HiddenIf you work for yourself, you probably keep your own books. You do not need a full accounting system to see whether the business is making money. A well-built spreadsheet can show income, expenses and profit month by month. This guide explains what to record, how the monthly sums work, and where a spreadsheet stops being the right tool.
Profit and cash are different things
A profit and loss statement, often called a P&L, answers one question: for this month, how much did the business earn after its costs? The sum is income minus expenses. Cash is a different question: how much money is in the account now?
The two differ whenever timing differs. You may finish a job in April and be paid in May. April's profit includes the job. April's cash does not. A bank balance can look healthy while the business loses money, and the other way round. Keep both views, and know which one you are looking at.
What to record
You need only two logs.
- Income: date, description, category, the net amount (without tax), the tax rate, and who paid.
- Expenses: date, supplier, category, the net amount, the tax rate, and what it was for.
Type net amounts, so that tax stays separate. Then profit is worked out from what you earned and spent, and not from tax that passes through your hands to the tax office.
Choose the date rule once and keep to it. If you date each sale on the day you invoice it, you are following an accrual approach. If you date it on the day the money arrives, you are following a cash approach. A spreadsheet adds up whatever dates you give it, so it will not tell you which one you are using. Many small businesses use the cash approach for simplicity, but the right choice depends on your country and your type of business, and an adviser can tell you.
Use a short list of categories you actually need, for example: sales, services, software, travel, equipment, advertising, fees and other. If a row has a category that is not on your list, the sheet should put it under Other, so that the total still matches the sum of all the rows.
The monthly sums
For each month:
- Total income = the sum of net income rows dated in that month.
- Total expenses = the sum of net expense rows dated in that month.
- Net profit = total income - total expenses.
- Profit margin = net profit / total income.
Here is a worked example with invented numbers. A one-person design studio records April:
| Item | Amount |
|---|---|
| Income (net of tax) | EUR 4,000.00 |
| Software and fees | EUR 350.00 |
| Equipment | EUR 600.00 |
| Travel | EUR 200.00 |
| Advertising | EUR 300.00 |
| Total expenses | EUR 1,450.00 |
| Net profit | EUR 2,550.00 |
The margin is 2,550 / 4,000 = 63.75 per cent. Now suppose that only EUR 3,200 of the EUR 4,000 has been paid by the end of April. The profit is still EUR 2,550 on an accrual view, but the cash that arrived is EUR 3,200, and the EUR 800 difference is money customers still owe. That is why a P&L sheet and an invoice register belong together.
A quarterly summary adds three months at a time. It is useful because many tax systems work in quarters, but check your own country's schedule.
Putting money aside for tax
If you charge sales tax or VAT, that money is not yours. You collect it and pass it on, less the tax you paid on your own purchases if you are allowed to reclaim it. A simple set-aside figure for a quarter is:
tax collected on sales - tax paid on purchases (if reclaimable)
In the April example, say the tax rate is 20 per cent on everything. Tax collected on EUR 4,000 of sales is EUR 800. Tax paid on EUR 1,450 of purchases is EUR 290, if all of it can be reclaimed. The amount to set aside for that month is 800 - 290 = EUR 510. Then you log what you actually pay to the tax office, and the sheet shows what is still to keep aside.
Two warnings. First, whether you may reclaim tax on a purchase, and which sales are exempt, depend on your country and on the item. Second, this covers sales tax or VAT only. Income tax on your profit is a separate matter that depends on your jurisdiction and your situation, and a percentage that suits one person is wrong for another. Use the sheet as a planning aid and confirm real figures with your tax authority or an adviser.
Keep the records
Tax authorities expect you to keep records of income and expenses. GOV.UK's page on business records for the self-employed is a UK example of what to keep and why. The European Commission's page on VAT invoicing describes the EU framework for the invoices that your sales records rest on. Rules differ by country, so find the page of your own tax authority.
Make the sheet trustworthy
A spreadsheet is only as reliable as its formulas and your entries. Powell, Baker and Lawson (2008) reviewed research on spreadsheet errors and found that errors are common. Their review is about spreadsheets in general, not about this kind of workbook. So test your sheet on a month you know. Add up one month by hand, as in the example, and compare it with the sheet. Check once a month that the total of your rows equals the total in the summary. If they differ, something is outside your categories or your dates.
When to move to accounting software
A spreadsheet suits a sole trader or a small studio with a few hundred transactions a year. Move to accounting software when you need bank feeds, automatic matching of payments to invoices, payroll, multiple users, or reports that your accountant or tax authority wants in a given format. A good sheet is also a fine way to start, because it forces you to learn what your categories are.
A monthly close
At the end of each month, spend twenty minutes on a routine. Enter any sales or costs you missed. Check that every row has a category and a date in the right month. Compare the total with your bank statement for the same month, and explain any gap. Look at profit and margin, then at the biggest expense lines. Save a copy of the workbook with the month in the file name. A habit of closing each month makes the year-end far less painful.
Tool that fits
The Small Business Bookkeeping & Profit-Loss Tracker (Excel, EUR 24, paid once) has an income log and an expense log of 1,000 rows each, with category drop-downs and tax and gross amounts worked out from the net amount you type. A monthly profit and loss shows every category by month, with total income, total expenses, net profit and margin. A quarterly summary shows income, expenses, profit and net tax for each quarter. The tax set-aside sheet compares tax collected with tax paid on purchases, lets you log your payments to the tax office and shows what is still to keep aside. The dashboard has a year selector and charts. Your own category lists live on a Settings sheet, with the tax label, default rate and a reclaim yes or no. Example data is included and easy to clear. It works in Excel 2016 and later, Google Sheets and LibreOffice, with no macros. It is a simple record-keeping template, not tax, legal or accounting advice.
What to do next
The Small Business Bookkeeping & Profit-Loss Tracker has income and expense logs of 1,000 rows each, a monthly profit and loss, a quarterly summary, a simple tax set-aside sheet and a dashboard with a year selector. Excel file, €24 once.
Questions people ask
How do I work out monthly profit?
Add up the income recorded for the month, add up the expenses for the same month, and subtract. In the example on this page, EUR 4,000 of income less EUR 1,450 of expenses leaves EUR 2,550 of profit, a margin of 63.75 per cent. Your accountant may treat items such as depreciation or owner withdrawals differently.
Is profit the same as the money in my bank account?
No. Unpaid invoices, bills you have not yet paid, loans, money you take out for yourself and the tax you collected for the tax office all make the bank balance different from profit. That is why a profit and loss sheet and a cash view answer different questions.
How much should I set aside for tax?
There is no universal figure. It depends on your country, how your business is organised, your income and what you may deduct. A set-aside sheet is a budgeting aid. Confirm the real amounts with your tax authority or an adviser.
Sources
- GOV.UK, Business records if you're self-employed (UK: what records to keep)
- European Commission, VAT invoicing (EU framework for invoices, which are the basis of sales records)
- Powell, Baker and Lawson (2008), A critical review of the literature on spreadsheet errors, Decision Support Systems 46(1), 128-138
We checked each source on 17 October 2026. If a fact here is out of date, tell us at hello@hiddenway.info.