So you have decided to go freelance. Without having a basic understanding of accounting, it will be really hard to grow and create financial stability, luckily, modern tools can help in plenty of ways. It will still require some time, but we are on hand to share what everyone who has gone freelance needs to know.
Registering a Business Bank Account
The last thing you are probably thinking about is the first thing you should be doing. Registering a business bank account means you will have somewhere to store all the cash you will eventually be earning. So the earlier you do it, the better as most countries do not require sole proprietors to have separate business accounts.
Keeping them personal finances separate
Keeping your freelance income separate from your personal income will help you maintain simple, straightforward financial records, manage your business’s cash flow and file business tax returns when they’re due.
Any successful business person will tell you that managing your book is the key to a smoothly run business. Monitoring your books is the daily checks and balances of your business operations. Bookkeeping allows you to monitor your business’s growth, track payments and expenses, create financial statements and prepare tax returns
Claiming your expenses
From business travel to office equipment, there are a number of expenses you can claim for your business. What is important to remember with business expenses is to keep them well documented. This means attaching receipts to expenses and invoices. You don’t need to send in proof of expenses when you submit your tax return. But you should keep proof and records so you can show them to HM Revenue and Customs (HMRC) if asked.
Payroll is one of the most problematic aspects of accounting for freelancers. Since all the money is technically your own, what should you do? Well, there is a number of solutions.
Most freelancers have a floating income and save for income tax. Their income floats based on the amount of money they earn, they save a percentage for tax purposes and spend the rest. However, this system builds no financial stability as you are never sure how much money you have each month
Another option is to pay yourself a fixed salary:
This strategy is the best once you have built up a good client list and income. This will create financial stability, meaning you can predict and plan your expenses, creating a financial stability in your persona life.
For a self-employed freelancer, you will claim business income on a personal tax return. In some countries, you can pay your tax in estimated instalments (i.e. pay a monthly amount all year and then create a tax statement to establish the final tax amount and how much of it you have paid already).
We have previously written some of the best accounting software apps such as Freshbooks. These apps are great for using every day for managing your accounts. As a freelancer, investing in a good software app is one of the best decisions
An app such as Freshbooks allows you to:
- Send invoices:
- Create estimates:
- Track revenue and expenses