Many people often view freelancing as a job. But they are mistaken. There are many differences between freelancing and working as an employee, and one of them is managing your finances. Employers take care of all your costs and accounting, but when you are freelancing, you are a business owner. It would be best if you managed every aspect of your business.
According to Statista, over 90 million of the total US workforce is now freelancers. And one of the major issues many freelancers face is managing their business accounting. Business accounting can come off as a major headache if you don’t know what you’re doing.
How Can You Manage Your Business Accounting with Ease as A Freelancer?
You can only be productive if you can ease out your financial stress as a freelancer. Managing your business accounting effectively will help a great deal in easing your burden. This article will go through some practical business accounting tips for freelancers.
Learn Some Basics of Accounting
You don’t need to be a chartered accountant to understand the fundamentals of accounting. Only following the basics of accounting can help you make critical business decisions. Where can you learn the basics of accounting? There are plenty of online sources to learn enough accounting to manage your freelance business.
There are some commonly used terms in accounting like assets, cash flow, accounts payable, etc. Have a basic understanding of those terms. And know how significant financial statements like balance sheet, income statement, and cash flow statement works. If you know basic accounting, you can have an educated conversation with accounting professionals.
Separate Your Business Records
When you start working as a freelancer, you’re a business owner. As a business owner, you should never mix your personal records and business records in one place. It will only waste your time and make you confused in the future.
The first thing you should do is have a separate credit card and bank account for your business. Then keep track of business expenses in a separate file. It will take a lot of time to separate your business records from your personal one, but you will realize it’s worth it to pay taxes.
Use Accounting Software
Accounting software can take away all worries of managing your transactions in a spreadsheet. It has features to recognize business expenses and income. You don’t need to think long and hard to decide where to keep a specific accounting record.
Accounting software is advanced enough to maintain your financial statements without any manual works. They also offer invoices feature and keep track of payments. There is paid accounting software, which comes under $10 subscription price like QuickBooks, FreshBooks. A free version of accounting software like Wave Financial is also fantastic and has lots of useful features.
Keep Track of Every Transaction
It is vital to keep track of every transaction as a business owner. Save and store every receipt, invoice in a single folder, or a file. It will help you in maintaining accurate records.
When you’re paying for business expenses, use a separate credit card. It must only contain business expenses. While receiving a payment, you can use a new bank account or a payment wallet. By keeping track of every transaction in an organized manner, you’ll have a smooth time recording business transactions.
Consider Outsourcing Your Bookkeeping
Some of you might be busy handling clients’ works. But it doesn’t mean you get a free pass from not maintaining your business accounting.
One of the things you can do is outsource your bookkeeping. A professional bookkeeper is well-versed with the essential knowledge to record business transactions effectively. Furthermore, it isn’t necessary to hire fulltime staff to manage your business accounting.
You can hire a freelancer for a few hours a day to handle your bookkeeping. A qualified bookkeeper will help you minimize your tax expenses, while you can focus on growing your business.
Understand Relevant Tax Laws
Have you established a company to run your business, or are you self-employed? There is a separate tax regulation for every type of business. Most freelancers are independent, but some freelancers have a limited liability company.
You need to know relevant information about your accountability to the tax authorities. It’ll help you separate the necessary amount for paying taxes based on your income and legal identity.
Set A Budget
Having a budget is crucial as a freelancer. It will help you project your monthly business expenses and revenue. Allocate some of your time to budget funds available for your business operations. It will help you plan how you should spend your money. And it will also enable you to project the amount of revenue you need to make a satisfactory profit.
Scheduling a payment will significantly help you in better managing your business accounting. Your clients may have a different payment date than yours. Try to strike a deal and have a schedule and payment terms for each contract.
Pay essential business expenses at first before rewarding yourself a payment for your hard work. It will help in ensuring your business runs smoothly.
Go After Non-Payers
No business can survive for a long time if it only sells on credit. Without enough cash on your bank, you’re bound to fail in the long run. It doesn’t mean you should deny every bit of credit from your business, but there should be a limit.
Send weekly notifications to clients who are refusing to make a payment on time. If a client doesn’t still make a payment, don’t work for them. See what you can do to receive the remaining amount from that specific client and replace that client with someone with a good record.
Freelancing offers a lot of freedom, which is why the number of freelancers worldwide is going up. However, you can have a lot of stress if you don’t manage your accounts appropriately.
Is accounting for freelancers difficult? No, if you carefully follow the mentioned tips above. You only need to devote a little bit of time managing your business accounting to have better financial health as a freelancer.
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