You’ve started a project in your business (or charity). Yay!

Perhaps you:

  • Are launching a new service or product
  • Are paying for a speaking opportunity, in the hope of attracting new clients
  • Received a grant for a project that you need to report back on
Sara-Jayne Slocombe

The big idea

You know you’ll have some income and expenses for it, and you want to know:

  • Is it profitable?
  • How much of the budget is left?
  • What has the money been spent on?

You want to track your income and expenses that relate to that particular project so that you can answer these questions and more.

This is a branch of accounting called management accounts. It has nothing to do with your statutory requirements for reporting to HMRC, Companies House, etc.

Management accounting is something you do within your business purely to help empower yourself with the information and insights you need to manage it better.

In this series, we’ll look at how to set up your accounts so you can answer questions like these.

Man standing in front of a chalkboard with his arms out to flex his biceps. On the chalkboard is a drawing of extremely large biceps and arms.

Let’s dive a little deeper

Ever since your business started, you’ve labelled each penny in and out according to the type of income or expense. This helps you generate a profit & loss report. A simplified version of it might look something like:

Product sales £10,000
Services £15,000
Total Turnover (Income) £25,000
Purchases (Stock) £6,000
Wages £8,000
Rent £1,000
Office Expenses £1,000
Total Expenses £16,000
Profit: £9,000

That’s very useful, but now you want to dig deeper and know more.

To do that, every penny in and out will get two pieces of information attached to it: in addition to what kind of income or outgo it was, you’ll also want to know: What project was it related to?

If you’re only tracking the one project, the question becomes: Was it for this project or not?

Now, instead of one-dimensional reporting, you’ll get two-dimensional reporting. Your profit and loss can now look like:

  Total Project
Product sales £10,000 £0
Services £15,000 £10,000
Total Turnover (Income) £25,000 £10,000
Purchases (Stock) £6,000 £0
Wages £8,000 £6,000
Rent £1,000 £0
Office Expenses £1,000 £0
Total Expenses £16,000 £6,000
Profit: £9,000 £4,000

How else can this be applied?

I’ve used the example of a project throughout this post, but this applies any time you want to break down parts of your business and look at them individually.

For example, each of these will have their own income and expenses:

  • Selling different things: Products vs Services
  • Different sales channels: Your own website vs eBay vs Amazon
  • Different advertising methods: Clients from networking vs referrals vs paid advertising vs sponsoring the local youth football team

Or, you may choose to do something that you know will only have expenses, but you want to keep your spend within a certain budget. For example:

  • Charity donations of time and money. Only the money will usually show in your statutory accounts. By using the concept of projects, you can also translate the time spent into money.
  • Running an event that you know will be good general publicity, but won’t bring any clients you can say came from that specific event.
  • Running a mentorship programme with the local college, which will help your employees sharpen their mentorship skills, help prime the pipeline for future employees of your business, and bring good publicity, but again is unlikely to bring any direct clients.

Any time you want 2-dimensional reporting, think about using projects.

The software

How will you do this? Every accounting software should have a method for tracking projects. It’s called different things in different software.

  • In Xero, you’ll use Tracking Categories
  • In QuickBooks, you’ll use Classes
  • In Sage, you’ll use Cost Centres

If your accounting software doesn’t allow for some sort of tracking, you’ll either need to keep track separately on spreadsheets or switch accounting software. I strongly suggest the latter.

desk with computer, mouse, cup of tea, and plant

The curve ball: dates that don’t match

Let’s say you ran the project from Jan-Dec 2023. However, you got an invoice from a supplier dated 1 Feb 2024. Will this show up in your project reporting?

In your accounting software, you can choose which dates to run your report for. If you change the dates to show 1 Jan 2023 to 1 Feb 2024, then yes, that invoice will be included.

If you’re only running that one project, and now you’re done with projects, that will do for you.

But if you decided to run the project again from Jan-Dec 2024, now that invoice will show up in the wrong set of dates.

The answer is to create a second project. (So a second Tracking Category or Class or Cost Centre). Call one “Project 2023” and the other “Project 2024.”

Now, when you’re labelling each transaction with the project, you’re picking which version of the project it should belong to. Run your reports to include all of 2023 and 2024, and that late invoice will appear in the right project.

Project period vs financial year

Let’s say your financial year is March to February, but you’re running a project in line with the school year, from September to July.

By having different projects for each project year, you neatly sidestep any issues caused by having a different financial year from your project period.

This means you’re not tempted to enter the invoice using the wrong date in your accounting software, which would skew your regular accounts. That’s a huge no-no; don’t do that. It has tax implications, compliance implications, fine implications, and so on.


What’s Next

Thanks for reading part 1 of this series about project tracking.

In part 2, we’ll look at the special case of charities who need to report on multi-year projects and how to handle that. In part 3, the final part, we’ll look at how to deal with parts of expenses for both businesses and charities.

Hi, I’m Sara-Jayne Slocombe of Amethyst Raccoon. I help your small business thrive using the power of your numbers, empowering you so that you have the confidence and knowledge to run your business profitably and achieve the goals you’re after.

I am a UK-based  Business Insights Consultant, which means I look at your data and turn it into information and insights. I separate the noise from the signal and translate it all into actions that you can actually take in your business.

I also facilitate the Power Pod Roundtable, which is a business discussion group, and the AIM HIGH Mastermind, which is a small group of business owners who want to move their businesses forward.

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Sara-Jayne Slocombe