Working on a freelance basis has its pros and cons. On the plus side, you are your boss, you dictate your working hours, and you have the freedom to take on the work you enjoy and brush off the jobs you don’t. However, the realities of working in this way can be tricky, especially in the digital age. Freelancers and sole traders have irregular income rather than a monthly salary, meaning there may be times when your cash flow is down and you struggle to pay the bills. You may also find yourself chasing clients for payment and having the pain of doing your own accounts and taxes yourself.
It can all seem a little overwhelming, but with good financial organisation skills it is perfectly manageable. Here are five money management tips to help you to focus on growing your business in the modern world of technology
Keep personal and business finances separate
When you first start dipping your toe into the world of freelance work, you may not see the point in opening a separate business account, but doing this from the start will make things easier later on. It’s good to have a dedicated account into which your freelance income is paid, and from which all business expenses are bought. This makes it so much easier to track cash flow and will simplify your bookkeeping when preparing tax returns.
Track your cash flow
Record your payments as they come in, rather than waiting until the end of the tax year. The same goes with any allowable business expenses. Keep digital copies of receipts and invoices and make sure you organise and categorise them properly. Regular tracking helps you understand how profitable your work is and again makes it easier to submit your taxes accurately.
Learn about tax
Tax is a tricky thing for freelancers and sole traders to get right, especially as the rules and regulations can change occasionally. For example, this year the UK government is introducing making tax digital, requiring businesses and self-employed people to keep digital records and submit updates to HMRC using compatible software. Freelancers, unlike employees, are responsible for managing their own tax payments. It’s a good idea to set aside a percentage of every payment you receive, as this will reduce financial stress when it’s time to pay your taxes.
Use digital accounting software
Digital transformation is causing companies to embrace technology for all aspects of business. And finance is no exception. A good accounting software package, such as Xero, Sage or Intuit, can automate processes like tracking expenses, sending invoices, and calculating tax. Although it comes with a small monthly fee, this will reduce the likelihood of making mistakes in your financial reporting as well as saving you a great deal of time.
Consider an accountant
In the earlier stages of being freelance, where your income and tax calculations are relatively minor, you may not feel you can justify the cost of an accountant. But as your small business grows and things become more complicated, it can be invaluable. Especially if you decide to become a limited company. An accountant will take care of the entire financial aspect of your operations, allowing you to focus on finding clients and growing your business.
Follow these five tips to reduce financial stress and take your freelance career to the next level!
