By admin, March 1, 2017
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Freelancing has many perks like flexible hours, independence, no steady workloads, freedom, etc. But, it also involves many challenges as well. Since you are not part of a traditional employment structure, you must manage many things on your own, such as basic bookkeeping.
The most important concern of a freelancer is getting paid. With so many clients to handle, it can become hard to accurately track cash flow. Gone are the days when you used to simply withdraw your salary, now you need to estimate your tax payments and keep accurate books to avoid errors.
Hiring an accountant isn’t an end all solution. Your accountant will review your finances annually. Bookkeeping is required to maintain your accounts regularly and keep yourself updated with the current finances.
If you are working as a freelancer, here are some bookkeeping tips for you.
You have the sole responsibility of your income and the money that is being transferred to your bank account. You must be transparent with the flow of money, how you earn and spend it.
An organised system is necessary for good bookkeeping. Create an organised system by recording every transaction, checking the books on a weekly basis and sharing data with your from bookkeeper time to time. Remember to generate accurate invoices, produce cashflow reports and keep track of accounts receivable and accounts payable.
Automate tracking of your income and expenses by downloading a user-friendly bookkeeping software like FreshBooks, Wave, Xero, etc. A good bookkeeping software will assist you in sharing the data, invoicing and payment tracking, tax accounting and expense tracking.
For freelancers, income tax and payroll deductions such as Employment Insurance (EI) and Canada Pension Plan (CPP) are not automatically deducted, unlike salaried employees. You must estimate and budget for taxes without merging them with your personal and business funds.
There are many expenses that you can claim while filing your tax return. However, the type of expenses falling under the category of offset expenses differ from country to country. They include travelling expenses, internet and phone bills, office rent (in the case of freelancers, a room in your house), maintenance of vehicle used for business purposes, power and utility bills, capital expenditure (laptop, desktops, printer and scanner) etc.
Get in touch with your clients and ask them to pay you on time. Irregular payments make it difficult to track income. Timely payment from clients will not only help you in estimating projected income, but also keep your cash flow updated.
Bookkeeping is an essential element that can work for freelancers if handled well. Establish good bookkeeping habits and understand it’s basics. Get a clear idea of your books and work in the right direction for your business’s growth.
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