Ask A Freelancer #3: Bookkeeping for Freelancers (Video Response)

Question

Hey Liz,

I still have a 9 to 5, but have started moonlighting as a freelancer and eventually want to build up enough business for that to be my main income! What do you suggest I do about the whole financial side of things? I know I need to keep track of stuff, but I’m not sure what the best way to do it is. I do plan on hiring an accountant to help with taxes, but I can’t really afford to hire someone to do monthly bill paying, invoicing, etc. at this early stage!  I’m guessing this is stuff I can handle on my own for now, But what kind of stuff do I need to be keeping track of? Do I need to buy Quickbooks? What do you use?

More Money More Problem

Answer

Hello MMMP!

Day to day finances is something that most freelancers keep track of on their own. When your business grows to the point where managing this takes more time away from you WORK, it will be beneficial to hire someone to help manage this – but for me, day to day cash flow stuff is really easy to do on my own and I really only spend a few short hours a month on it! Check out my full video response below…

This is really all about finding what works for YOU – my system is really simple and streamlined for me, but it’s not going to be the right solution for everyone. When you’re first starting out and don’t have the work flow to justify hiring a bookeeper to do day to day things like emailing invoices or balancing your checkbook, you’re going to end up doing it yourself. This doesnt have to be scarey, just stay organized, keep clean records and with the money you save doing your own expense tracking you can invest in hiring a pro to prepare your taxes!

There is a helpful article on FreelanceSwitch, which is a good place to start: Accounting Basics for a Freelancer. There is also some good advice for those of you starting out in the book My So-Called Freelance Life.


Oh and should I just remind you, I am NOT a financial advisor — this is how I handle things and what I have learned from my advisor, you can use this as a jumping off point or to get an idea of the steps involved, but PLEASE – talk with the accountant who will be doing your annual taxes to find out how they would like to receive your numbers!

What’s your advice?

Am I missing something? Do you have experience with a similar situation and would like to share how you handled things? Leave a comment and tell us about it!

7 Comments

  1. Nina says:

    Are you a corporation, self-employed or a sole proprietor? What do you recommend? My husband was told that by being self-employed, he is paying like 12% more in taxes. Any input on that?

    1. Nina, I am a sole-prop. — depending on the money you’re making and the industry you may want to consider an LLC or S-Corp as well.

  2. I HIGHLY recommend signing up for an account at http://www.freeagentcentral.com
    Its really the only way I am able to stay on top of my books/invoicing/contacts, time tracking, etc, all in one place. Its absolutely perfect for freelancers!
    I check it like I check my email. I even brought in a yearly income statement generated from Freeagent with me to the bank, and the teller was so impressed that I had such a thorough breakdown of all my expenses/income etc. I told her I couldn’t really take credit for it, haha.
    You can use referral code 31e71bg2 if you think you want to sign up after the 30 day trial.
    Cheers!

  3. @Nina

    I recently went to the bank to inquire about this, and the woman told me that if you are earning around 50k or more, you should think about incorporating, since businesses are taxed at a much lower rate than personal income.

  4. Michael says:

    Just out of interest, what kind of gift might you buy your client?

  5. haha, its so funny i said that – i think the only gifts i ever got clients were holiday cards — if those count as gifts

  6. Michael says:

    Ah, I see. I imagined you softening up your clients by turning up to a meeting with a gift-wrapped box of chocolates or something!

    I’m thinking about entering the world of freelance web design soon so the video was really helpful. The accordion folder tip in particular looks like a great method of keeping track of things.

    Thanks! :)

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