Freelancing is a fantastic way to stay flexible, generate an income, and manage your own time.
However, it also entails a lot of administrative work, especially when it comes to managing your invoices, finances, and accounts. Bookkeeping is a challenge for any freelancer, and failing to meet it can easily result in unforeseen costs, fines, and tax trouble.
Here are four strategies to avoid these pitfalls.
Know What Bookkeeping Entails
To start with, you need to get a good idea of what bookkeeping actually entails and what distinguishes it from other areas of financial management, such as accounting. This will help you decide whether this is something you want to handle yourself or whether you want to outsource it.
Put simply, bookkeeping encompasses everything that's about recording your freelance business's financial data. This includes invoicing clients, managing subscription and other business expenses, and keeping track of incoming and outgoing amounts on all your different bank and online payment accounts.
In contrast, accounting is about interpreting and presenting that data, for instance, analyzing your performance (and optimizing your time management), filing tax returns, and running audits.
Educate Yourself
Once you've looked into which bookkeeping (and accounting) tasks your freelance business entails, it's time to do some studying.
Even if you decide to outsource some of your bookkeeping and accounting tasks, having a basic understanding of the vocabulary and processes involved will make it easier to find a trustworthy service to handle your finances.
The easiest way to brush up on your bookkeeping knowledge is online courses. Some of them are free; others require a fee. Before you enroll, check out the reviews for different courses and make sure that they match the requirements of your geographical region. UK regulations, for example, are often different from US or Canadian ones.
Choose the Right Tool
Next up, you need to choose the right tool for your bookkeeping needs. Taking some time to compare different options is well worth it—you'll be using it almost every day, certainly every week, to track expenses, record your income, or even generate invoices for clients.
There is a huge variety of different bookkeeping tools out there. FreshBooks is the most well-known one and comes with a system for staying on top of expenses, sending invoices, and even tracking your time. Bonsai is another option geared specifically towards freelancers.
Which option is right for you depends on whether you're freelancing full-time or as a side hustle, how complex your work is (how many tools you use, whether you have sub-contractors), and how many clients you have.
If you work alone and have a limited number of clients and accounts, for example, a simple spreadsheet can also be a sufficient bookkeeping tool.
Consider Outsourcing
Finally, there's the option to handle your bookkeeping and accounting tasks off to a professional. You can either opt for another freelancer who specializes in this field or outsource to a bookkeeping business or an accounting company.
The benefits of this are two-fold. For one, you save yourself time and avoid having to juggle numbers. For another, professional bookkeepers and accountants can often suggest ways to exploit synergies, tweak numbers, and save expenses.
The downside? You'll have to pay a professional fee to have your books handled for you.
Conclusion
When you start freelancing, bookkeeping can easily seem like a negligible task. However, keeping on top of your expenses, invoices, and accounts is crucial. By following the strategies above, you'll be able to stay ahead of the curve and make sure your books are in order.
