Make Your Money Work For You
When you work for yourself, when self-employment is your gig, and whether you call yourself a contractor, a freelancer, a solo entrepreneur, or plain old “self-employed,” it's great to be the boss. You get to bid on projects that appeal to you, negotiate your rates, meticulously log your hours, index your receipts, organize your business bank accounts, monitor every single penny of expenses, and tear your hair out when it's time to file (yet another) estimated quarterly tax payment…
As your business grows, your finances will become increasingly complex, so getting on top of them early is wise…
Okay, so managing your professional finances is definitely NOT the best part of being self-employed. But that doesn't mean it has to be a contact source of stress.
At every stage of your freelance career, it is essential that you understand and manage your finances correctly. Not only is there money at stake (get ready to pay a steep fine if you fudge or fumble your taxes), but your finances are also an essential part of the overall health of your business. As you grow, your finances will become increasingly complex, so the longer you wait to get a grip on your taxes, record keeping, and accounting, the more difficult the task will seem.
Luckily, keeping your finances in order is relatively simple. Here are four basic steps, including some helpful applications and resources, for increasing profits, minimizing risk, and keeping your behind out of the hot seat during tax time.
Four Essential Steps for Money Management
1. Keep Track of Your Time
Why do successful solopreneurs always say, Time is money? Because it's true! Whether you are billing by the hour or charging a flat fee, time is your most valuable resource. And keeping a careful record of your hours not only helps you bill customers efficiently and accurately, it also allows you to better understand your own habits.
Documenting your behavior hour by hour can help you manage your time more effectively. If you notice that you are least productive during the afternoon, for instance, then use that time to run errands, fold laundry, or clean up your office. The point is to use every hour as efficiently as possible; doing chores after lunch means that you will have extra time available later in the day, when, at least according to this hypothetical situation, you are naturally more productive.
As a freelancer, you need to be able to honestly assess your own habits and routines. Only then will you be able to build a productive professional life that fits your lifestyle.
If you're looking for a little help, consider a subscription to Harvest, an online time-tracking application that helps you quickly and easily record your schedule, your deadlines, and your expenses.
2. Organize Your Invoices
Every dollar you make needs to be invoiced, so why not streamline the process by setting up a reliable system for managing accounts. Remember that for some of your customers (especially if you are bidding for contracts online and working remotely) your invoice will be the only “point-of-contact” you have with a customer.
Design a professional template and use it to bill all your clients. Using a standardized invoice will help you manage your finances, record your hours, and maintain a professional appearance and demeanor.
There are a number of useful applications available online (FreshBooks is just one example) to help freelancers manage their accounts more efficiently. Find one that's right for you, or do it all yourself using Microsoft Office and Google Docs.
3. Manage Your Expenses
Every solopreneur knows the importance of keeping accurate records of all their expenses. New freelancers sometimes find it difficult to get in the habit or saving every single receipt, but this is a labor of love: labor now, and if you are ever audited, you will love yourself for keeping tidy, exhaustive records. Archive your receipts online (the old shoebox system is messy and wasteful) and take a few minutes at the end of every month to update your expense reports.
Online business banking has made this process easier than ever. If you maintain a separate business banking account you can easily track all of your payments, paper checks, and electronic transfers with the push of a button.
4. Pay Attention to Your Taxes
If you are working from home and billing a relatively small number of clients, then your taxes should be pretty straightforward. The bigger your business, the more complex your estimated quarterly payments and annual returns will be, so eventually you might want to consider getting professional help.
If you are ever unsure about your return or your business's tax status, then ask yourself one question: “What would happen if I was audited?” In the end, even if you have to pay for an accountant, the peace of mind alone can be worth every penny.
Let us know your thoughts on these four handy tips for getting on top of your freelance finances now. Did we miss something? Leave a comment now.