How Three Hours of Accounting a Month Can Save Your Sanity

How Three Hours of Accounting a Month Can Save Your Sanity

Do you want to experience a zen-like peace-of-mind once a month? Well, we have a simple recommendation.

Create a strong routine for staying on top of your business finances and follow it in your accounting software on a monthly basis. This will help you stay on top of your money and ensure you’re maximising your cash flow. It also helps you avoid that sinking feeling when you need to file your VAT return and have to go back over three months worth of expenses, receipts, and transactions.

A good monthly routine will probably only take about two or three hours to follow. Although all businesses have slightly different needs, the suggestions below can easily be adapted to your requirements. We recommend following this process at the end of each month, when you do your monthly payroll.

Step One - Ensure You Invoice for Products and Services Delivered in the Last Month

If you bill your clients at the end of each month for costs incurred, then make sure that you capture and itemise all of those costs and add them to your invoices. Review your project time slips, goods supplied, and services rendered.

Step Two - Send Out Your Monthly Invoices

Once all your monthly invoices are up to date, send them out to your clients. Sending all of your monthlies out on one day makes it easier to track them for late payments, as they will likely all have similar payment terms.

Step Three - Reconcile Your Bank Accounts with Your Financial Software

Next, you will want to check your accounting software accurately reflects all the transactions you made in the last month. This is a process called reconciliation, and we explained how to do it here. Go through every account you have - bank, credit card, PayPal, etc, and ensure all transactions are properly recorded and accounted for.

Step Four - Chase Late Invoices

After you’ve reconciled, you’ll be able to see if anyone has failed to pay their invoices If so, now is the time to chase them. Your first reminder can be polite and simply request payment as soon as possible. Later reminders can be more strict, and could include interest for lateness.

Step Five - Pay Your Expenses

Now is the time to look through all the receipts and expenses you’ve paid out of your own pocket. Ensure that you’re properly recompensed for them, bearing in mind tax rules on apportioning expenses to your business. You might also want to set up monthly expense deductions and rebates, based on ongoing usage of areas like home office deductions, utilities etc.

Step Six - Review any Bills or Outgoings

Look at any bills that are due to ensure you have enough in your various accounts to cover them.

Step Seven - Review your taxes

Ensure that your taxes are up to date. If its a VAT or Tax quarter or month end, ensure that your records are all up to date and that you submit your returns to the relevant tax authorities. Make sure that you have paid your PAYE and National Insurance contributions from the previous month.

Step Eight - Pay Your Salary

Ah, it’s the fun part! Time to transfer your salaries from your business into your personal account. This is also a good time to look at any taxes you may owe, or prepaying your tax and other payment expenses (like national insurance).

Step Nine - Review the Financial Position of Your Business

That’s all the main parts of your monthly accounting done, so it’s time to look at how your business is doing. Review your dashboard and the various reports to understand the financial health of your organisation. You can then make decisions about future budgeting, spending, and payments.

Optional Step Nine - Review Your Personal Assets and Finances

Now you have finished all your business accounts, it’s a good idea to spend a few minutes looking at your personal money situation. Review your personal bank statements and credit card bills to ensure you recognise all the transactions. See how you’re doing against your household budget to make sure you have enough money coming in to meet your commitments.

Optional Step Ten - Plan for the Future

Finally, there are a few things you can do now to secure you and your business’s financial future.

  • Contribute to a “Rainy Day” fund or cash buffer - it’s always wise to have some money in reserve if your business is going through lean times. We recommend around three to six months of business and personal expenses, so if you have a little extra, consider putting it away.
  • Think about expansion opportunities and initiatives - look at how you’re going to grow your business. Do you want to start a new marketing campaign, develop products and services, or hire someone else?
  • Invest in your personal future — it might be a good idea to put money into your investments, pension, or retirement plan. After all, you’re not going to be running your business for ever, right?

And that’s it. We believe following this simple guide on a monthly basis will help you stay on top of your accounting and finances, reduce your stress and anxiety, and help your business be better prepared for the future.

Further Reading

How to Register as a Sole Trader

How to Leverage Technology and Automation to Support Your Firms Growth

How to Manage VAT in AccountsPortal