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Bookkeeping For Freelancers: A Beginner’s Guide

As a freelancer, getting paid and ready for tax season are crucial parts of your business. That’s why understanding the basics of bookkeeping for freelancers is so important.

It can be hard to keep track of your clients and when and how much they should pay you. Understanding how to manage your accounting and the tools you can use will help you stay on top of outstanding invoices and collecting payment from clients who owe you money.

When you’re keeping a consistent and accurate log of your business activities you can understand your business better and have an accessible view of your cash flow. Plus, you’ll be ready for tax season and an audit.

If you’re finding it hard to keep up with your financing, hiring an accountant or using bookkeeping software can give you more time to focus on what you love about your business.

This article will cover:

12 Tips For Bookkeeping For Your Freelance Business

Why Freelancers Should Care About Bookkeeping

NOTE: FreshBooks Support team members are not certified income tax or accounting professionals and cannot provide advice in these areas, outside of supporting questions about FreshBooks. If you need income tax advice please contact an accountant in your area.

12 Tips for Bookkeeping for Your Freelance Business

Stay on Top of Your Accounting

Knowing what’s going on with your money can help you succeed as a freelancer.

Whether you use an accountant for tax season or not, it is important to have a handle on your finances all year long. This helps you anticipate future problems and grow your business. Set your freelance career up for success by allocating time daily to organize your bookkeeping and ensure you enter in every invoice or expense receipt.

Establish a System That Works for You

Bookkeeping can be a daunting task for freelancers, so finding a system that works for you is so important.

Luckily, there are many tools in the marketplace that will help you easily input your financial data anywhere and at any time. Accounting software will help you organize your finances by tracking outstanding invoices, managing your cash flow, invoicing clients and ensuring you have accurate financial records.

You could also hire a bookkeeper which will help you devote more time to focus on more important things like finding more clients. The important thing is establishing a bookkeeping method that works for your freelance career.

Track Everything

As a freelancer, keeping track of your bookkeeping is so important when you’re filing your taxes. Here are a few write-offs and data to track for the end of the year.

  • Hours you worked on a project
  • Jobs you have completed for clients
  • Cost per hour for every client
  • Business expenses
  • Payments you made
  • Bank transfers
  • Client payments
  • Travel expenses
  • Power and utility bills
  • Phone and internet bills
  • Bills for technology purchases like a computer, printer or phone
  • Career-related classes, books and seminars
  • Office supplies
  • Website design and hosting
  • Software
  • Office rent (can be a room in your home, but not the whole house)

Set Aside Cash

Setting aside cash for your annual tax bill is never a bad idea.

Newer freelancers might be used to having an employer automatically deduct a portion of your earnings from each paycheque to cover your income taxes. As a freelancer, you’ll have to be prepared for the possibility of a higher tax bill that will be calculated differently than what you might be used to.

The general rule is to save about 30 percent of your income. Using an accounting software can also help you create reports that can help you estimate your tax bill and give you a clear picture of:

  • All your invoices
  • Your cash flow
  • Who owes you what and when
  • How much you owe others
  • Clients that are paying on time

Use Accounting Software

There are many benefits to using bookkeeping software that can benefit you as a freelancer.

Major benefits include getting paid faster, having clear financial records to submit when you’re applying for a loan and being prepared for a potential audit.

An accounting software program will help you:

  • Quickly create and send custom invoices
  • Set invoice alerts for you and your clients
  • Identify and follow up with late payers

Separate Personal and Professional Assets

As a freelancer, it can be tricky to separate your personal and business finances. To avoid confusion, you should open up a separate bank account for business transactions. This differentiation in your finances can make your life a lot easier.

Having separate accounts gives an easier visual of how much money you have linked to your business at any time. This will make it easier to budget and provide costs for your services. A clearer view of your freelance finances will help you avoid financial problems in the future and help you decide which expenses are crucial for your work.

Be Transparent About Your Income and Expenses

If you don’t separate your business and personal accounts, you can get paid straight to your personal bank account and that can make it tempting to brush things under the rug.

The immediate benefits will not be worth it in the long run.

If you’re caught during an audit, you could face penalties like fines or even jail time.

Transparency also helps your business by giving you a clear idea of where your money is going and coming from. This can be helpful when planning business strategies for growth too.

Set and Follow a Budget

Setting and sticking to a budget will help you manage your cash flow and ensure you have organized tax records.

There is accounting software that can help you track and monitor your spending habits and help you set up savings and growth goals for your business.

