Managing your bookkeeping is one of the most vital aspects of staying on top of your business. Still, many people don’t particularly like number crunching and others don’t even know what to do to maintain their records.
What’s the point, anyways? We can all just stuff receipts into an envelope and hand it over to an accountant, right? Well, you could – but it certainly wouldn’t be very smart to depend on your accountant to sort out your mess. Here’s why:
How Much are You Really Making?
Many a freelancer believes that because of the low overhead of remote working, most of the income is free and clear. There are factors that reduce your take-home income, like Internet connection costs, ink cartridges, even the electricity that fuels your computer. Of course, there are taxes, too. Most people are surprised to learn that the $100 they just brought in only leaves them with half in their pocket – and sometimes less than that at the end of the day.
How Can You Take Decisions?
Can you really afford that course or seminar? Should you increase your rates? By how much? Was last month a good one or just okay? Have you really spent that much on books this year? And that surprise tax bill… do you really have to pay that much?? Wait, hang on – where’d that credit card bill come from? Floating along without keeping track of what’s coming in and going out – and having that history handy – means you may have some nasty surprises.
How Can You Take Decisions?
If you don’t know how your business is doing at any given time (and not just at tax time), how can you make informed choices with the lowest risk for your business? You may need to decide whether a new PC is a good investment or know whether an ad campaign increased business for a certain service. You can’t if you haven’t tracked information.
How Much Do You Love Your Accountant?
Some people love their accountant a great deal – enough to subsidize his trip to Florida each year, in fact. When you hand over papers for someone else to deal with, you’re paying them not only to crunch numbers but to sort, file, add and organize expenses. They charge you premium price for that service – accountant rates, not VA rates.
How Lazy Are You?
Ever said this? “I’m not good with numbers.” What about this? “I have no time for bookkeeping.” Or even, “I don’t know a thing about accounting!” Excuses, excuses. Maintaining books on a regular basis takes all of maybe two hours per week or less – and learning what you need to do for record keeping isn’t hard or time-consuming.
How Can You Keep Track?
Many accounting software packages are truly built for accounting dummies. (I know. I’m one of them. Math was never my strong point.) The software doesn’t require new skills or amazing abilities, and it’s all very plug and play. Tutorials on the web and forums let you get answers to questions or learn how to use a special feature to make your life easier. My personal recommendation is QuickBooks, and they even have a budget version available.
You can also use a simple Excel sheet to track expenses and income (because that’s all you really need to do.) Write the names of months across the top columns. Write the description of expense or income (and be specific) down the left side. Fill in the amounts consistently as they occur.
Want to be lazy? This site offers a free Excel sheet already prepared to get you started with tracking.
You’ll be on track, on top of your business and on the ball with financial decisions you need to make.
The taxes are what always gets me. I wanted to strangle my account last year when she told me how much I needed to send to the IRS. PayPal offers some neat tools to help you track expenses and income. You can even download your records straight from PayPal into an excel sheet.
I procrastinate bookkeeping too often. I usually end up devoting an entire day to straightening out everything about once every three months. I wouldn’t recommend it.
HA! I just read the little tag at the bottom: written by James!
I am NOT following you around today, I swear! Thanks for the post.
Excellent post James. I keep a spreadsheet on my desktop and add info as I need to. That way it’s very simply and I don’t find myself feeling as if it’s a huge chore that I have to do at the end of the month.
@ Fiona – I work like that myself, transferring info to QuickBooks as it comes in. I’m always on top and it just takes a few minutes a day.
@ Jamie – Ha! Caught you! Yeah, I think the first year of tax reporting for any freelancer is a tough one. That’s when you start to learn quickly how you need to work!
Every quarter I make a comprehensive budget broken down into each month that tells me what I can afford for advertising, office supplies, utilities, etc etc. I create this budget based on last months sales numbers (post-tax of course) so I know that I can definitely afford what I have budgeted for. I always make sure that I have at least enough money in the bank to cover this quarter’s expenses and whatever I make in this quarter covers next quarter’s expenses. I also formulate a sales quota based on how many projects I think I can reasonably close, and try to overshoot that by a bit. It gives me a goal to keep in mind and keeps me motivated. When you’re a freelancer you have to remember that you’re in sales and marketing as well. I treat myself as a salesman (I used to do sales and marketing for a corporation).
Keeping an actual spreadsheet that breaks down where my money is going (and where I can allow it to go) really keeps me on top of my business finances. As a freelancer, it’s easy to forget that you’re essentially running a business, and you have to treat it accordingly. It’s not a good idea to live check-to-check when you have no idea when your next check is coming in; especially when clients pay late (or not at all sometimes), and there is no regularity to rely on.
Nothing to add except nice to see you here, James.
@ Amy – My pleasure to see you as well