Maintaining good financial records is essential when running your own business. As a freelancer, it’s incredibly important to ensure you record every facet of your income and expenses.
Why? Proper bookkeeping helps you to pay your taxes on time and with complete accuracy. You avoid unnecessary dramas involving late payments or muddled data, which can potentially land you in expensive trouble. Instead, you have all your paperwork ready, with the minimum of fuss.
Staying on top of your bookkeeping also allows you to gain greater insight into your business finances and any bad financial habits. You’re able to identify cash flow issues, which can then be rectified and improved. You’re also in a stronger position to spot positive or negative trends that can influence the future of your business growth.
When your financial records are all over the place, it’s impossible to analyze your business accurately.
Making bookkeeping easier to manage
Even when you know the importance of regular bookkeeping, it can be hard to put good bookkeeping into practice. You’re busy, you’re tired, and more often than not, diving into data sheets is the last thing you feel like doing.
It is a necessary evil, but it doesn’t have to be that complicated. With a few simple adjustments to how you approach recording your business finances, you can quickly develop a system that makes bookkeeping feel less stressful.
Good bookkeeping practices
The following are a few ways to make bookkeeping more straightforward and easier to manage.
Use technology to your advantage
Modern technology allows freelancers to complete tasks quickly. Automation and synchronization will enable you to focus on billable work, while cloud technology takes care of mundane processes for you.
Instead of relying on Excel sheets or pen and paper, cloud-based software ensures all your data is up-to-date and accurate across multiple platforms and in real-time.
When it comes to bookkeeping, the best software will help you keep track of income and expenses, banking transactions, VAT calculations, invoicing progress, and more, all in one place.
Number your invoices
It’s wise to give each client invoice a number. This numbering process allows you to clearly identify each invoice and quickly find it when sorting through your financial records later. There are several ways to number invoices, including using a consecutive numbering system or with the addition of identifying lettering combined with numbering.
Whichever system you choose, it’s essential to stick with that pattern.
Develop a bookkeeping habit
When your schedule is jammed packed with marketing and client work (not to mention family demands), it’s all too easy to postpone bookkeeping for another month. This is the worst thing you can do, as the backlog will continue to build.
Devote a particular time each week or month to bookkeeping and stick to it. This set time can be an hour during the working day, or over a weekend if you’d prefer to max out your billable hours.
Separate business and personal finances
As a freelancer – or solopreneur – you might be tempted to keep all your finances together. But this is a mistake. It’s a huge hassle to sort through and separate personal and business expenses and can be an extra cost if you delegate the task to an accountant or bookkeeper.
Create separate business and personal bank accounts, which will make paying taxes and analyzing your cash flow, much more manageable. It might also be wise to create a sperate business savings account as well.
Keep paperwork organized
Tax departments in most states and countries require business owners to keep business financial documentation for a set number of years. Regardless of your location and how much you are earning, it’s good practice to keep your paperwork and data properly organized and safely stored.
Develop a coherent archive system where you can quickly and easily find old financial data, such as invoices, receipts, and notes. You never know when you might need to find some random document from the past.
Study your monthly reports
In an earlier point, we mentioned the importance of regular bookkeeping. Also crucial to this process is spending time actively analyzing your financial records and reports.
By doing so, you can check whether you’re on target to meet your monthly or yearly income goals and whether you need to raise your freelancing rates.
Remember, bookkeeping is not just beneficial come tax time but also in growing your income.
Work with an accountant or bookkeeper
Despite knowing all the benefits of regular bookkeeping and financial analysis, you can reach a point where it’s all a bit too much for you to handle. Not everyone is financially minded, and when your schedule is full, it’s challenging to do the required research.
Hiring a professional accountant or bookkeeper is a great way to get your bookkeeping and finances back on track. These professionals will help you set-up the best systems applicable to your type of freelancing business, look after your record-keeping, and ensure you’ll be heading in the right direction generally.
Staying on top of your bookkeeping
Staying on top of your bookkeeping as a solo freelancer is relatively easy. Compared to small business owners with staff, you only have to focus on your income and expenditures. But it can still be hard work and often confusing.
By incorporating some of the good bookkeeping practices outlined in this article, you’ll quickly streamline your financial record-keeping and make things simpler.
As a result, you’ll feel more relaxed, more in control, and with more free time to spend on billable client work or relaxing with family and friends.