Setting up as a freelancer is an exciting time – working as your own boss and doing what you like best to your own schedule. However, being a freelancer means running your own business so there is a lot more to it than just working to your own tune.
As a freelance you need to keep track of your work, your income, invoicing, sales and purchases – in other words you are suddenly responsible for all your own business accounting, which is something that might be quite a foreign concept.
It’s important to keep on top of your business finances and know how to record and manage your numbers, so here are our top accounting tips for freelancers:
1. Create a separate business account
To make life easier when it comes to tax returns and financial reporting, you should create a separate business bank account, away from your own personal finances. That way you can record your income and expenses which are business-related, fare more easily.
If need be, use an accounting software to help you to keep track of all your financial business transactions – there are plenty out there and most can be linked to your business bank account to make it easy to record and keep track of everything.
Shop around before deciding on a business bank account – you need to check on business rates, business bank charges and any other account conditions before you sign on the dotted line. Check and compare different offers from different banks before making a commitment.
2. Register for tax
As soon as you have set up your freelance business you need to register for your tax obligations. What you are liable for will depend on how you have set your business up – tax requirements change depending on whether you are operating as a sole trader or a limited company.
You can register online and the good news is there are lots of online webinars and advice to help you make sure you sign up for the appropriate tax requirements. If you have any doubts or concerns about your taxes then seek help from an accountant or tax specialist. It’s important to get this right from the very beginning of your business.
3. Get your invoices set up
When you need to charge for your services you will need to have an invoice system set up so that you can send professional paperwork through to your clients. You need to set these up correctly with client information and reference numbers so that you can keep track of your transactions and make sure payments are set up and received on time.
4. Use accounting software
Book keeping and tracking receipts, transactions and sales can feel like a full-time job in itself but it needn’t be. Nowadays there are plenty of online software programmes which freelancers can use to make life easier.
These programmes connect to your bank account and allow you to file transactions and expenses online instantly. You can also scan receipts to record them electronically and many of them allow you to set up your invoices as well. Some also provide accountancy services for freelancers as well as software.
As the business grows you can move to a full-time accountant to help you keep track of all the finances but as a starting point online software can really help to make life easier and take the pressure off.
5. Create your own business profit and loss record
Creating a record of your business profit and loss can be a really good asset to demonstrate the performance of your business. It’s the perfect way to understand exactly how well your business is doing at any time of the year.
It will also show you any areas of the business which aren’t working as well as they should, allowing you to take action and amend your business approach if required.
6. Have an income projection plan
While none of us can predict the future, if you have steady work coming in to your business, and a pipeline of potential new customers, you should be able to create an income projection sheet, looking ahead at what your predicted earnings will be in the future.
If you need to go for a business loan or other finance to support business growth going forward, an income projection will help to support your case.
7. Seek professional accountancy advice
If you ever find the accounting side of your business getting the better of you, or find the work is growing so much you just don’t have the time to dedicate to recording all of your receipts and transactions, make sure you seek professional accountancy advice straight away.
The last thing you want is to get to the end of the tax year, be facing a looming tax return deadline only to face a drawer full of old receipts and no strong record of your transactions for the past year of being in business.
The best way to avoid this problem is to put aside a monthly date in your diary to sort out all your transactions and receipts on a regular basis. That way you will get to the end of the year with an orderly record of all the figures you need. If you can’t do it yourself, pay a book keeper to help you out.
8. Have a process in place for non-paying clients
One of the downsides of becoming a freelance is the unreliability of income which can occur, particularly if you end up dealing with non-paying clients. You need to have a legitimate process in place for chasing up non-payers and late payers.
Becoming a freelancer is an exciting prospect so don’t let a fear of accounting or numbers get in the way of running your own successful business. There is a lot of help and guidance out there for new businesses so if you need help don’t hesitate to ask for it. You want your business to have a solid foundation from day one so make sure your numbers are in order.