A strict budget plan will help you develop healthy financial habits as a freelancer. This smart money management will help your business grow in the long run.

Evaluate Your Financial Records

Your independence as a freelancer puts a lot of responsibility on your shoulders when it comes to making business decisions.

Through analyzing insightful business reports you can better visualize the landscape of your business. These business reports can give you the information you need to improve your business.

Comparing different time periods can help you prepare budgets that anticipate problems that you might not have detected before. Make sure you close off your accounts at the end of each reporting period to ensure reporting is relevant to a certain period, so it will be easier to compare.

Here are just a few reports that you can use to analyze your data:

  • Aged Payable
  • Aged Receivable
  • Balance Sheet
  • General Ledger
  • Trial Balance
  • Journal Report

Reconcile Bank Transactions

Having your books organized and matching your bank accounts is crucial to the success of your freelance finances.

This can be quite a difficult task but using a bookkeeping software can help you reconcile your bank account in no time. To sync up your accounts import data from your bank accounts, credit cards, and Stripe and PayPal transactions to make sure your bookkeeping is up-to-date.

You can reconcile all your transactions within minutes when you get a live bank feed. Plus, you’ll get a good sense of your cash flow.

Reconciling your bank account can make the day-to-day business of freelancing easier and prepare you for tax season.

Send Invoices and Payment Reminders

Making sure you get paid is a surprisingly tough task for freelancers.

When you’re waiting to get paid it can be difficult to keep on top of your income. To protect your cash flow and achieve your projected income, it is so important for you to make sure you are getting paid on time by clients.

Sending out invoices with clear due dates and setting up late payment reminders for due and overdue payments will help you get paid faster. Too often freelancers don’t get paid on time because their clients are focusing on other things and forget upcoming bill dates. These planned reminders will get you your money with just a little effort on your part.

Create Quotes and Estimates

Landing clients and negotiating contracts can be hard for a freelancer.

Providing potential customers with quotes or estimates of the work you will do from the upfront will significantly improve the rate of deals you’re closing. In these documents you can provide an estimate of the time it will take you to finish their project. If prospective customers are still unsure about the deal, simply send them a more detailed quote with the each good and service you will be providing them and the associated costs.

This detailed quote can be turned into an invoice if your customer decides to close the deal with you, making it easier for your customers to pay you faster.

Why Freelancers Should Care About Bookkeeping

Bookkeeping is often not always on the top of mind for freelancers. You start your business because of an idea that you are passionate about and often that doesn’t include accounting. However, there are many reasons freelancers should care about keeping on top of their bookkeeping and here are just a few.

Easier Trips to Your Accountant

You might be using an accountant to help you file your taxes. It is likely that those accountants charge a pretty expensive hourly rate. If you come with a shoebox of unorganized and sloppy records, you’re going to waste a lot of time and cost yourself a lot of money.

When your accountant doesn’t have to organize your financial records, they can focus their billable time on making sure that all of your tax forms are filled out properly before filing your taxes for you.

You’ll Be Ready for an Audit

There’s nothing more stressful for a freelancer than finding out you’re getting audited. The best way to painlessly get through the process is to have your financial records organized. The IRS selects freelancers for audits because of things they claim as deductions like home office expenses.

Plus, if your bookkeeping is organized you will be less likely to have mistakes on your tax filings and will be less likely to be red-flagged by the taxman.

Keeping up with Your Daily Business Tasks

By doing a little bit of accounting every day, you’ll make your overall operations are easier to handle. Organizing your receipts and invoices as they come in will save you from a huge amount of work during tax season.

As you make bookkeeping a part of your daily routine, you’ll be able to spend less time on it. This will give you more time to focus on your day-to-day work and even help you plan future growth.

Protecting Your Assets When Things Go South

It’s not fun to think about things unexpectedly go wrong in your life that could impact your business. Good bookkeeping can keep you prepared for anything from a legal proceeding with an angry client to a difficult divorce proceeding.

While going through a legal proceeding your financial records will very likely play a critical role. Clean records will help your lawyer prove what assets and funds are truly yours.

Avoiding Legal Problems

There may be legal requirements in terms of your financial record keeping, depending on where you’re doing business. Failing to keep proper records could result in significant penalties and fines.

Recognizing Potential Issues

When you’re on top of your accounting and bookkeeping, you can anticipate future problems that your business might face.

By consistently analyzing your books you can notice serious financial irregularities before they become a problem. Maybe you will catch an upcoming cash flow problem, realize that you’re losing money on daily expenses or other serious issues impacting your bottom line.


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