We all know that we should be tracking our income - but we don't always know why.
I'm a massive advocate of staying on top of your bookkeeping and being super organised with it, so today I'm sharing why it's so important, as well as some of my best tips to help you reap the benefits.
Obvious one out of the way first!
When you file your tax return, you'll need to know how much money you've earned from and spent on your business for HMRC to calculate how much tax you need to pay, so this is the main reason you have to track your income and expenses.
Tip: Set aside a specific, regular time to update your bookkeeping, put it in your diary or calendar and treat it as a non-negotiable appointment.
You'll identify potential financial issues in advance
Not only is keeping track of your income and expenses required by HMRC, but it's essential to the health of your business.
If you don't know how your business is doing, how will you be able to plan ahead and more scarily, how will you know if you're heading for trouble?
Tip: check to see how much profit you're making (that's your income minus your expenses!) on a regular basis. If it isn't as much as you'd like, investigate! Are you investing too much back into your business, or not charging enough? Doing this frequently will help you catch any potential problems before they get serious.
You can make sure you aren't wasting money
As business owners, we have to pay for certain things to keep our businesses running, even if we don't carry physical stock. Things like social media scheduling apps, insurance and travel all add up and it's easy to overspend without realising it.
Tracking your expenses as well as your income will allow you to see how much you're spending on your business and where you can cut down if necessary.
Tip: look at your expenses each month and see if there are any that are unnecessary, no longer serve you or you could get a better deal on. Even if your business is doing well, it's always worth getting rid of extra costs you don't need.
It reminds you of how well you're doing
We have a tendency to think on the negative, self-deprecating side - it's a self-protecting thing to stop us from getting our hopes up and being disappointed! But in reality, you've probably made more money from your business than you think, especially if you have multiple streams of income.
By tracking your income, you'll get a little lift when you see how much money you've actually made and feel motivated to go out and make some more of it! I bet when you add together all the money you've earned, it's more than you thought it would be.
Tip: don't just do this for your business, track your income in your personal life, too. Extras like gifts, bank interest, free stuff and even money you've found around the house all add up and will make you feel less stressed and more positive when it comes to your finances.
Do you have any tips for tracking your income? I'd love to hear from you! Leave a comment below.
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