Setting up as a freelancer can happen very organically… As in, you might get the opportunity to work on a side project; pick up another one through word-of-mouth or a referral from your first client; before you know it, you’ve jumped from being employed to running your own small business. You might also have planned your career as a freelancer more thoughtfully. Either way, putting in place good habits with regards to managing your business finances early on can make a lot of difference down the line… When you are becoming really busy and realise that you should have done this much, much earlier (perhaps you can tell I’m speaking from experience here!) Here are 6 practical tips taken straight from my own experience as a freelancer and small business owner, to help you keep your business finances on track.
6 real life tips for freelancers to manage your finance professionally
Before we dive into these tips, here’s one of the most valuable lessons I have learned along the way. Do the things that are important before they become urgent. I read this too when I started, and completely agreed in principle. I did put all the points below on my To Do list. But there was always something either more interesting to do or new emails from clients coming in… And so the weeks, the months and even a year flew by before I actually did anything about it. And then I got faced with a lot of catch up, when I was getting busier and had less time. So, do it now. Get it out of the way and you’ll look back feeling so happy you did in a bit. Onward with the tips now.
Get a separate bank account and payment card
You don’t want to mix your personal disposable income and your business revenue and expenses for 4 reasons:
– You might forget to charge some of your expenses back to your business
– It makes it more difficult to understand your key business numbers (sales, gross income/cost of sale, net income) as well as which types of expenses are costing your business the most or what type of work is most profitable.
– You might want to open a Paypal account specifically for your business (and you might already have a personal one linked to your personal account).
– You might overestimate how much you’re actually earning from your work after expenses (because you don’t have a clear picture)
They are many bank accounts to choose from, some with more advantages than others. Do your research and compare bank account solutions based on your business needs. For example if your freelancing contracts involve a lot of travel expenses, having a credit card might help you avoid advancing travel costs before you get them back from your clients. If you’re struggling to see where your hard earned cash disappears, an account with a bank like Monzo, which analyse your monthly spend for you by categories, might be really useful.
Get an accounting software
Yes you can absolutely do your accounts using a spreadsheet when your freelance activities are small and new. However it is easier to forget to account for some of your expenses, and harder to keep on top of invoicing and cash flow with a manual solution.
Accounting software solutions for freelancers and small business are not expensive. Quickbooks costs less than £10 a month. Not only you can track all your expenses by linking it to your business bank account so all your transactions are imported daily, you can assign them to business or personal (or even split them), invoice your clients, track payments, send reminders and even record your business mileage from an app on your phone. When it comes to doing your tax return, hit the reporting button and the software prepares all the figures for you, ready to copy into your self-assessment. From experience, it’s saved me 2 to 3 days a month. Time you can use to do more days freelancing and earning, networking or for continual learning.
Purchase all important goods and services with a credit card
When you make a purchase with a debit card, if something goes wrong, you can request a charge back from your bank but it’s not a legal requirement. With a credit card on the other hand, your bank and your supplier have the full responsibility of delivering your goods as agreed, in the stated condition. If anything goes wrong you can legally submit a refund claim under Section 75 from the Consumer Credit Act to get your money back. Even with the greatest will, anyone can fall victim of an online scam especially if you’re having a busy time and managing all the aspects of growing your business yourself (unless you’re an outsourcer who outsources themselves. A smart concept that would call for a separate post!).
Assign a day (or half day) every week to accounts matters
The discipline is important and the earlier you start the better you’re likely to train your brain on that. For when you become busier, but still manage all your accounts yourself. You might find that you only need 1 or 2 hours of your “half day Accounting Wednesday” to start. That’s great! Bonus free time you can use on a special project, or to reward yourself with a little time-off: A run, a catch up with a friend, a networking event… A nap? By starting your habit early, you’re more likely to keep up with it as your business grows, and also not fall behind with tedious tasks like receipt matching (takes minutes with QuickBooks as you can simply take a photo of the receipt and attach it to your transaction. But if you leave it for weeks then 5 receipts might become 50 and the task looks a lot longer, more tedious…and more chances of wanting to brush it under the carpet until it’s self-assessment time again!
Keep a beady eye on expenses
Start by looking at the money you spend in terms of its equivalent income. For example, if your net profit is 20%, for every £1 you spend you need to earn £5. Doesn’t seem like a lot does it? What about if you’re about to spend £300 on an annual membership or business subscription? Can you see how it might, in time, enable you to earn £1500 or more? That’s the thinking. We’re not saying that this should be the only rule to manage your business spend at all, just something to keep in mind when you come across a new opportunity. It’s easy and tempting to spend money but keeping a tight rein on your spend might make a lot of difference to your cash flow position in quieter months.
Review all contracts annually
Set aside a day every year, or dedicated time a month before your main contract are coming to renewal to compare the market. There are plenty of operational costs, even for a freelancer, that you might be able to cut down with a little research: Internet hosting, broadband, any automation software you might be using to help you run your business – we talked about accounting software above, think also about social media posting software if you use solutions like Hootsuite Pro, Socially Savvy or MeetEdgar … Check your existing contract (sometimes it’s worth emailing or calling your provider and you could well get money off just by querying your renewal price), look at new solutions that might have launched and don’t discount free alternatives which could save you a lot of money and do as good a job, like Canva for creating graphics or Ubersuggest for SEO and keyword research for blog posts.
There you are. 6 real life tips to help you plan and grow your freelance career quicker and easier from the start, by sorting out key financial aspects and instigating good habits for the future. Now it’s your turn to go make the most of it!
Author: Jess Miller is a content producer for Claimscore.co.uk – a new website that lets you rate and compare the rankings of home, motor, travel, gadget and pet insurers in the UK, solely based on their claim reputation. We feel it’s important to buy insurance with a some knowledge of how good your insurer might be when it comes to dealing with your claims, rather than comparing only on price and cover.
Find ClaimScore on Twitter, Pinterest and Facebook.
Disclaimer- this post is in no way intended as official financial advice. Always check your terms and conditions with your specific card provider. Information on the ClaimScore website and its collaborative/sponsored/guest posts published on third party websites are for general information purposes only and is not financial advice or a recommendation to purchase any product or service. If you are unsure about which product or service to choose we suggest you seek independent professional advice beforehand. We make every effort to ensure that the information published is correct and up to date but we cannot guarantee its complete accuracy or reliability.