By Nick Chowdrey, Crunch Accounting
Although every freelancer enjoys the flexibility that comes with working for yourself, nobody looks forward to the nitty gritty bits of admin that come along with it.
Unfortunately, keeping track of income and expenses is a necessary part of the freelance lifestyle, and unless you’re doing well enough to afford help, you have to learn to do it right by yourself.
Here are five bookkeeping tips to help you free the boring and neglected number cruncher we all have living inside of us.
1. Be transparent about how you earn and spend your money
When you’re solely responsible for your own income and you’re getting paid straight into your personal bank account, it can sometimes be tempting to brush things under the carpet.
It really isn’t worth it.
Anyone can be audited: it doesn’t matter whether you’re a huge company with global offices and hundreds of employees, or just one person working on your laptop in a coffee shop. If you’re caught, depending on what you’ve done, you could face anything from penalties and fines to jail time.
Transparency isn’t just best practice for your taxes, it’s best for your business, too: it forces you to keep track of all the money that’s coming in and going out. You can then use this information in helpful ways, like planning business strategies or reducing the amount of tax you need to pay.
2. Be vigilant about keeping your records up to date
Let’s face it: for most of us, accounting is never going to be the most interesting part of the week. With much more pressing and interesting stuff to do, it’s easy to procrastinate—or forget to do it entirely.
Set an alarm on your phone for a certain time each week to remind you to do your books. Also, make sure you do some thorough research into any tax deadlines throughout the year and enter them into a calendar. This way, you’ll get into good habits and stay on top of your game.
Remember, as soon as you let your accounts get out of hand, a backlog will begin to form that could deteriorate into a massive—and potentially very expensive—headache. The first tip is relevant here, too: it’s hard to keep your numbers accurate and transparent when there’s a huge gap between when you do the work and when you record it.
3. Learn more about finance for freelancers
Bookkeeping isn’t just about tracking your cash flow. There are various ways to analyze your income and expenses to find ways to cut back on costs and make more money.
Hiring a professional accountant is obviously the most convenient way of doing this, but as a freelancer you may not have the money to throw at such a luxury.
Thankfully, there’s a lot of support both online and in local business communities. Meet people both on and off the web: go to networking events, attend free workshops and see what you can learn from others.
The government also offers handy hints and tips on their website. In the U.S., for example, the IRS offers a self-employed tax center, where you can find loads of tools, information and resources to make your life easier. In the UK, where I live, Her Majesty’s Revenue offers something similar.
4. Be thrifty with your spending
Great, you’ve made some money—just don’t forget that some of it belongs to the taxman. Make sure you budget for this as you go, so you won’t get a shock when it’s time to pay your tax bill.
Consider opening a deposit or business savings account and put money aside to pay your taxes. Saving 25-30 percent of all income you receive will put you in good shape for paying your bills through the year.
The best thing you can do is make a budget and stick to it. Only dip into the cash you save for tax if it’s absolutely necessary. Always consider whether, instead of overspending, you could cut back in some areas or work a bit harder to find more projects.
Make sure you stay on top of your invoices, too. Never be shy about chasing a late paying client; even if you have 25-day payment terms, encourage your clients to pay as soon as they receive your invoice.
5. Consider the cloud
It’s totally possible to stay on top of your bookkeeping using free or non-specialized software alone, but there are lots of choices out there to help move your accounting to the cloud.
These options are a lot cheaper than traditional accountants, so you might find that you can stretch to fit your budget.
It’s an emerging marketplace with lots of interesting options: some companies offer apps that make it easy to do your books on the go, while others bundle their software with on-demand accounting advice. Take a good look around for the option that suits your freelance business best.