Most freelancers, especially the new ones, doesn’t want to focus on the bookkeeping part of the work. However, how you handle your finances is an important part of how you would succeed as a freelancer. Keeping accurate records, and knowing when, where, and how to handle your finances spells the difference between freelancing success and failure.
Now that you have control on your personal finances and your overall business as well, how would you avoid redlining your accounts?
Separate personal and business funds. A separate bank account for your freelance work would be helpful. You can enroll in a bank that has online banking options, if you think it’s a hassle going back and forth just to check your balance. Also, having separate accounts for your freelance and personal finances is a good way to quickly check if your expenses are always within your means. Bank account statements are also good back-ups for documentation purposes.
Track your income and expenses. Record all freelancing income, no matter how small. Even if you don’t receive a 1099 form from your client, keep track of the project. It is helpful if you will file taxes. You can either track income via cash basis accounting, or the accrual option.
Cash basis is when you record income as soon as you receive it, while accrual basis works on accounts receivable. In this, you recognize income even if you don’t have the cash on hand; as soon as you give an invoice to your client, you already record it in your books.
You must also record all expenses related to your work. Advertising, exam fees, monthly charges on the jobs board, even the charge subtracted on Paypal should be recorded as expenses.
Keep records updated. Having a system on income and expenses will only exhaust you if you don’t keep your data updated. You can set aside a portion of the week, say Friday, to go through all the records for that week. You can also set a reminder for yourself to do your books. Also, it’s good sense to keep track and do research into any tax deadlines and enter them into your calendar. This way, you avoid paying tax penalties.
Be honest on yourself. Transparency is key. Do not sweep things under the carpet, like acquitting yourself on that frappe just because you do your work in that café. List down all income and expenses, no matter how insignificant, and make sure that you file the correct taxes. Being picky about when and where to be honest about your finances could lead to a very bad, even expensive, situation.
Don’t leave tax returns up to the last minute. If you want, seek professional help if you are already checking to file taxes. Tax is complicated, and this is why most income earners put off filing returns. Check with an accountant to make sure that you file the correct taxes on time.
Check for apps. There are numerous apps available that helps freelancers keep track of their accounting. These are a lot cheaper than traditional accountants, and since you are a beginner freelancer yourself, these apps are very user-friendly and will help you do your books.