5 Essential Accounting Tips for Freelancers
Here are five tips that every freelancer can use to keep on top of their finances.
1. Do Your Research
This should be one of the very first things you do when you decide to go freelance, perhaps even beforehand. Removing that security blanket of the steady income that comes with a 9-5 stable job is a big decision.
You’ll need to find out what exactly you’re getting yourself into by going freelance. That means getting to know a bit more about the ins and outs of your industry, what it’s like behind the scenes, and what it takes to be the one running things. You’ll also need to make sure that you’re knowledgeable about what financial arrangements you’ll need to make.
2. Plan for Now…
Make sure you know how much (roughly) you’re going to need to get yourself started. Where will it come from? If it’s borrowed, how will you pay it back? Are you subsidising yourself from your savings, if so, how will you save that backup?
Create a budget to help you keep on top of income, profits and running costs in your first few months/first year so you can not only get yourself going. Make sure you know your figures well, what is profit, and what portion of the income needs to be rerouted into keeping yourself running?
One way to work out an average monthly ‘base wage’ to keep yourself afloat is to look at what you earned last year, then take that figure and divide by 12 and you have your average monthly earnings. Use this as the base for your budget.
3.…. and The Future
This means you’ll also want to plan ahead so that but also have a bit of s safety net in case you’re slow to take off or you run into any unexpected costs. One way to do this is to create an emergency fund. In general, you should be saving enough for at least six months – in both personal and business expenses.
This also means always keeping on top of taxes - both in terms of income tax and VAT. As you get paid, keep a running total and plan your taxes accordingly. Taxes are incredibly important, and they are not something you want to get wrong.
4. Get Bank Accounts That Work for You
Do you know that old saying ‘You should never mix business with pleasure”? That applies here too. If you’re working freelance, then it would be a good idea to keep your business and personal finances separate, which means: separate bank accounts.
Just make sure when you do that you are using bank accounts that work well for your needs, this will make your life 100x easier. Make sure that when you’re looking for a new account, you take the time to compare accounts. A lot of banks will offer you a specific type of business account that will keep your business finances safe and in check. A savings account will keep your emergency fund secure, and a higher level of current account will sometimes allow you account perks such as different types of insurance included, special customer rewards or special ID security features.
Not only will accounts like these help you keep your money organised, but they might also make your life easier with their bonuses and perks.
5.Track Everything and Keep Receipts
This one seems like a no-brainer, but you really do need to track everything when you’re freelancing as you are responsible for all of your own money.
That means if bills don’t look right, client’s refuse to pay or your taxes have an error on them you’re going to need to be able to fight your corner and provide proof something was (or wasn’t) done.
If you’re not keen on managing a whole host of physical files, then try getting acquainted with financial apps and software. Storing receipts, documents, and invoices in a way that makes them easy to record, organise, store and access will save time when it comes to filing your taxes, making claims or proving your point.
There are now even smartphone app scanners you can use to scan receipts and documents to PDF, print, fax, email, and upload to your cloud storage.