Being your own boss comes with both advantages and responsibilities – one being managing personal accounts responsibly as part of being an independent worker or freelancer. But these responsibilities cannot be underestimated: having to manage personal accounts effectively could make or break a freelancer business venture’s success. Lunafi has collaborated with over 100 freelancers over the last year and designed an effective and simple method of managing freelance business finances to meet their individual needs and preferences. Lunafi’s closed beta group has been conducting rigorous user tests on Lunafi to provide the ultimate user experience; all to make sure you’re using only effective bookkeeping software available to freelance bookkeeping.
Think of yourself as a business
Creative professionals such as writers, artists, or designers often shy away from engaging with the commercial aspects of their businesses in favor of immersing themselves in their passions instead. If this is you, some mental shifts may be required: you are as much an owner of a business as storekeeper across the street – accounting is part of earning your livelihood through work!
Keep business and personal finances separate
Your business’s revenue may differ significantly from what you earn personally, making managing its accounts and filing tax returns much simpler when kept separate. Open a separate business banking account so you can track cashflow; online banks offer this feature without incurring minimum balance requirements or bank fees like more traditional high street banks do.
Work with a monthly budget
Setting up a budget provides your business with a financial roadmap for success and expansion over time. A budget allows you to plan out income and expenses as an annual activity, giving an overview of where money is going as well as areas where too much or too little has been spent compared to what could be needed for growth in terms of investment dollars or savings accounts. Budget management provides an easy and effective method of staying on top of finances as it allows regular contributions into an “investment pot”.
Track your income and expenses
Freelancers must know their cashflow flows clearly in order to effectively run their business. When setting prices for products or services, establishing the amount you will charge, registering income as soon as it comes in (cash base), or accrue payments (accrual). Also keep an eye on expenses since many can be deducted tax free; making recording them essential if you want maximum benefit when filing tax forms later on in the year. When filing taxes is time comes around – be prepared. Keep all receipts safe so when it’s time for filing tax forms this year you are prepared!
Keep some money back for tax
Taxes are an essential part of life, and freelancers have no excuse for not paying their share. While small business owners often feel intimidated by this subject matter, setting aside at least 25 percent of your income each month in an account dedicated solely for tax payments can help make life simpler come year’s end when required to submit payment of taxes is due.
Plan for dry spells
As opposed to having a job where earnings can be predicted each month, freelance work is much more unpredictable. Your earnings will fluctuate depending on who your clients are; longer dry spells could last weeks or months and it is essential that you form the habit of saving money regularly for emergencies as this will ensure your wellbeing during such times. Contacting past clients and expanding business is another effective strategy, while don’t overlook social media as an invaluable way of reaching new ones!
Keep your books in order
Though postponing bookkeeping may seem attractive, doing it too late will only increase your workload at year’s end. Keep yourself organized with an easy-to-use filing system for keeping all relevant documents for business, while UK tax regulations mandate keeping records for at least 5 years. Make sure you set aside at least one hour per week to monitor incoming payments as well as outstanding invoices and expenses, calculate earnings accurately.
Audit your cash flow and budget
Develop the habit of conducting regular audits to compare your budget with actual cash flows. Keep an eye out for an increase or decrease, or any particular pattern in earnings and expenses throughout the year that must be taken into account. Are there more workloads now or has August been quieter than expected? You can modify your budget as necessary in case of unexpected circumstances that arise, helping keep business operations on track.
Manage your invoices
Punctual payment is key to the health and prosperity of any small business. Establish a reliable invoicing system and use it wisely – be sure to agree payment terms with clients prior to starting work, then send invoices after finishing projects as soon as you’ve finished them off. Create a system in place which issues initial invoices then follow-up by sending reminders for those that have yet to pay or are late with payments so as to establish an effective financial routine which can allow your enterprise to grow!
Use accounting software
Accounting software has seen vast advancements over the years and shouldn’t be an intimidating burden for small businesses. Tax projection tools and bank account tracking features, making the HMRC’s Making Tax Digital initiative even simpler for freelancers to remain in control of their business while paying their taxes correctly and easily. We advise cloud-based accounting solutions like lunafi for freelancers looking for control. We can even provide training if needed!
Network with Accountants or Other Bookkeepers
Build relationships with accountants or companies. Meeting accountants may result in additional tasks being assigned to you – I know from personal experience this has happened time after time! Since other bookkeepers are likely full, you could make friends amongst yourself as potential clients are likely to come your way regardless if they cannot bring them onboard directly. Many may see bookkeeping needs as an issue, yet bookkeepers have plenty of clients they must turn away due to limited capacity or inexperience in certain fields. Finally, you may wish to explore similar fields that are similar and develop relationships within these sectors.