Accounting for Freelancers – 7 Tips you should implement now
As a freelancer, you probably enjoy a lot of the benefits of working on your own terms and at a pace that suits you. One area that can often cause an issue for freelancers is their accounting and managing cash flow. In this post, I want to give you some advice and tips which will make your life easier and ensure you have more money available when you need it.
Have a plan for getting paid
To a freelancer who is new to the game, this might seem somewhat obvious. However, from dealing with freelancers, this is the most common pain point. It can be very easy to work hard for months only to find clients are slow to pay you. This one issue alone can cause stress and is often a reason why people quit freelancing.
When you go from a regular paycheck to relying on clients to pay on time, it can be quite a shock to discover that lovely client is a slow payer. Often it isn’t a deliberate thing or related to their perception of your work quality, it is just how they operate. This is why you should clearly lay out expectations for when invoices are due right from the beginning. You should also never be afraid or embarrassed to ask for payment.
Nobody likes doing it but your clients know you need to be paid. In some cases, where a client is struggling with cash flow, those who ask will be paid first. Other possible options:
- Consider using standing orders where the work is consistent.
- Have software which sends reminders regularly
- Set aside a day where you follow up on any work/client issues that may be holding up payment.
- Use software that allows for immediate payment of invoices on receipt.
Create a system that works for you
With a lot of different elements to consider, setting up a system to manage the various tasks you need to complete is vital. For most freelancers, there won’t be a need to handle cash and electronic payments are the norm. In this case, managing the bookkeeping can be easier but it is still a task that needs attention.
If you are just starting out, it is a perfect time to set up a system that you can maintain as you grow. This will save you time in the long run and save money in those all-important first months.
Keep records as you go along
While it would be easy to say that you should keep records of everything you do, the reality is that you may not maintain that, especially in busy periods. However, when it comes to the financial aspects of your business, it really is vital that you prioritize record keeping. In this way, you can stabilize your finances and understand your financial situation at a glance. Some key records are:
- How much you are owed and by whom – invoice tracking
- How much you owe and to whom – invoice tracking
- Business expenses – to claim against your tax bill
- Time spent on projects – to ensure accurate billing (billing disputes often centre around time records)
Use accounting software that makes your life easier
Like every other aspect of life, there is a multitude of tech that can make your freelancing life easier. You are probably aware of some of these things and have spent wisely on quality hardware etc. When it comes to accounting, it is also wise to use an easy to use yet powerful cloud accounting system. These can completely revolutionize your record keeping while also making work easier for you and your accountant.
Check out our comprehensive guide to cloud accounting software
Offset expenses against tax where possible
In a nutshell, the expenses you can claim against tax are those that are directly related to running your business. It is important to understand what is considered reasonable for running your business. For example, clothing is not considered a claimable expense unless it is protective clothing. Be thorough in assessing your expenses and maintain clear records of what was spent and what it was for. Some examples of claimable expenses are:
- Purchase of goods for resale
- Employee salaries
- Rent and other bills for your business premises. In the case of working from home, discuss this with your accountant as there may be some rent/Mortgage that could be claimable.
- Company vehicle expenses
- Accountancy and other professional service fees
- Interest payments
This is not an exhaustive list but rather an indication of the types of claimable expenses.
Put money aside for your tax bill
Wise freelancers consider that approx. 30% of their income never reaches their current account. That is, they set it aside to cover their end of year tax bill. As a freelancer, nobody else is going to pay tax for you! This is something that you have to keep in mind throughout the year and allow for. It is advisable to have a frank conversation with your accountant regarding how much you need to set aside each month to cover tax.
If your income is above a certain level, you will be charging VAT as well as your income tax so make sure that you have projected income estimates and ensure you include VAT in quotations and invoices where appropriate.
Choose an accountant who works with you to reduce fees and complications
At Bradan accountants, we work with freelancers to ensure their finances and lifestyle are all that they wanted them to be when they were considering freelancing. This means giving sound advice which is specific to their business as well as being available to discuss their needs and goals.
We have been utilizing the power of cloud accounting tech for many years and advise all clients to do the same. For a discussion on your situation and a free consultation, visit our Contact Us page and we will be happy to arrange an appointment that suits you.