Ideally, all freelancers need a professional accountant by their side. Either that or investing in learning the skill and adding it to the other skills they already possess. Freelance accounting is a skill that only freelancers, whom the law recognizes as self-employed and independent contractors – ought to do whatever they can to learn. At the beginning, you may not have the money required to hire an accountant. However, you should not hesitate to hire one, as your business grows bigger.
Freelancers will earn money. They will receive payments from every client they serve. It is a given that some clients may take off without paying a dime to freelancers. That is just the nature of the industry. Nevertheless, it is to the freelancer’s advantage to be as good an accountant as possible. Freelancers ought to appreciate the important role bookkeeping plays in their businesses. Proper bookkeeping skills will always stand as the main difference between a successful or not-so-successful freelancing business.
1. Why freelancers should care about accounting software
Freelancers should care about accounting for various reasons. These reasons are:
- It allows freelancers to enjoy a smoother experience with their accountants
- It allows freelancers to appreciate auditing
- It allows freelancers an easier time monitoring daily business tasks
- It teaches freelancers how to take charge and protect business assets when bad times strike
- It protects freelancers against the legal consequences of not caring
Freelance accounting is not an impossible skill to learn. Any freelancer can learn and excel at bookkeeping. The knowledge learned and acquired in this manner is not a waste. It does not go to waste. In fact, improving your accounting skills is a requirement for anyone who wishes to grow a successful freelance business. Accounting skills ensure that you run business finances remarkably well. Without these skills, your business could struggle financially. Worse is when you have no idea where the problems are thus unable to do anything to improve the situation. Having a software will also save you a lot of time from using an excel spreadsheet to track expenses.
Any freelancer who learns accounting will excel in the following areas:
- Keeping track of incomes and expenses
- Staying on top of all invoicing issues
- Staying up to date with tax issues
Failure to learn to account could lead you into a hole from which you will find it impossible to extricate yourself. Accounting is not the sort of thing you prioritize the least. After all, the reason you work as a freelancer is to make money. You want to be your own boss. You want to make as much money as possible to take care of your family today, tomorrow, and during your post-retirement days. Do not postpone any accounting-related issue. Instead, spend time educating yourself on that issue, or simply hire an accountant.
2. Understand the basics of freelance accounting software
Part of the work you must do while improving your accounting skills is to understand the basics well. Some of the basics you have to learn to include the requirements for starting a freelance business; VAT; self-employment tax; national insurance; and, record keeping among others. Accounting classes will help you understand whether you are running a business or pursuing a hobby. Through the classes, freelancers will also learn more about business taxes, and selecting business structures.
Accounting is a never-ending pursuit. You cannot complete accounting in a day, a week, or a month. It is something you do every day as long as you run a freelance business, or any kind of business for that matter. Accounting is akin to the food you must eat every day to stay alive, healthy, and strong. Similarly, accounting helps your business to remain afloat, healthy, and stable. The fuel upon which your freelance business operates is accounting, which tackles everything to do with business finances.
Accounting involves taking or making note of everything you do, especially if it involves money. You cannot do well in accounting if you fail to keep or maintain a proper, detailed record of all business transactions. As you will learn, this often involves keeping all receipts for taxes in one file that is separate from all other business documents. Additionally, freelancers have to make a spreadsheet that contains all the relevant business information. The information herein refers to the following:
- Date of invoices
- Date of payments (both incoming and outgoing)
- Service or product purchased or paid for
- Amount involved in purchases and sales
- Customer details
All the accounting lessons you learn should educate you on the importance of dates. Some dates of the year are more important to an accountant than others. For example, the end of year, especially the financial year, is one such date. The annual return date, tax returns due, tax returns due payments, tax returns due self-assessment are equally important too. The dates matter to the freelancer too. Therefore, keep track of these dates so you never fall foul of the tax bodies.
It is also good to know the dates when your invoices are due. Ensure that your customers also know these dates. Remind them via text messages, emails, and phone calls. Do not send out any invoice that does not indicate when payments are due. Similarly, know the dates when your suppliers expect you to pay for the products or services you bought on credit. This way, you will have no problem with your cash flow. Do not be the kind of freelancer who waits for reminders from suppliers.
3. Keep business and personal bank accounts separate in the freelance accounting software
Freelancers should maintain separate bank accounts for their businesses and personal use. This way, they will have a relatively easier time of keeping track of all their incomes and expenses. Failure to maintain separate bank accounts could lead to a complication or two. Business finances should be kept separate from personal finances. Avoid a situation where the two interact if you want to monitor your income and expenses easily. Doing this has the added advantage of making it easier for you to save money for tax purposes.
