As a freelancer, you need to handle multiple tasks at one time that also include basic bookkeeping. Keeping control on your daily accounts is what every freelancer thinks of or desires of. In this blog, we will not only tell you how much important is bookkeeping for a freelancer but also tell you how you can handle your daily transactions with ease.
Importance of Bookkeeping in your Business
Every freelancer wants to get paid on time as the services provided by them to their clients are their only source of income. Freelancers have many different clients for which they work on daily basis. It is not possible for freelancers to keep track of all their client payments - Who paid the amount, when the amount is paid, how much amount is paid?
Hence, it is very necessary for a freelancer to understand the concept of basic bookkeeping as well as the use of its tools. With the help of bookkeeping, you can easily do the following –
- Tracking of outstanding invoices
- Collection of payments
- Billing your clients
- Understanding your cash flow position
May be you are having an accountant but he generally reviews your financial position once a year. Bookkeepers not only handle your accounts but also make updations to it on daily basis. In case, it is not possible for you to maintain accounts regularly, then invest in a bookkeeper right now. Bookkeeper not only reduces your tension of handling accounts but also saves much of your time, so that you can concentrate on other core business activities or the things you love the most.
Also Read - When you should hire a Bookkeeper
Follow the given essential steps below to understand how bookkeeping works for you –
Create an Organised System
Proper organising of system is very important for good bookkeeping. Without organising the system, you cannot manage your finances properly. Follow the tips below -
- Start organising your system as soon as you will start freelancing unless it will not be possible for you to remember the past transactions.
- Take an advice from a bookkeeper; ask them which software they use. If you both are using online accounting software, it becomes easy for you to share your data fastly & securely from any place.
- Good accounting software is the need of hour today as it will guide you through all bookkeeping steps. You just need to fill the details and get it checked by a bookkeeper or accounting professional.
- Not having enough time to handle books every week? If you are lacking behind, not a problem, choose a right bookkeeping software and make the difference to your business.
Keep Accurate Record of Your Business Parts
You must maintain the records of the following business parts –
- Hours you spent on work for each client or in job completion
- Per hour or per job cost for each client
- Receipts of your business expenses
- Record of all business payments you make such as bank transfers
- Record of all payments you receive from your clients.
With the help of modern accounting software, you can also do the following–
- Generation of invoices accurately
- Keeping the track of money you owed to others
- Keeping the track of money you owed from others
- Generation of cash flow reports
- Easy identification of your best & worst clients
When you do bookkeeping on the basis of software, it gives you accurate results and reduces the risk of manual errors too. Think once, that if you will ever be audited by the government, bookkeeping software can help you in producing fast reports and you don’t have to search any receipts that time as everything is automated.
Offsetting of Expenses against Tax
There are many expenses in your business which you can offset against your tax bill. You can offset the following expenses –
- Power & utility bills
- Internet & phone bills
- Office rent
- Travel expenses (Except to and from regular workplace)
- Capital expenditure on items such as phone, computer, laptop, printer etc.
- Vehicle maintenance expenses (in case car is used for business purposes)
- Client entertainment expenses (except some restrictions)
You need to record all these details while doing bookkeeping. You can offset many such expenses against the tax you need to pay to HMRC. For ex – Suppose you bought a loan for your house – You can offset some part of your interest payments against tax. In such cases, freelancers need to pay this amount back, when they sell their home.
Doing Fast Payments
Collecting payments from clients are the most important issue faced by freelancers. If your accounts are up to date, bookkeeping can help you in fast releasing of payments too. Bookkeepers help freelancers in getting fast payments by the following ways –
Prompt and Regular Invoice Generation
Freelancers can create and send invoices to their clients regularly and promptly with the help of bookkeeping software. Once you have submitted the information, there is no need for you to enter it all again. Just click & send.
Identification of Late Payers
If your accounts are updated, you can easily identify your clients - who are the late payers and who are doing it faster. In bookkeeping software, you can track these things with the help of aging summary report. Aging summary report is a report created through the software and shows the following –
- How much is owed by the client?
- How much overdue each invoice is?
This helps you in differentiating between good & problematic clients.
- Set Reminders – Set reminders for both - you and your clients. Reminders will notify you about the approaching due date of your invoice. You can also send reminders to your clients with the help of modern accounting software automatically.
- Chase your Payments Politely – It’s your hard earned money and you are having the full right to ask about it. Don’t feel embarrassed in chasing your payments – Contact your clients and ask them about your payment politely.
Put Money Aside for your Tax Bill
Freelancers must plan about their tax arrangements in advance and put money aside for their tax bill. It’s important for you to plan in advance about your tax bill as tax payments for freelancers are not deducted from their pay pocket like a regular salaried employee. Even some of the freelancers set up separate bank accounts for doing their tax payments. With the help of bookkeeping software, you can estimate your tax bill more easily; put aside the income percentage each month in order to pay HMRC easily before the tax deadline. Take this very seriously as government is very strict regarding the non-filing and late-filing of tax returns as well as payments.
Nomisma Bookkeeping Software for Freelancers
With updated accounts and a good bookkeeping software
, Freelancers will have a clearer picture about their income, expenses, cash flows, business growth etc. and can make an effective and efficient control over bookkeeping. Try Nomisma software
or go for bookkeeper’s advice.