Running a freelance business can have plenty of stressors, not the least of which is managing your own accounting and finances. But keeping on top of them is essential to the success of your fledgling business, so keep these tips in mind when your accounting gives you a headache.
1. Get the right software
If you’re using a spreadsheet to track your finances, you’re making them harder to manage than necessary. Small business accounting software is incredibly easy to use, even if — or especially if — you’re not financially-minded. And it’s priced affordably (usually $10-$20 a month), so you have no excuse not to use it.
Shop around for the right brand first. Some cater to small businesses, and some even specifically to freelancers, and these may offer specific functionality that relates to your type of business. A few to look out for are:
- Connect bank accounts
- Invoice clients
- Time tracking
- File taxes
- Access to real time data
It’s important to set up your accounting software correctly. If you’re struggling, hire an accountant just to help you get it up and running. One important aspect is to ensure that you categorize your expenses appropriately so they align. That way, you won’t have to worry come tax season. This will save time and money when you’re ready to file your taxes.
But once you’ve setup your software, your work isn’t done! The best way to keep your accounting stress-free is to spend a few minutes a week managing your accounts (we’ll cover that more in a moment).
That means making sure your expenses align with the appropriate tax category, that you’re on top of invoicing and processing payments from clients, and that you update your prices to reflect what you’re currently charging. A few minutes can save you from having to spend hours at the end of the year doing all this.
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2. Hire an accountant
Having an accountant might seem like an indulgence your freelance business can’t afford, but you’d be surprised how affordable one can be. Because you don’t need 40-hours a week of accounting assistance, you can retain the services of a small business accountant for a few hours a month.
What you get during those hours is up to you, but it may include:
- Invoicing clients
- Following up on late payments
- Paying your business expenses
- Correctly categorizing expenses
- Reviewing accounting reports
- Filing taxes
If you still prefer to DIY your accounting, working with an accountant, at least temporarily, can still help. She can teach you the ins and outs of your accounting software, and help you set it up to make sure you’ve got things like expense categories and sales tax input correctly.
If you’re fumbling with doing your own accounting, hiring help could be the best investment you could make for your business. And the biggest bonus? An accountant will be able to remove the headache of filing your taxes come April.
If you’ve ever tried to file your own taxes, you know that feeling of insecurity that you might be doing it wrong, or that you’ll end up being audited. While an accountant or CPA can’t guarantee you won’t get audited, they are on top of recent tax laws, and can help you ensure that your taxes are filed properly.
3. Get paid faster
No one knows better than freelancers how stressful it is to not get paid on time. You’ve got your own bills, and you need your clients to pay you ASAP. There are various communication tactics you can take with clients for handling late and/or non-payment. Rather than sending multiple follow-up emails that aren’t replied, you can try invoice factoring as a viable option.
Factoring works like this: when you have outstanding invoices that are waiting to get paid, you can get financing for up to the amount you’re owed by clients, with a factoring company. A factoring company will front you either the whole amount or a percentage your due from your client, and will then collect payment once your client has paid the invoice.
The benefit of invoice factoring is that you can get cash when you need it, rather than waiting until your clients get around to paying you. Some invoice factoring companies integrate with accounting software, which makes it easy to manage.
It may be worth the fee you pay to have access to cash, though ideally you’ll learn to manage your finances so that you always have money in the bank, and don’t have to borrow. Still, knowing that you can access cash at any time can provide peace of mind during lean times.
4. Keep your records up to date
It may seem a pain to have to continually check-in on your accounting, to update your records and properly categorize your expenses. But believe me, in the long run you’ll be glad you did. Like I said earlier, it’s much easier to spend 10 minutes a month doing this, than hours at the end of the year. There are a few records you should keep an eye out for:
- Banking and company information
- Hours spent working or jobs completed for clients
- Proof of income and wages from clients
- Payments made and received by you
- Business expenses
Not only does categorizing your expenses make tax time so much easier (and make your accountant love you), but it can also help you stay on top of where you’re spending money. You might not otherwise realize that the software subscription you thought you cancelled a few months ago has continued to bill you, unless you have a tight rein on your expenses. Reviewing them regularly helps you maintain tight control over what is coming in, and out, of your business.
You might also like: Why Freelancers Need to Care About Bookkeeping
5. Teach yourself the basics of accounting
Even if the idea of accounting puts you to sleep, it’s in your business’ best interest to have, at least, a rudimentary understanding of how it all works. You know you earn money, and then pay bills, but there’s a lot of in-between. Familiarize yourself with these concepts:
- Profit and loss statement
- Balance sheet
- Accounts receivable
- Accounts payable
Knowing what’s going on with your finances makes you a savvy freelancer. Even if you work with an accountant, you need to understand how everything works in order to make decisions, such as whether to take out a loan, or what kind of financing you should consider down the road. Aside from familiarizing yourself with the basics of accounting, you can even learn how to use accounting software through online tutorials, videos, or webinars.
Here are a couple of resources available online:
- Complete Quickbooks Course: 39 Free Quickbooks Online Tutorials
- Office Skills Tutorials
- QuickBooks Online - UK Edition
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Invest in yourself
Your freelance business relies on the money that goes in and out of your bank account, so prioritize accounting practices that make it easy to do just that. It’s one of the best areas of your business you can invest in, and you should set aside funds to cover that accounting software or accountant retainer.
Invest the time it takes to really “get” accounting. As a business owner, you probably won’t be savvy at every component of your business, whether it’s social media or inventory. But accounting is one of the most important areas, and you should be spending some time learning more about it.
After all, it’s your money. You owe it to yourself and your business to better understand how it works, and to help that money flow freely into your bank accounts!