As all freelancers know, business is not always good throughout the year. Lean times always seem to follow bumper harvest. Droughts are never far from the season of plenty. That many people view freelancing as a “feast or famine” venture is not by mistake. For this reason, improving one’s freelance accounting is a good way of preparing for the good and bad times. Through excellent accounting skills, you will realize the importance of saving some money for the lean days. Do this and see the money you save take you through these difficult periods. It is highly advisable to save money that can cater for your expenses for at least two months. However, feel free to save whatever you can.
4. Seek professional help when using freelance accounting software
The fact your freelance accounting skills are getting better – if not excellent yet – doesn’t mean you no longer need help. Even accountants call out for help from their colleagues. Feel free to shout for help in case you come across an accounting problem you can longer handle on your own. Occasionally, you may jump from the frying pan right into the fire. When this happens, it would be better to ask for help instead of digging yourself deeper into the hot charcoal. Face the fears and facts that make your stomach to turn. Do not postpone anything that needs handling now. At times, you may need to meet with a professional accountant to iron out a few issues. Consider visiting the local tax office for assistance if your problems are tax-related.
5. Familiarize yourself with tax documents in the freelance accounting software
It’s also worth mentioning that part of the freelance accounting lessons will focus on some of the most important financial documents all freelancers must keep. You cannot manage your freelance financial tasks without coming across documents such as Form W-9, which you should know how to fill. Furthermore, you also need to know what Schedule C, which is part of Form 1040, is. It is possible for all freelancers to learn how to fill Form 1040 like a pro. The other important forms you have to know how to fill include:
- Schedule SE (Form 1040)
- Form 1040-ES
- 1099 Forms
It is important that you know all the freelance accounting best practices. What do you know about your tax obligations? Do you know what you should pay or are you part of the 52% of all American small businesses that have no idea what to pay? Lessons focusing on tax-related issues are worth learning if you want to find ways of reducing your tax burden. The lessons are simple enough to learn. For example, they require you knowing how to keep track of all your finances while maximizing tax deductions.
As previously stated, freelancers should be able to separate business expenses from personal expenses. Again, it is possible to learn this lesson while improving your accounting skills. The freelancer also has to learn what they can or cannot deduct from taxes. There is no harm in learning how to pay taxes either. Keeping accurate records and tracking all progress made – financially or otherwise – is an important part of running a successful freelance business. Importantly, they must also learn about utilizing and tracking business credit cards.
6. Invest in cloud-based freelance accounting software
Most freelancers have a lot of stuff running through their minds at any given moment. For this reason, it is a bit unfair to expect them to stay on top of all their accounting needs. In such cases, it would be a better idea for the extremely busy freelancers to invest in accounting software. Such software would also be an excellent choice for the not-too-busy freelancers. Cloud-based accounting is emerging as a mandatory tool for success in the freelancing world today.
Cloud-based accounting has several benefits, which include:
- Automatic generation of important business financial forms
- Syncing with bank accounts
- Saving client information
- Providing reminders for performing crucial tasks
Cloud-based accounting software also comes with the expert help and customer support you need. Evidently, it is tiresome to keep track of everything related to accounting yourself. You need help. It is difficult for you to set aside all the time required to familiarize yourself with the tax rules established for self-employed workers or independent contractors. You would need to set aside limitless hours and put in the effort required to be familiar with all these rules. Feel free to turn to these cloud-based freelance accounting tools when all else seem overwhelming.
7. Maintain an organized system with freelance accounting software
As you work hard to build on the little freelance accounting knowledge you already possess, you will learn other equally important lessons. One of these is the need for creating and maintaining an organized system. Without an organized system, you will struggle with bookkeeping. It will be harder for you to find the documents needed to follow up on a delayed payment, file your tax returns on time, or settle your debts. The best time to create the organized system is right when you start running the freelance business.
Talk to other bookkeepers and see what you can learn from them about organized systems.
Use recognized or tried-and-tested accounting systems. A new system enters the market almost every day. Granted, some new entrants in the freelance accounting market can do wonders, but it is better to go with what has already been in the market. There is no harm in trying out a new system if you feel it will be to your advantage. Plan your time well, so you are able to do the books at least once every week. Install the right software or hire the best accountant you can afford to keep everything running smoothly. As previously stated, accounting requires proper records. Keep records of everything you do, not only the financial documents.
For example, keep a record of the hours you spend on each project or client. Calculate how much each job, project or client costs you per hour. Calculate business expenses too. Calculate all the payments you have made, which should include the bank transfers too. Do not forget to keep a record of every payment you have received from your clients too. Good records could be the difference between profits and losses for your freelancing business. Good records help you to realize whether you are making any progress. Therefore, purpose to learn everything you can about freelance accounting from today.