I was a YNABer long before I started working here—no surprise, right? YNAB rocks! But what might surprise you is that I’ve used YNAB for both personal budgeting and managing finances for a small business (freelance writing). Today, I’m going to show you how.
So, flash back to the day that I landed my first client. It was a thrilling and somewhat overwhelming moment—I’d labored (for what felt like forever) to set up my website and figure out where to meet potential clients. Bookkeeping? Definitely not on my radar.
What About YNAB?
I researched accounting software like Quickbooks, FreshBooks and Xero, but with a single client, I couldn’t justify “investing” in paid systems. Still, I knew that tracking my income was critical (Hello, tax season!) and wondered, “Can I get away with just using YNAB?”
I already had YNAB for my personal budget, why not use it for my business budget? So that’s what I did. This will work great for you, too, if you:
- Run a simple service-based business
- Don’t need to manage employee payroll
- Don’t manage a ton of inventory
And here’s how it works:
1 – Create Your Business Budget
If you already use YNAB, log in. If you don’t, grab a free trial and check it out!
Once you’re logged in, click the name of your personal budget (“My Budget”) which is on the top, left-hand corner of the screen. Then select “New Budget” from the dropdown menu. It looks like this:
Enter your business budget’s information (name, starting balance, etc.), and click “Create Budget.”
2 – Create Your Categories
Next, create category groups and categories. As you can see, I’ve used category groups to separate savings and different types of expenses:
Customize your categories to suit your business. You can always edit and add to your category list later, too.
3 – Create a Tracking Account
Now, the best part: Accounts Receivable! (That’s the money that your clients owe you for the services that you provide.)
Click “Add Account” on the left-hand side of your screen. When the lightbox appears, click “Skip” to get to the second screen (we’re not linking to a bank account).
Now, type in “Accounts Receivable” for the account name, select “other asset” for account type, and click “Save.”
Congratulations, now you’re officially ready to get paid.
4 – Record Your Invoices
Once you’ve invoiced your first client, record the activity—just add a transaction to Accounts Receivable with the date, client name, invoice number and amount that you billed. For example, if you billed J. Doe on November 3rd for $1,500, it would look like this:
Pro tip: Always include the unique invoice number in your memo line. This is super important for records and reconciling.
As you can see, the inflow of $1,500 is reflected in the updated Accounts Receivable balance—which went from $0 to $1,500. Whenever you need to know how much you’re owed, consult your Accounts Receivable balance.
(Note that nothing has changed in the budget because you haven’t received J. Doe’s payment, yet.)
5 – Reconcile When You Get Paid
Flash forward, and J. Doe has paid your invoice. Nice! Let’s record the income in YNAB. Go to Accounts Receivable, click “Add a transaction” and record the payment, like this:
- Date: Enter the date of payment
- Payee: Select “Transfer: Acme Bank”
- Memo: Enter the invoice number
- Outflow: Enter the amount of payment
- Click “Save”
Notice that your Accounts Receivable balance is now zero. That means that all of your invoices are paid in full (Yay!), and nobody owes you money (Oh!). And now your bank account has an orange notification:
If you click over to your bank account, you’ll see that J. Doe’s payment has been added as a line item in your bank register:
Click on the transaction and edit the category, assigning that money to “To Be Budgeted”—this will eliminate the orange alerts.
Congratulations, you’ve got cash!
6 – Time to Give Your Dollars Jobs!
Back in the budget screen, you’ll see that your $1,500 is ready to be budgeted. Now, just like with your personal budget, give every dollar a job! You can also apply a basic budget template, like this.
That’s a Wrap!
If you offer freelance services or run a business that is suited for this type of bookkeeping, I hope this helps! It’ll only take you minutes to set up, and it’s so worth the benefits:
- You’ll have a running tab of how much business you’ve invoiced—in other words, how much money your clients owe you—so that none of your payments slip through the cracks.
- You’ll have clear records for tax filing and other business purposes.
- You won’t have to pay for (or learn) business accounting software.
And, if have questions about YNAB, make sure to drop into our free, online classes. They’re only 20 minutes long, and our teachers would be thrilled to answer your questions.