The too-long-didn’t-read answer is: As often as your finances change. That could be daily, weekly, fortnightly, or monthly (but never less often than monthly). If that doesn’t make immediate sense, or you don’t see how to apply it to your maker or artisan business, read on or watch my video on this topic:
The main things you’re doing when you catch up your accounts are:
- Ensuring you’ve received payment for all invoices you’ve sent.
- Purchases and Expenses:
- Ensuring you’ve paid all invoices you’ve received.
- Bank Reconciliation:
- Making sure that no unexpected transactions have appeared.
- Making sure all your income and expenses are logged, categorised, and that you have backup (receipts, invoices, etc).
For example, if you sell your goods in one go once a month on 30-day terms, perhaps to a collection of local gift shops, and that’s all your income, then doing your accounts monthly might be suitable for you. You’ll check once a month to ensure all your sales invoices have been paid, as well as categorising your expenses and uploading receipts and invoices for them.
However, if you offer 14-day terms, you’ll need to check after 14 days, matching payments to invoices, to see if you’ve been paid. If you haven’t, you’ll want to start chasing those invoices sooner rather than later, so that you’ll get paid sooner. The shorter your payment terms are, the sooner you’ll need to reconcile to check to see if you’ve been paid.
Purchases and Expenses
If you buy on credit, you’ll also need to check through these to make sure you don’t miss paying an invoice. Again, how often you need to check depends on your suppliers’ payment terms, and when you purchase from them. If you negotiate 7-day or longer terms with all your suppliers and customers, then you could catch up your accounts once a week.
I’ll talk more about this in a future post, but the essence of bank reconciliation is simply making sure you’ve logged, categorised, and have back up for all transactions, and make sure there’s nothing unexpected. Unexpected transactions could be, for example:
- Something you forgot to record in your accounts.
- A free trial that you forgot to cancel, so has turned into a subscription fee.
- Something you accidentally bought from the wrong account.
For example, it’s really easy to not realise that you’re still logged into your business Paypal account, instead of purchasing those flowers for your mum from your personal Paypal account. On the flip side, if you know you bought a book of stamps for your business but can’t see it in your bank statement, it might be that you used your personal debit card instead, so you’ll need to pay yourself back for it as a business expense.
If you can’t find a receipt or invoice for a purchase you made, the more frequently you catch up your accounts, the less searching you’ll have to do, particularly if it’s in your email, where hopefully you can search between two given dates.
If you still can’t find the receipt or invoice, you may want to ask the supplier to send you another copy. It’s often easier to get another copy the more recent that the transaction was, both because it’s less searching for them and because, if it was a very long time ago (say, perhaps, a receipt from April 2019 in January 2021 when you’re doing your annual accounts), they quite likely won’t have individual receipts readily available anymore. They’ll have prepared their accounts, kept those reports, and perhaps put their individual invoices and receipts in storage that they simply won’t look through for you unless your name is HMRC.
Aside from ensuring you’re paid, you pay others, and you have all the documents you need, the other primary consideration for how often you should update your accounts is how often you want information from them.
If you are operating weekend by weekend, trying to work out if last weekend’s market was profitable to see whether you should go to the same market again this weekend, then you’ll need to crunch those numbers every Monday. This is also true if you need to book a monthly market’s June date just after the May market: you’ll want those figures immediately after the market, so you know whether it’s a good idea to book it or not.
If you have given yourself monthly sales goals, then you will want to check in weekly at least to see how you’re doing, and course correct as you go. If you only checked monthly, then you’d make less progress.
You get the idea.
Every business is different and has unique needs. Your business may have a complicated setup and need you to do your accounts twice in the first week of the month, then again halfway through the month, and then a few days before the end of the month.
If you’d like to discuss your own business’ needs, do book a Power Hour.