How To Track Your Business Income

Growing your business means you need to be in control of your finances and a big part of this is understanding exactly where your business income is (and isn’t) coming from. Investing a bit of time in setting up a system to track your business income means you’ll have easy access to financial data that will give you some helpful insights into your business.

Here you’ll learn how to set up a system to track your business income, along with some of the mistakes you need to avoid as well as a reminder of what counts as income. Don’t worry, it really isn’t as complicated as it sounds!

Contents

1. What Counts as Business Income?

Business income is the income generated as a result of your day-to-day business activities whether that’s from selling goods, services or receiving affiliate income and commissions. The precise income you have will depend on what you sell in your business.

From a tax point of view, you’ll need to track your business income because you’ll need to declare it as taxable income when you fill in your tax return. But from a business business point of view, tracking your income will tell you where you are making money and where you aren’t. And if done correctly you can use those numbers to make better financial decisions so you can make more money.

2. How to Track Your Business Income

The way you track your business income will depend on your business and how you do your bookkeeping, but if you want to start understanding what’s going on behind your numbers you’ll need to break down your income into revenue streams. Too often business owners lump all their income into one line called ‘sales’, ‘revenue’ or turnover’. This is a great start because you will be able to see what you are making, whether you are covering your costs and have everything you need ready for filling in your tax return. But if you want to really understand what is happening behind the scenes in your business you’ll need to break it down.

How to breakdown your business income

  1. Detail Out All Your Sources of Income

    Run through the information you have about the money you are being paid and make a list of where your income is coming from. Take a look at your bank statements, your PayPal account and invoices you’ve sent out.

  2. Categorise Your Income

    Run down the list and start to group your different types of income together into logical categories. There’s no right or wrong here, you’ll need to make sure things are grouped in a way that makes your numbers most useful to you. For example, I like to see my advertising revenue and guide sales separately. In time, as I release more guides, I may start to split out my guides by type by setting up categories for each one so I can see which ones generate the most revenue.

  3. Update Your Accounts

    You’ll need to update your list of categories in your accounts (what accountants call the chart of accounts) to incorporate the different types of business income you’ve identified. That way you can allocate your income to each one when you do your bookkeeping. The way you update will depend on whether you use a bookkeeping spreadsheet or a software like Quickbooks

3. Tips to Make Tracking Your Business Income Easier

If you want to make tracking your income quicker and easier, then here are some tips that will help you:

3.1 Open a Separate Bank Account

If you put all your business income and expenses into one bank account not only will it make your bookkeeping easier because you won’t have to look around lots of different bank accounts to try and find information you need but you’ll be able to gather the information you need to analyse your income much quicker. If you haven’t got a business bank account then take a look at Starling, which is a really popular option in the self-employed community.

3.2 Make Sure All Your Payments Come Into One Bank Account

I confess – I’ve been guilty in the past of not updating my PayPal payment details meaning money was being sent to my personal bank account. I’ve updated it now, but if you haven’t, double-check that you’ve set everything to come into your business account so you don’t miss anything from both a tax and business perspective.

If you are treating certain payments you receive as your ‘salary’ and depositing them into your personal account, then you may naturally be reluctant to make this change. But it is essential if you want to track your business income accurately, so make the change and start to pay yourself a salary from your business instead.

3.3 Don’t Over Analyse

Although it is good to break things down, don’t over analyse your business income into lots of different categories because you’ll risk generating too much financial data which provides little value. If in doubt, start with fewer categories and you can add more when you feel it is necessary.

4. Common Mistakes With Tracking Business Income

Here’s some of the mistakes people make when it comes to tracking their business income that you can avoid:

4.1 Thinking You Don’t Need to Track Your Income

People with a profit of less than £1,000 think they don’t need to track their income but this is wrong. There is an exemption known as the £1,000 trading income allowance that means you don’t need to let HMRC know about earnings of £1,000 or less. This tax-free allowance applies to your first £1,000 of business income, not profit. And even if your income is below the tax-free amount, HMRC guidance states that you should still be tracking your earnings and keeping a note of what you have been paid as evidence you are eligible to claim it.

4.2 Recording Business Income Net of Deductions

If you receive money from third parties like Stripe, eBay, Uber or Paypal then there will be a deduction made before the money hits your bank account. When it comes to your taxes, you’ll need to declare your income on your tax return gross, which means before any fees get deducted. You’ll be able to claim any deductions as part of your allowable business expenses but you will need to use statements to gross up your business income.

4.3 Handling Refunds Wrongly

I know some people add a line for refunds in their accounts or include them as part of business expenses, but this is incorrect. If you have processed a refund or need to credit an invoice then you simply need to categorise them in the income line they relate to, offsetting against income for that particular revenue stream.

About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek, money nerd and creator of www.goselfemployed.co - the UK small business finance blog for the self-employed community. Here she shares simple, straight-forward guides to make self-employment topics like taxes, bookkeeping and banking easy to understand.