IF YOU’RE AN INDEPENDENT contractor, or you’re a full-time employee about to start up a side business, then you need to be able to keep a good track of all your income streams. There are a couple of reasons for this and both of them relate to tax. Continue reading What to Do When You Have More than One Income Stream
HAVE YOU RECENTLY STARTED running your own business? Whether you have, or whether you’re about to, reconciling your bank accounts regularly is probably one of the best ways to monitor your expenditure in relation to your income.
If you’re operating your start up venture as a sole trader, the best way to keep tabs of where your expenditure sits is to use a cloud accounting application like Xero, MYOB or QuickBooks — in addition to a Microsoft Excel spending or expense sheet.
Your accounting software will help you to keep track of your income and business expenses and other important things that will affect your start up — such as how long it takes to get paid — while an Excel spending or expense sheet will help you to monitor all of your spending, business or otherwise.
This starts when you get your bank statement, but you can speed the process up, by entering recurring expenses into your Excel spreadsheet as they occur.
Remember that not all of your expenses are 100 percent business ones so you’ll need to estimate what percentage of your internet usage, for instance, has been for business purposes.
In your Excel spending sheet, you’ll enter the expense in total, but in your accounting software, you’ll only enter the percentage of the expense that relates to your business.
If your business has poor cash flow, using an Excel spending sheet in addition to your accounting software will allow you to identify what’s causing your cash flow problems. Sometimes cash flow problems are caused by later payers, due to poor credit management processes. Other times, however, you may find that you’re simply not earning enough to cover your expenses each week or month.
To remedy this immediately, you should look through your Excel spending sheet and see if there are any expenses, either business or discretionary ones, that you can reduce or eliminate. Then you should work on increasing your income. That’s easier said than done, which is why you should reduce your spending first.
If you don’t identify any cash flow issues, you will be able to begin forecasting profit. Typically, profit just refers to the income left over after all your business expenses have been accounted for.
But there are plenty of start ups and sole traders, who have a profitable business but are not profitable themselves.
That’s because there are many other expenses in your ordinary life — the remaining 70 percent of your internet bill, for example — that you still need to pay for.
If you’re also recording all your other expenses in an Excel spending sheet, you’ll be able to forecast your business’s profit, as well as your own personal profit (otherwise known as savings) with much greater accuracy.
In effect, what you’re doing here is creating a chart of accounts. You’ll learn more about the chart of accounts in our Xero and MYOB courses, but they are, in a nutshell, a financial record of every account — asset, liability, equity, revenue, etc — in your business.
You can learn how to create and manage your expenses or spending in our Excel training courses, where you’ll be able to create your own spending or expense sheet, and how to perform daily bank reconciliations in MYOB or Xero in our cloud accounting training courses. For more information, visit our website.
At EzyLearn we offer online training courses to help you up-skill and find employment. Choose from our range of cloud-based online accounting software courses (and earn CPD points!) to business start up and management courses, to marketing and sales courses, or update and further your skills in a range of Microsoft Office programs (Excel, PowerPoint, Word) or social media and WordPress web design). Many of our courses are provided with ALL LEVELS included for ONE LOW PRICE.
WHETHER YOU’RE ABOUT TO start your own bookkeeping business, or whether you work as an independent contractor (even if you’ve been doing this for a while), it’s really important to know how much you’re spending each month.
Your Xero, MYOB or QuickBooks accounting software will help you with some of this, but the very best way is to create an expense or spending sheet in Excel — which we teach you how to do in our Excel training courses — as this gives you a far more detailed look at your expenses and spending.
Sometimes you can’t claim 100 percent of your expenses as business ones — the costs of running your car, home internet, rent, utilities, etc — but you should nevertheless keep track of your spending on these items because it will affect your cash flow.
That’s why keeping an Excel spending or expense sheet is a good idea for contractors and home-based business owners. You don’t want to enter your home internet into your accounting software as a business expense, if only 30 percent of it is used for business purposes, but you still need to keep track of it, so you can manage your cashflow.
One of the things we love about using Excel to track your expenses and spending is that every little expenditure is right there, in plain view.
This isn’t the case with Xero or MYOB or other accounting software. Your expenses are hidden away, and you have to run a report to get a good breakdown on where your money is going.
Not so with Excel,. If you buy a coffee every morning, it’s right there, in a category you can label as “coffee”.
Now, we’re not saying that coffee is frivolous. Far from it. Many of us need coffee just to function (!) but there are lots of small things we spend money on every day, week, month that add up. When you’re self-employed you need to keep an eye on these “little” things.
Sometimes, you’ll find that you’re spending lots of money each month on subscription services that you’re not even using. Eliminating $15 a month here and there makes a big difference.
That’s the other great thing about using Excel to track your spending: You can create all the expense categories you like.
Of course, not everyone wants to track each and every expense right down to their last bag of jelly beans — that actually would be a little ridiculous — and for most the most part, you can lump your groceries into a category for discretionary spending, but there are some things you might want to separate out — movie tickets, money spent on lunches and dinners, and so forth.
These things tend to add up, and if you want to keep an eye on them, separating them out is the easiest way to do that.
Each fortnight or month or however regularly you complete your bookkeeping, you can easily add in those business expenses into your accounting software — or your bookkeeper can.
Remember, if you spend $60 a month on internet, but only 30 percent of its use is for business purposes, you should only add $18 a month as a business expense in your accounting software. In your Excel expense or spending sheet, however, you’ll put the full $60 in, as you need to have the money in the bank to cover this expense each month.
You can learn how to create and manage your expenses or spending in our Excel training courses, where you’ll be able to create your own spending or expense sheet. Visit our website for more information.
Our Xero online training courses include EVERYTHING for ONE LOW PRICE. Furthermore, if you select our Lifetime Membership option, you’ll have LIFETIME access to our ongoing course updates. All EzyLearn courses are accredited by the Institute of Certified Bookkeepers (ICB) and can be counted towards Continuing Professional Development (CPD) points. Find out more about our Xero online training courses.
