Those years as a wage slave are over. You’ve got the skills and the experience in your field and you’ve got the clients lined up. But what are the accounting and budgeting issues you need to be aware of and the problems to avoid?
The chances are that you’ll be juggling multiple income streams and irregular payments. So you need to keep track of a whole host of things. It’s certainly something we can do for you, but you may want to hold us back for the scary stuff.
If you want to keep the day-to-day management to yourself, then remember these tips. And just because we’ve talked about record-keeping before, that doesn’t mean we aren’t going to do it again:
- Choose your system: You don’t need a fancy accounting degree (we’ve got those). Simple spreadsheet programs like Excel or Google Sheets can be effective for basic record keeping. Consider cloud-based accounting software designed for freelancers as they often offer simplified interfaces and helpful features.
- Track your income: Record every penny you earn, including client invoices, project fees, and any other income sources. Note down the date, client name, project description, and invoice amount.
- Track your expenses: Just as important as income is tracking all your business-related expenses. This includes office supplies, software subscriptions, travel costs, equipment rentals, and marketing fees. Categorize expenses for easier analysis and tax filing.
- Get good at invoicing: Create professional and clear invoices that outline the services provided, agreed-upon fees, payment terms, and your contact information. Popular invoicing software can automate tasks and streamline your process.
- And at record keeping: Maintain a digital or physical filing system for receipts, invoices, and contracts. This will be crucial come tax season and for demonstrating legitimate business expenses to HMRC.
The self-employed life often means an irregular income flow and you might have feast-or-famine periods. Budgeting becomes even more critical to ensure financial stability:
- Estimate your income: Analyse your past work history and projected workload to create a realistic income estimate. Factor in seasonal trends if applicable to your industry.
- Calculate Fixed Expenses: List all your essential monthly expenses such as rent, utilities, groceries, and transportation costs. Determine the minimum amount you need to cover these basic needs.
- Build a buffer: Aim to save 3-6 months of living expenses as a safety net. This helps manage periods with lower income and unforeseen emergencies.
- Separate personal and business finances: Open a dedicated business bank account to track income and expenses related to your freelance work. This simplifies accounting and avoids confusion come tax time.
- Practice Budgeting Discipline: Use budgeting tools or apps to track your income and expenses and stay on top of your spending. Allocate funds for savings and essential expenses first before discretionary spending.
Taxes, of course, are an inevitable part of self-employment, but understanding them doesn’t have to be overwhelming, not least because we can help do that for you. We can help with filing self-assessment returns and the optimal ways to minimise your tax exposure.
Going self-employed and starting a new business is s stressful period, so don’t let your finances make that harder. If you’re thinking about making the leap, give us a call and let’s see how we can help.
