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The prospect of managing money isn’t particularly enticing to most freelancers, aside from the odd freelance accountant. As a result, most freelancers don’t think twice about bookkeeping — until they aren’t sure what happened to all their income.
Bookkeeping is essential for every business, even freelancing. Fortunately, freelance bookkeeping isn’t complex; the best strategies ensure records are simple and clean and allow freelancers to think about their money management as seldom as possible. The following strategy consists of just three steps, which means you can have a better grasp of your finances in no time.
Most freelancers associate bookkeeping with budgeting. While both are concerned with tracking income and expenses, they deal with that data in different ways. First, the goal of budgets is to manage money for the future — to prevent you from running out of funds prematurely — but the goal of bookkeeping is to monitor the finances of the past, to ensure you have accurate records. Secondly, budgets tend to be exceedingly general, looking at totals and averages, whereas bookkeeping records tend to be granular, detailing every transaction.
The prospect of managing money isn’t particularly enticing to most freelancers, aside from the odd freelance accountant. As a result, most freelancers don’t think twice about bookkeeping — until they aren’t sure what happened to all their income.Tweet This
Bookkeeping is important because it gives you certitude in your financial information. The records that good bookkeeping produces will be unendingly useful, especially in tax preparation. As a relatively new freelancer, you might not realize that your annual taxes are about to get extremely complicated, but if you have well-organized, thorough books, you can save hours-worth of time — or hundreds of dollars–worth of tax accountant fees. Plus, well-kept records help you track client payments, so you’ll know when your clients are stiffing you. When you can verify your income and expenses through your books, you have more breathing room to focus on completing projects, starting investments, and growing your freelancing business.
Keeping the Right Records
Anytime money moves in relation to your business, you need to record it. When a client pays you, you need to make a record of it; when you make a business-related purchase — which could be buying a new computer or taking a client to lunch — you need to make a record of that, too.
Your records should include the name of the payer or recipient, the amount, the purpose of the payment, and the date. As you might already recognize, all of this information is included in invoices, which is why many freelancers take advantage of invoicing in their bookkeeping. Whenever you expect a payment, you can create a free invoice online using pre-made templates and store it digitally to save time and office space. You should also hold onto bank statements — which prove you received recorded payments — as well as purchase receipts or card statements — which verify the purchases you make. Some freelance enterprises require additional record-keeping, such as tracking the history of contractors or temporary employees, details of expenses for business-related vehicles, or office spaces. It’s impossible to anticipate every freelancer’s individual needs, but you should be able to adapt these guidelines to your business.
“At some point in their career, many people consider taking their career in a freelance direction. There are pros and cons to doing so, but it’s the freedom of doing the work you want that attracts so many. If you’re thinking about launching a freelance career, you likely already know that it’s not going to be easy. It takes a lot of hard work to build an independent career, where it’s up to you to find the work you need to keep going. Before you decide to go freelance, you need to come up with a plan to decide how you’re going to do things.” – Invaluable Advice for Launching a Freelance Career
You might be tempted to toss invoices, receipts, bank statements, and the like and just keep a running record of your incoming and outgoing money. While it isn’t unwise to distill your books into an easy-to-read spreadsheet, you do need to retain hard evidence of your finances for tax and legal purposes. If you are the unlucky victim of a tax audit, the IRS will want copies of your proof, not just a list of unverifiable numbers. Plus, having old records on hand is beneficial for your business; when an old client returns with more work, you can look through their previous invoices to understand past project’s costs. Thus, while it does take slightly more effort to aggregate the extra records, it is vital you do so.
Organizing Your Records
Once you start accumulating evidence of your incoming and outgoing money, you can’t shove it into a shoebox and forget about it. A disorganized book is as bad as a nonexistent one; for your records to be useful, they must be organized. Thankfully, it doesn’t take much work to keep your books in line.
While you can keep a filing cabinet full of printed invoices, receipts, and other hard copies, it is much more economical to scan all your pertinent documents into your computer and save your book to the cloud or an external hard drive. As you scan, you should make sure to give your documents useful names — or else you’ll be stuck with folders-full of unknown files canned Scan01.pdf. Then, you should organize your saved files by month, then by year, so you know exactly where to locate each record.
Our Favorite Supplies for Bookkeepers
|Adams Bookkeeping Record Book||Allows you to track all aspects of your business.
Track expenditures from payroll to revenue and income.
Non-dated format allows you to start any time of the year
8.5 x 11 inches
|Innovera Large Display Calculator||Easy to read calculator with extra large display and keys.
Dual solar/battery-powered for all lighting conditions.
12 digit 21 mm display with advanced tax, markup/down, and item count functions.
|Dome 650 Payroll record||single entry, 1-50 employees, 11-1/4x8-3/4, weekly, wirebound|
|QuickBooks Small Business Bookkeeping||Accounting Guide: The Best QuickBooks Pocket Guide For Successful Small Businesses|
|Accounting I Guide||A great 4-page laminated quick reference guide to all Accounting fundamentals! This is a companion guide to our Accounting II chart (search for it by name). This Accounting guide provides a series of useful definitions to assist in the understanding of basic Accounting principles. Generally, accepted accounting Principles, Ratio Analysis, and helpful formulas are all set out in an easy reference format.|