tracking and updating so much easier. You will also be thankful you did it when tax season comes, and you need to show your bank statements if asked about certain transactions.
Step 3: Select a method of tracking your finances
Select the method of tracking your finances. There is really no right or wrong option here. The key is to choose an option that you are comfortable with. You do not need to be an excel genie to master the art of tracking and monitoring your income and expenses.
Choose the tracking method which suits your lifestyle, skills and comfort level
- Google sheets
Step 4: Select method of monitoring and maintaining your financial accounts
- Real-time finance system
The more automated the system, the more expensive it will be. While many SMEs are embracing real-time finance systems to help them assess the performance of their business on a daily basis, it is not a necessity if you are just starting your business.
Step 5: You are now ready to record!
If you are using a manual method, then you can download this free printable below to help you record your income and expenses. It also includes all the important fields that you need to record for each transaction.
If you are recording your transactions on a spreadsheet, you can create a column for each of the suggested fields below in a monthly income tracker, and start completing each transaction and its details:
- Name of Service/Product
- Name of customer
- Year to date total
- Transaction number
- Payment type – cash, check, credit card, etc
- Account detail
The columns required for expenses are similar to those required to record income:
- Year-to-Date Total
- Transaction/Check Number
- Payment Type
- Account detail
Categories for expenses include:
- Your own drawings (or salary)
- Meals & Entertainment Expenses
- Office Expenses
- Office Supplies
- Professional Services
- Rent, Utilities & Phone
- Travel Expenses
- Bank charges
Always indicate the category because of tax purposes. There are some expenses for which your local tax authority might not allow for you to deduct from your income for purposes of determining how much tax to pay.
Step 6: Select frequency of updating your records
e.g. Quickbooks allows automatic updates for specific banks that are supported on their platform.
Otherwise, you can manually upload your bank transactions by using a spreadsheet or any other supportable format.
If you do not have many transactions, and you are not able to upload your transactions, you could also record them in quickbooks, or even on a document which can be used by a bookkeeper for month end or year end preparation of financials.
Step 7: Store all your financial information in one place
There are many free online programs which you can use to store all your financial records, including Evernote, Notion, Quickbook and cloud drives, e.g. google, iCloud.
The important thing is that you know how to track your income and expenses so that you know what type of information you need to save for all your financial transactions.
What areas of tracking income and expenses do you find most stressful?