Bookkeeping for freelancers: how to do it and what to use
With freelancing comes great freedom. You are in charge of your business and how much you earn. But with this enticing liberty comes other responsibilities, some of them tedious.
Just like in any business, freelancers need to manage their financial records for a variety of reasons, this is even more important for them since most freelancers run their entire business on their own. Without an organised record, your business is likely going to suffer financially and legally.
In this article, we look at bookkeeping for freelancers, what it really means and the best way to go about it. Read on!
What is bookkeeping for freelancers?
Bookkeeping simply means the process of recording, organizing, and managing financial transactions for a business or individual. As a freelancer, bookkeeping involves tracking your income and expenses, creating and sending invoices, reconciling bank statements, and generating financial reports.
While the idea of bookkeeping alone could sound daunting to many freelancers, it is undeniably crucial to your business. And luckily, there are great tools that can aid you.
Why is bookkeeping important? Benefits of bookkeeping for freelancers
Proper bookkeeping helps freelancers stay on top of their game. When you know the exact state of your finances, how and where you need improvement, you enjoy benefits that include:
1. Making informed business decisions
Freelancers who have a thorough understanding of their financial records are armed with more insight and can make better-informed business decisions and avoid costly mistakes. Accounting for freelancers involves tracking the impact of every business decision and how to improve the outcomes.
2. Staying on top of your taxes
Doing the taxes can become a tedious activity. Especially for someone with poorly organised or non-existent bookkeeping. Bookkeeping enables you to sort and keep all important documents ready.
3. Better management of your cash flow
Through bookkeeping, you can better control how much you earn, when you get paid and what you spend with ease. Maintaining a balanced cash flow is crucial for staying afloat in your business.
4. Ensuring timely payments from clients
By generating and sending out invoices promptly you can notify clients and get your payment when it is due. This entire process can be automated allowing you to focus on other important tasks.
5. Maintaining good relationships with vendors
For freelancers that need to acquire materials for their work, with properly sorted records it is easier to maintain a positive relationship with vendors. Bookkeeping can help you in allocating expenses and delivering payment promptly.
How to do bookkeeping as a freelancer
Maintaining a record of your financial transactions generally comes down to what works best for you. However, some tools can help you automate this tedious process and increase your productivity as a freelancer. You don't need to be an accounting guru to get your finances in order.
Best tools and software to use for bookkeeping
Below are tools every freelancer can use to maintain their finances:
- Spreadsheet software: simple spreadsheet software like Google Sheets and Excel are great options for bookkeeping. You can find financial management and budget templates in them, ready for editing and use in your bookkeeping.
- Accounting software: if you want to kick things up a notch, then consider using accounting software with more sophisticated features.
- Cloud-based bookkeeping software is similar to traditional accounting software but is cloud hosted. This means you can carry out all your activities virtually online.
What's do I use as bookkeeping online tool ?
Zoho Books is the soeftware that I use for bookkeeping.
Zoho Books is an excellent software that simplifies bookkeeping for small and medium-sized businesses. This cloud-based accounting software has several cool features that make it stand out from its competitors.
One of its most significant advantages is its user-friendly interface that allows freelancers and business owners to manage their finances with ease.
Additionally, Zoho Books offers comprehensive accounting features, including inventory management, invoicing, and financial reporting. The software's invoicing feature allows users to create and send professional invoices and receive online payments through various payment gateways.
Zoho Books also enables businesses to reconcile bank transactions and track expenses effortlessly. Furthermore, the software offers a mobile app that allows users to access their financial information on-the-go. These features make Zoho Books an ideal solution for businesses looking to streamline their accounting processes and manage their finances efficiently.
Steps to take when doing bookkeeping as a freelancer
For a lot of freelancers with a vague idea of bookkeeping, how to carry out this function is a tough question. Below are proven steps that can help you bookkeep like a pro:
- Organise your financial documents: keep track of all financial documents, including invoices, receipts, and bank statements. Any document you generate in the course of operating your business should be kept properly.
- Record all income and expenses: the essence of most accounting processes is to figure out profit and loss. Use simple tools to keep a record of inward vs outward flow.
- Create and track your invoices: invoices help you communicate with clients. There are numerous invoice generation and tracking software out there. Using them, ensure you generate and bill your clients on time.
- Reconcile bank statements: ensure that your bank statements reflect the figures they should— from your bookkeeping records. Sort out any irregularities that may appear.
- Generate financial reports: use bookkeeping software to generate financial reports such as balance sheets, profit and loss statements, and cash flow statements.
- File those taxes: keep track of tax obligations and file taxes accurately and on time. Not doing this will result in more work later and in the worst scenarios, serious legal problems.
Tips for effective bookkeeping as a freelancer
While bookkeeping also requires personal discipline on the freelancer's part, you can follow the general tips below to see more positive results from your tasks:
1. Establish a system and stick to it
A bookkeeping strategy may include a clear-cut routine to follow and the use of specific bookkeeping tools. Once you develop a system that fits you best, it is important to stick to it consistently.
2. Separate personal and business finances
It is often tempting to handle personal and business finances together, but this can lead to confusion and mistakes in your bookkeeping. Keep track of them separately.
3. Keep receipts and invoices
Receipts and invoices are important records for your business. Keep them organised and available for your bookkeeping sessions. With the aid of accounting software, it is easier to create and manage invoices.
4. Schedule regular bookkeeping sessions
Consistency is vital for the accurate representation and maintenance of your records. To continually manage your finances, schedule periodic bookkeeping sessions, e.g, weekly or monthly.
5. Hire a professional if necessary
Sometimes your bookkeeping tasks may get out of hand due to the busy schedule running your freelance business requires. Outsourcing the management of your finances could be a more productive option.
With the focus on landing new gigs and delivering quality results, a lot of freelancers end up paying little attention to their finances. To run a successful business you must learn how to keep your finances in check. Through bookkeeping best practices, tips and tools shared in this article you can easily perform bookkeeping tasks while maintaining business growth.