Flexible hours, being your own boss, and building a network of happy clients; damn, freelancing sounds sexy.
Bookkeeping; okay, not so much.
As a freelance web designer or developer, understanding the basics of accounting and the bookkeeping tools at your disposal is vital to the health of your business.
Unfortunately, bookkeeping is not only unsexy, but can be a challenge, too.
When working with several different clients at once, it can be difficult to keep track of who owes what, when each payment is due, and how much to put aside for tax season.
Luckily, we've listed several tips that will help you manage the financial side of your digital empire, so you can focus on more important things like your growing business!
1. Stay on top of your accounting
Always know where your next paid invoice is coming from because it can be the difference between growing your freelance business and not even giving yourself a chance.
If you already have an accountant, great! You’re a step ahead.
That being said, some accountants might only be able to look over your numbers on an annual basis, so be sure to secure regular bookkeeping.
That way, you’ll know where your finances stand at any given moment, which is especially important if you're preparing to file your tax returns on a quarterly basis, which is advisable for freelancers.
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2. Establish a system that works for you
Organization means only good things for bookkeeping. Setup your finances early on and you’ll avoid having to deal with chaos down the road.
It may also serve you well to get a bookkeeper’s advice. Does he/she use specific software? If so, they could easily and securely share financial data with you from anywhere, which is hugely beneficial for you. Plus, if it’s good accounting software, it will do a lot of the organization for you.
Whether you use accounting tools to track outstanding invoices, manage cashflow, or to bill clients, they will help ensure you keep accurate records, which is the best thing you can do for your business.
It also goes without saying that if you decide to hire a bookkeeper to do all of these tasks, it will free up time so you can focus on more important things, like landing more clients.
3. Track everything (seriously)
Filing taxes as a freelancer isn’t easy but it doesn’t have to be painful. Here are some great ways you can avoid scrambling for those write-offs at the end of the year.
Keep track of it all, electronically:
- hours you spent working, or the jobs you completed (every client)
- cost per hour or per project for every client (no matter how small)
- business expenses
- payments you made, including bank transfers
- payments from clients
Other potential write-offs:
(may vary by state/county)
- travel expenses
- power and utility bills
- phone and Internet bills
- expenditures on technology like a computer, printer and phone
- career-related books, classes, and seminars
- website design/hosting, software, and office supplies
- office rent (can be a room in your home, but not the whole house)
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4. Set cash aside
It’s never a bad idea to set cash aside for your yearly tax bill. If you’re new to freelancing, you’re probably used to having an employer automatically withhold a portion of your earnings to cover income taxes. So now that you're a freelancer, you’ll need to be prepared for the possibility of a higher tax bill, calculated a bit differently.
The general rule of thumb is to reserve about 30 per cent of your income. Accounting software can also create reports that estimate what your tax bill might be, which will give you a clear picture of:
- all your invoices
- what your cashflow looks like
- who owes you what, when
- how much you owe others
- which clients are paying on time
5. Bonus benefits of bookkeeping software
The bonus benefits of bookkeeping software are that you’ll be paid faster, it will be easier to get a loan (because your stored financial data is now proof of income to a bank), and if you’re ever audited by your country's revenue agency, you’ll be better prepared.
Plus, you can:
- Create and send custom invoices in minutes
- Set invoice notifications for you and your clients
- Easily identify late payers and follow up
In a nutshell
As a freelancer, keeping close tabs on your financials can help you see what works and what doesn’t for your business. The precious insight from the right bookkeeping software can give you an added level of control that makes all the difference. Go forth and multiply!
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