Within the modern day, it is no surprise that more people opt for working as a freelancer or a sole trader.
The promise of better work-life balance, control over workload and increased earning potential are large factors contributing to this shift in employment.
However, working as a free agent produces new concerns and challenges; mainly related to getting paid. In general, freelancers rely on multiple different clients, which can make it difficult to manage finances and keep track of payments.
This may be daunting for some and so it is recommended that one of the first steps a freelancer should take is to hire a freelance accountant to ensure good accountancy is maintained from the beginning. In addition, accountants can provide you with valuable tips and even recommend useful applications which will be integral to you developing organised records, such as online accounting software such as FreeAgent.
Bookkeeping is an important skill which provides an immediate overview of the business, especially if updates are made daily. For this reason, some freelancers rely on hiring a specialist accountant to maintain these central records.
Although keeping accurate records of the financial aspects of the business may appear extremely time consuming, one of the major benefits of having updated accounts is getting paid faster. Collecting payments is regarded as a significant issue for most freelancers, but maintaining comprehensive records through bookkeeping enables freelancers to be able to track payments more effectively and become increasingly aware of the financial status of the business.
There are numerous business guides aimed at freelance workers and sole traders. However, here are some simple recommendations for using bookkeeping to manage your finances and maximise fast payments:
- Implement an organised system – Suitable accounting software such as FreeAgent can be used which can be offered as part of an all-inclusive accountancy package
- Dedicate time to updating records – at least once a week. Set any time aside to update records or accounting software to track payments and expenditure
- Invoice promptly – create and send invoicing emails which can be tailored to each client, this can be done through FreeAgent. Likewise, draft prompting emails which can be sent to clients who have missed the payment due date
- Identify late payers – an ageing summary report can help to highlight overdue invoices and even identify problematic clients easily
- Keep records of key parts of the business – use accounting software to effectively monitor working hours, hourly rates charged per client, business expenses and payments
- Offset your expense against tax – keep accurate records of any expenses related to the business (such as those covering bills or travel) which you can offset against tax. Due the intricacy of legislation regarding this, it is often worth consulting with a qualified bookkeeper or accountant
- Put money aside for your tax bill – as tax is not automatically deducted from the salary of a freelance worker, it is important to liaise with a professional accountant or use accounting software to calculate the appropriate percentage to put aside in a separate bank account for upcoming tax payments.
In short, it is very easy to lose track of finances when working independently with several different clients. However, as a freelancer, bookkeeping should be a vital part of maintaining your business. It helps to keep track of expenses, manage invoices and plan for the due date of your next tax bill. Crucially, it provides a comprehensive view of the status of your business and allows you to avoid potentially detrimental pitfalls.
Gorilla Accounting is a specialist accountancy firm, exclusively for Contractors and Freelancers operating through a Limited Company or Umbrella Solution.If you would like more information,get in touchwith our New Business Team by calling 0330 024 0406 or email info@gorillaaccounting.com.
