The single-account problem
You invoice £3,000 and see £3,000 in the account. But part of that is tax you will hand over, part is your national insurance or social security contribution, and part covers the costs of running the business. What is genuinely yours is what remains, and it is usually a good deal less than it looked.
When everything lives in one account, you run that calculation in your head every time you consider a purchase. And in your head it goes wrong: in March you feel flush, and in July the tax bill arrives and you feel rather less so.
The fix is not accounting software. It is separating the money before you can spend it, so the account you check daily only holds money that is yours.
The three-account system
Three accounts, or three pots if your bank supports them. You do not need more and it does not work with fewer.
1. The incoming account
This is where you get paid. Everything you invoice arrives here and nothing leaves except transfers to the other two. Never look at this account to decide whether you can afford something: its balance means nothing.
2. The tax account
The money that is not yours even though it sits in your bank: sales tax collected, income tax set aside and your social contributions. It is topped up the same day you get paid and untouched until payment is due. Keep it fed and the quarterly bill stops being a shock and becomes an errand.
3. Your personal account
Your salary lands here and life comes out of it: rent, groceries, going out, everything. This is the only one you check daily and the only one where a budget makes any sense.
How much to set aside
The practical rule: the moment a payment lands, move the full sales tax plus a percentage of the net amount into the tax account. That percentage depends on your rate and your deductible costs, so your accountant gives you the exact figure; if you do not have it to hand, over-setting-aside and refunding yourself at the end of the quarter hurts far less than the reverse.
Business costs —tools, laptop, accountant, insurance— get paid from the incoming account, never from the personal one. It is the only way to know whether a year was genuinely good: business costs that leak into your personal account look like personal spending and distort both sides.
It helps to be clear on what counts as a fixed versus variable expense: contributions, accountant and insurance are not renegotiated monthly; the rest is.
The costs people forget
When someone miscalculates what they actually earn, it is nearly always the same four costs. None of them is large on the day: they are large over the year, and they arrive once the money is already spent.
Tools billed once a year. The domain, the hosting, the licence for the software you use daily, the antivirus. Each looks small and together they add up to a month of work. List them all with their renewal date and divide the total by twelve: that is what they really cost per month.
Equipment that breaks. A laptop lasts three or four years and then has to be replaced. Set nothing aside and the day it dies feels like an extraordinary expense, when in fact it was a monthly one you were not recording.
Holidays and days you do not invoice. An employee gets paid in August. You do not, unless you budgeted for it. Count how many weeks a year you will not invoice —holidays, bank holidays, the week you are ill— and add it to your floor.
Late payers and bad debt. Not every client pays on time and some never pay. With many small clients this is statistics, not bad luck: discount a reasonable percentage of what you invoice and treat it as a cost of doing business.
Paying yourself a salary
The hardest part and the one that changes the most: pick a fixed monthly amount and transfer it to your personal account on the same day every month, whether you invoiced a lot or nothing at all.
Base the salary on your bad months, not the average. If the worst quarter of last year left you £1,400 net a month, that is your floor. Whatever is left over in good months stays in the incoming account as a buffer, and that buffer pays your salary in the months nothing comes in.
The aim is for your personal life to stop feeling the irregular rhythm of the business. If your income swings a lot month to month, there is more on that in saving when your income changes every month.
Year one, with no history
All of the above rests on data you do not have in year one: you cannot know your worst quarter because none has happened yet. That does not invalidate the system, it only changes how you start.
Start from the floor, not the salary. What your life costs can be worked out from day one, because your personal spending existed before you registered as self-employed. Take three months of past transactions and get the number.
Pay yourself that floor and nothing more for the first few months. Not the average, not what you would like: the minimum you live on. Everything above it stays in the incoming account.
Revisit the salary at six months, not before. With six of your own paydays behind you, you know your worst month and can adjust. Before that you are extrapolating from two or three data points, and in seasonal work that leads straight to raising your salary right before the quiet spell.
Record every transaction from minute one, even if you do nothing with it in year one. Year one’s history is what makes year two’s system useful, and it cannot be reconstructed after the fact.
The end-of-month review
Fifteen minutes, once a month. Three questions: how much did I invoice, how much did the business cost, how much did I pay myself? The first minus the second minus the third tells you whether the buffer is growing or being eaten.
You do not need invoicing software for that. You need to see transactions split by account, and any tool with multi-account support does it. In Sumant you create the three, transfers between them are recorded as transfers —not as income and expense, which is the classic mistake in a spreadsheet— and each keeps its own balance.
You log transactions yourself or import the CSV or Excel file you download from your bank: Sumant does not connect to your bank, so your banking credentials never leave it. If that is what has been putting you off other apps, Fintonic alternatives has the full comparison.
One honest caveat to close: this organises your money, not your bookkeeping. Sumant does not issue invoices, calculate tax or file returns. That is your accountant’s job, and this system means you arrive with clean numbers.
And a last note on why the split matters more than the tool. Whatever you use, the value comes from the money being separated before you can spend it. Three accounts and a notebook beat one account and the best software on the market, because the notebook is not what stops you overspending — the empty personal account on the 28th is.