Everyone has an idea for the next great thing-a-ma-jig or doo-Hickie that will revolutionize life as we know it. Very few of you will ever take that first step and start. A fraction of folks will let those dreams die with them.
But for the ones who make the leap, understand this.
It takes more than guts and drives to succeed…it takes money.
The number one reason many freelancers and entrepreneurs fail is due to poor money management or understanding of finances altogether.
Or, put more succinctly, you run out of cheddar.
In fact, lack of funding is commonly reported within the first year. However, poor money management can easily be avoided by taking the time to understand business finances and personal finances. And not in a complex, gotta get an accounting degree way. Instead, in a super simple way to grasp the concepts behind what keeps your freelance business alive and thriving.
Here are five crucial money management tips to follow as a new freelancer.
Be aware of and keep up with taxes
Don’t mistake ignoring your taxes and other business expenses until the last minute.
This can easily set you behind as you can quickly rack up fees.
Freelancers and business owners must pay their taxes as they go. This means you will need to pay your taxes quarterly and file annually instead of just annually like you may do as an employee. Employers pay these quarterly taxes for you, which can easily be missed as a new entrepreneur.
It may feel invigorating to get that first big check from your client, but remember that Uncle Sam needs his piece too.
Keep your freelance business and personal monies separate
You’re in business now.
You can’t act like you’re not, so accept that fact and act like a business owner. Even if it is your very first client. So how do you begin to do that?
Get a business or separate bank account as soon as possible.
This way, you know exactly what expenses to report when filing your annual taxes. You also want to be sure you are not spending any of your business income on personal projects. Not only that, it will make offering refunds easier if your business requires it.
Start as I did many tears ago if you’re wondering how to open a business bank account.
Simply ask your current bank if they also offer business accounts and what you’ll need to open one. It’s often as easy as your social security number, a small amount to open it, and a business or “DBA” (Doing Business As) name.
Keep it simple, and keep it separate.
Keep clear and proper records from the start
Implement the proper controls and tracking processes from the start.
This means getting used to asking for receipts and storing critical financial documents. Starting with the right system and method is more manageable than implementing it later, as many transactions and other financial data can get lost.
I started crazy simple in the early days.
I simply used my laptop and a separate file to store all my initial documents like receipts, expenses, and official paperwork. Don’t spend oodles of money on complexity here.
Remember, at this stage, your focus is on serving clients, not buying expensive filing systems.
Utilize accounting software or a bookkeeper
For success, opt for accounting software like QuickBooks or Xero.
Rasmal is a digital PR and innovation agency that aims to serve as an enabler and connector for aspiring Arab entrepreneurs, startups, and nascent companies.
These tools streamline the accounting process and make hiring a bookkeeper easier. If you are not an accounting professional, it is always best to use tools and engage those with the experience to avoid mistakes.
What I did?
I’m bad at finances and numbers. After all, I’m a writer, not a numbers nerd. So in the early days, I had a bookkeeper (NOT a CPA and NOT an expensive accounting firm!) come in for a couple of hours a month and balance everything. She kept my financial records up to par and always in check for tax season.
Do this from the get-go, especially if you have grand growth plans.
