Keeping on top of your finances can be tricky as a freelancer, but if you follow these five tips, your bank account balance might look a whole lot healthier at the end of the month.
An increasing number of people are becoming freelancers, and according to some estimates, nearly half of the workforce could become independent by 2020. Although most new freelancers think a lot about the service they are trying to offer, many neglect thinking about their personal finances with the same passion. Indeed, some may be actively frightened by the prospect. If you’re one of them, here are a few ideas on how to regain control of your finances
Get on top of your books
Balancing your finances can be tough, and many freelancers don’t even know where to begin. An accountant can help, but you should do everything you can to keep a good record of income and expenditures, particularly if you can offset costs against taxes.
This not only keeps the government happy, but it also gives you a better idea of your financial position and could raise an early warning of any developing cash-flow problems.
Plan for slow periods
Freelancing can be a feast or famine enterprise. If you’ve been freelancing for a few years, take a look through your accounts to calculate your average income. You’ll be able to put some money aside during busier times to cover slower periods. If you notice that a certain month is quiet every year, you can plan ahead, either by saving money or by searching for additional work opportunities to supplement your income.
Plan for tax
Freelancers often dread the end of the tax year because many do not understand the specifics of their tax situation and often get the figures wrong. If you suddenly find your tax bill is bigger than expected, there are things you can do to mitigate future occurrences.
A good practice is to consult an accountant or simply calculate your estimated income at the start of each tax year. This will help you get a clearer understanding of your expected tax bill. As the year progresses, try to set aside some money for taxes and keep an eye on your balance sheet to ensure you have enough money to manage your tax obligations.
Try accounting software
Excel can be prone to errors and isn’t always the most accurate platform to use for bookkeeping. Instead, you could invest in a cloud-based accounting software such as FreeAgent or Xero. These platforms allow you to manage your finances from anywhere with an internet connection. You can track invoices, check expenses, and ensure you’re not falling afoul of the tax man.
Such platforms automate many of the basic processes, which saves time and reduces the chance of making errors that could affect future financial security. Moreover, it gives you greater visibility of your finances, which can help you spot trends, avoid problems, and open up additional opportunities.
Hire an accountant
Most freelancers prefer to handle their finances alone. If they do choose to hire an accountant, they usually employ one at the end of the year to handle the complicated business of an annual tax return. However, there’s a lot to be said for hiring an accountant year around, and many of those who do consider it their best investment.
Yes, it’s an additional expense, but it pays in many different ways. Hiring an accountant allows you to focus on your specialized work instead of wading through complicated financials, which results in a higher income at the end of the year.
An accountant can also provide ongoing advice and help you find ways to manage your finances and to reduce your tax bill. These days, there are many packages to choose from, but it helps to find an accountant who offers specialized accounting for freelancers. It’s a sign the provider understands the needs of freelancers and can offer the one-on-one support you need.
Shiv Arora works in Business Development & Marketing at 3 Wise Bears. 3 Wise Bears are a dynamic firm of Chartered Accountants based in London, specialising in helping freelancers and small businesses with their accounting needs.