Accounting for small web design companies

I recently decided to pay a bit more attention to our account, and start learning about how to use accounts for management.

And it is amazing the impact of understanding your accounts can have on your business, regardless your turnover.

And the benefit of using a web design business is that it is quite straightforward to keep your accounts in order, without the need for sophisticated accounting software - 3 spreadsheets are enough.

1) Bank statements:
Download your bank statements on a monthly basis, and keep them on one sheet. And flag each transaction with a category:
1.1 for debit transactions
bank charges, transport, entertainment, telephone/internet bills, office supplies, call handling/virtual secretary, hosting, domain names, events fees, online tools cost, cash, VAT (if you are registered) , suppliers cost (try to specify which type of service they provide, such as offshore development, accounting, translation, etc .. )
1.2 for credit transactions
invoice (try to write down the reference if possible), cash back

You may need some additional categories for odd transactions, but categories above should cover pretty most of your transactions.

Important Note: Try to keep business account separate from your personal account. If you buy a tube ticket, and need to record this as a business expense, use your business card, not personal account. You then have just to worry about the statement you download from your online business bank account.

2) P&L
This is how you find out if you are doing things right, or if production is costing you too much , if you are spending too much in advertising etc ...

2.1: Revenue
The revenue is the sum of all the credit transactions - cash back

2.2 Gross profit
revenue - sum of all cost related to sales (suppliers cost, call handling/virtual secretary) - deprecation expenses **

use a 25% ratio. If you have bought a computer worth £1000 this year, it is costing you £250 in deprecation expenses this year, and will cost you £250 each year for 4 years. Don't ask me why it is considered as a cost related to sales...still cannot figure that out.

2.3 Net profit
Gross profit - sum of costs + cash - cashback

----------------------------------------------------
If you keep this in order, it will save you loooooads of time in the long run. these are useful data, but you need a balance sheet to start running proper analysis about your business... which I will write about in the next post.