When you work as a freelancer, you end up wearing a lot of hats at once. You are the boss, the employee and sometimes even the janitor. Then, of course there is the matter of managing your books.
Some freelancers hire a bookkeeper to take care of this for them, but others do it themselves to save money.
In either scenario, it is very easy to make some accounting errors that can cost you down the road. As a freelancer it is especially important to have your bookkeeping house in order to make sure you are not going to put yourself in a hairy situation later on.
In this article, I will go over several ways you can manage your books effectively and efficiently so you can focus on your work.
Track your time
Tracking your time is more than just keeping track of how much you work. It is essential to your business to make sure that your hours are accounted for both for productivity but also for payments.
The best way to get the most out of your time is to use a compatible Quickbooks time tracking app to sync it up with the rest of your accounting system.
This way you can have invoices created easily based on the task you are doing and will be more accurate than if you create one from scratch. Some freelancers just use a spreadsheet, and this can work fine. But when you have an app, you can be much more accurate and use a lot less time to make sure everything is connected.
Every dollar you spend at this point should be tracked. This is a great way to budget but also, you never know what can be written off as a business expense and deducted from your taxes.
Don’t just save receipts, put them in your accounting software, whatever it is that you use. Many apps these days allow you to take a snapshot of your receipts and help you to keep them organized. This way, whether you do your own books or use a professional, your expenses are easy to sort through and organize for easier accounting later on.
It can be tricky to separate your personal expenses from your professional, but this is where the right accounting system comes into play.
Have a good invoice system
Invoicing is going to be the bane of your existence if you don’t have the right system in place.
At the same time, when it is done correctly you will increase your cash flow and stay on top of your income. Again, using an app will help you in a big way when it comes to creating an invoice, sending it out and setting reminders for clients to pay.
One of the biggest problems when freelancing is getting your clients to pay on time so you actually get paid for the work that you do and can have a steady and consistent income.
Set clear terms when you take on a client as to whether you expect them to pay the bill on receipt or if there are terms of 15, 30 or more days for payments to be due. Make it easy for your clients to pay and have things connected to your business bank account if you have one.
Start by hiring a bookkeeper
Even if you plan to do your own bookkeeping, you should start your freelancing career with a professional. They can get you organized from the beginning and set up your systems that you can follow later on.
This way you aren’t wasting valuable time that is better spent setting up your business to make money. After you have a clear system in place then you will spend less time on your accounting later on.
Have the right tax entity
You have a lot of options as to how to set your business structure up with regards to paying taxes. You can be an LLC or a sole proprietor or some other structure.
Make sure that you have the right structure for the taxes that you will pay to avoid any problems with the IRS later on. You could also save money with the right structure and protect your personal assets in case of any legal trouble resulting from your business.
Things can get complicated so you’ll need to talk to a tax consultant. For instance, you have a lot of protections if you set up an LLC but if you are the only person working for the LLC then you still file as a sole proprietor.
On the flip side, setting up as a sole proprietor is easy and less complicated, but you don’t have many protections and may end up paying more in taxes.