Keeping Financial Records: Expenditure

Last week, we looked at how to keep records of income; now we’re going to look at recording our expenditure. Then we’ve got the two sides of the equation: we need to know what money came in (our income) and what money went out (our expenditure). The difference between the two is our profit or loss. If our income is greater than our expenditure, we have made a profit. However, if our expenditure is greater than our income, we have made a loss.

So let’s think about how our expenditure is recorded.

As writers, our expenditure can go in lots of different directions. Here are a few I thought of and there will be others you can list too:

·       The cost of printing our books, if we publish independently; I’m not just thinking about the costs of the physical books, but the cover design, services of an editor or proofreader; the purchase of a block of ISBN numbers etc.;

·       The purchase of books or magazines relating to our business and bought for the purposes of research;

·       Competition entry fees;

·       Train fares or mileage for travelling to courses or workshops, whether as the teacher or as the student;

·       The money we pay ourselves (whether that’s a PAYE-managed salary within a limited company or personal drawings if we are self-employed);

·       Bank charges and accounting/book-keeping fees;

·       The costs of running an office (and as business people, we do have an office, whether it’s part of a serviced building; the back bedroom; or a corner of the kitchen table): paper for the printer; postage for sending out copies of our books, competition entries or submissions to agents; charges for our website; fee for renewing our antivirus software etc.;

·      Capital purchases such as our laptop, printer, desk and filing cabinet.

Many of these payments will be made by cheque, internet payment or credit card and will be accompanied by an invoice or a receipt from the seller, so there is an immediate paper trail. Others will tend to be cash payments, especially if it’s for a small amount. All businesses should be able to provide a receipt on request; we need to get into the habit of always asking for one, even when it’s just a short taxi ride from the station to a conference location, or a quick sandwich grabbed during the lunch break on a course.

We looked at invoices and receipts in last week’s article. The only difference between income and expenditure is that in the first, we issue the documents, whereas in the second, the documents are issued to us. The documents themselves will be the same. And remember they will range from a formal invoice from a printer to a scrappy till receipt from a coffee bar. So once again, when it comes to sorting out our total expenditure for the business, we will be faced with a complete mix of different types of record.

As with income, all the bits of paper need to be collated in order to calculate total expenditure. It is also useful at this stage to group expenses together under different headings: direct expenses; wages; office expenses; professional fees etc. Our options were spelled out last time, but bear repeating: we can give the job to the accountant to do for us at the end of the year, which is effective but costly. We can give it to a book-keeper, either monthly or at the end of the year; again, this is effective and less costly than an accountant, but still means paying out money. Or we can do it ourselves, either monthly or at the end of the year. This option may be effective, depending on our abilities with numbers, and is the least costly in terms of actual expenditure, but it is costly in terms of our time.

Once again, I’m going to assume we decide to do it ourselves on a monthly basis, while the task is smaller and our memory is fresher. We will be listing all items of expenditure in one place. Let’s look at what that might look like for our three types of financial system:

·       Paper-based: a simple cash book with appropriate layout can be bought from any stationers. An A4 hard backed notebook will do the job just as well, but the columns will have to be drawn in. Start each month on a new page. List the expense items in date order (which helps when reconciling the bank statement) and put a total at the bottom. If you are grouping expenses as this stage, have a separate column for each category of expense and total each column separately as well In theory, you can use the same page as the income record, but it’s probably simpler and neater to use a different book, or a different section of the same book.

·       Spreadsheet: Use one spreadsheet for all the accounts, but use a separate worksheet for each type of transaction (income, expenditure etc). List the expenses in date order and use the software to calculate a total at the bottom. As above, use separate columns for different categories of expense.

·       Commercial software: Each transaction will need to be converted to an expense payment to enter it into the system. If the supplier has issued an invoice, this needs to be entered and then the payment is accounted against it. If there are a lot of small cash transactions, it can be time-consuming and unnecessary to enter each one separately. My solution is to pull these all together on a monthly basis as a single invoice, itemised line by line within the document. The software has the provision for allocating a category to each expense and the facility for producing reports on each category as required.

Using any of the above systems on a monthly basis means that at the end of the year, there will be just twelve figures per category of expenditure to collate in order to identify total expenditure.

For non-receipted expenses, such as mileage, it is important to keep a written record. Every year I promise myself I will put a book in the glove-compartment and record every journey at the time it occurs; and every year the system collaspes quickly or never gets started. Luckily, I keep a detailed appointment diary and have a reasonably good memory. At the end of each year, I list all my journeys and calcualte the mileage using Bing Maps, but it takes me ages. Doing it on a monthly basis (or better still, journey by journey) would be a much more effective approach.

Closing notes: This article is about recording expenditure. Some of that expenditure will be tax-deductable, some may not be. No distinction is made here between the two. At this point, we are only looking at what records we need to keep. What we do with them later is a whole different subject.

As always, note that I am not an accountant or a lawyer, just a long-term business owner, talking about my own experience. If you are unsure about anything, always take advice from an appropriate professional.