As long as you are making money, you need to do bookkeeping. There is no running away from it. Because, no matter what you are doing, you are going to need to hire a bookkeeper sooner or later.
Tax season is coming even when you are a freelancer, and you must ensure that you are ready for it. Do not worry about it, because the bookkeeping for freelancers that needs to be done is pretty similar to small business bookkeeping. Because, after all, you have a small business!
Many people don’t want to work as freelancers because while it might come with lots of advantages, it has some disadvantages too. The first and biggest disadvantage is that you need to take care of your own books. The best way to do that is by hiring a professional.
Today you will learn all about it, so that you can follow your dreams without worrying about cash flow problems. Let’s take a look at how a professional can help with your books.
BOOKKEEPING DEFINITION
Bookkeeping is a systematic process where every financial transaction of your business is recorded. Everything needs to be first recorded, and then organized. The recorded transactions need to go into categories, as this helps with organization. Moreover, the data that is recorded must be accurate.
Remember that you need this data to make good decisions for your business, and you will also need it when the tax season comes around. Now, know that all bookkeeping begins with a ledger. A ledger is where you actually record the data.
Freelancers, listen closely! Everything needs to be labeled and recorded in chronological order. This is useful in case you need to check financial records from a while ago. If, for tax purposes, or any other purposes really, a receipt from a few months ago is needed, this is how you know where it is.
A professional bookkeeper would recommend organization by year, then month, and eventually categories. This is more easily done if using a software program. There are a few main categories that a freelancer has to know:
Double-entry bookkeeping is the most effective method that can be used when taking care of the books of freelancers. The main idea of this method is to record every transaction twice, as both an asset and a liability. So, if you are borrowing $100, it needs to be recorded in both categories. Why? Well, because the $100 in cash is an asset. But the $100 of debt that you now have is a liability.
The main benefit of using this method is obtaining accuracy. The fact that every transaction is recorded twice reduces the risk of errors. If the two financial records don’t look identical, it is clear that a mistake was made somewhere. Moreover, a double-entry system is harder to manipulate than a single-entry system. Therefore, it’s easier to identify any fraudulent behavior. And, last but not least, having accurate data allows you to make informed decisions when it comes to your business.
Making sure that everyone knows what a freelancer actually is might be a relevant piece of information for some people. A freelancer is self-employed, which means that they are working for themselves. This usually works by them offering a service to a client, especially in project-based situations or short-term collaborations. There is a pre-determined fee, and they can negotiate the terms of the contract.
As you can tell, the one nice thing about being a freelancer is the fact that you can make your own work schedule. You set your own rates and are responsible for finding your clients. You have freedom and flexibility. Freelancing is extremely common in many fields, but there are some industries that have more freelancers than others. Many of the people who are freelancers work in the following domains:
As someone who doesn’t know a lot about this industry, it’s important to understand that there is a difference between these two practices! While the two terms are often used interchangeably, and it’s true that they work together, they don’t mean the same thing.
To put it simply, bookkeeping is about gathering the data. And accounting is about interpreting it. One brings the ingredients, and the other does the baking! Both steps are incredibly important, because you need an accurate date in order to analyze the financial situation of a business.
As you can tell, accounting cannot be done without bookkeeping.
And bookkeeping wouldn’t be so important if not for accounting.
They are like wine and cheese!
One of the first steps you want to take if you want to be the owner of an efficient business, is to have a well-thought-out system. Understanding how bookkeeping actually works, and what some of the things are that you need to do as the owner, to ensure the financial health of your business, is fundamental.
Decide how you want to receive payment. Weekly, monthly or after each task? This helps to keep track of the invoicing process with ease. You also want to choose between cash-basis and accrual-basis bookkeeping.
This is not an easy decision, this is why it’s best to consult a professional. There are pros and cons for each option, and your bookkeeper will be able to explain to you why a certain option is better for your business. The fact that you understand certain terms and concepts is already helpful enough, you don’t have to choose alone! Every business is different, and therefore will need a different strategy, which you cannot build on your own. If you want to help, take a look at some of the other terms that you might see from time to time.
As mentioned previously, a bookkeeping software program can make everything easier when it comes to bookkeeping. One of the best software programs is QuickBooks. And, there is a series of actions that can be done with this tool:
Proledge has a team of experts that can help you or your team use a software program like QuickBooks to its maximum capacity. The program was built keeping the freelancers in mind, which is why it’s simple to browse and use it. But, there are many hidden tips and tricks that you need to be taught before you can use all of its features.
We can provide both online and offline one-on-one training sessions to ensure that you get all of the information you need. Don’t worry, after the training is over, we will still be here, ready to answer your questions!
Keeping your finances separate is going to be one of those simple things that goes a long way. The professional who helps with the bookkeeping for your business needs to know exactly which are the expenses of your business, and which are yours.
Mixing the two up it’s easier than you imagine. You don’t keep them separate, and then, the next thing you know, it’s tax season and all of your financial records and messed up. You might have cash flow problems, and you don’t even know it. Moreover, this is how you lose on the tax-deductible expenses. That will also need proving that they are legitimate.
Outsourcing is the practice of hiring a third-party firm or individual to manage your financial records. Maybe you are too busy, or cannot do your own bookkeeping, for any reason, you can hire someone to help you. When you are a freelancer, there are a lot of elements that you need to keep in mind, and the financial health of your company shouldn’t be on your shoulders.
So, instead of doing it on your own, or hiring someone in-house to do this task, you hire a third party. You reduce your stress and the expenses that come with hiring someone in-house. You can collaborate bigger or smaller. Keep in mind that freelancers can be the ones being outsourced, or they can outsource themselves.
So, you can hire Proledge to do everything related to your financial records. Or, you can hire us for just one task. Maybe you have some cash flow problems that you want to fix, but don’t need help with anything else. We are here to offer the services that will allow freelancers to focus on growing their business!
Let’s take a look at some of the main benefits that come with outsourcing services:
There are some practices that you must keep in mind when talking about bookkeeping for freelancers. The first one is to track every expense, no matter how small. Many business owners buy things, like coffee for the office, but don’t keep the receipt. Besides the fact that it is probably a tax-deductible expense, you are going to have cash flow problems sooner or later. Tiny expenses pile on top of each other and create a big and scary expense. The second one is to take pictures of every receipt. When possible, have a digital and physical copy of each one. So, take the picture and send it to your bookkeeper.
One thing that not many people do is put money aside for taxes. It’s way easier to put a small amount every month, than to gather a big amount when tax season comes. Moreover, while you are putting money aside, review everything that was recorded that month. Maybe there is a receipt you forgot about, or maybe something was mistakenly recorded twice. If you notice any mistakes, contact your bookkeeper immediately. Another best practice to follow is to constantly ask for updates on cash flow. The situation could change quickly, and you don’t want to make decisions that you cannot financially support later.
Even if already mentioned, the most useful tip you could ever receive is to keep personal and business finances separate. Mixing these up creates unnecessary headaches for your bookkeeper and for yourself. If possible, when you are opening up your new business, open a new bank account. This makes keeping your finances separate easier. Moreover, it gives you a more accurate view of how your business is going.
Keep track of all the tax-deductible expenses. There are more than you would think! That drive you took to meet with a client, or part of your rent if you are using a room in your apartment as an office. But for this to work, you need to provide all of the receipts to your bookkeeper. Deductions that are not proved cannot be claimed.
Many people end up with lots of problems because they are too arrogant to ask for help. Let that never be you. Always ask for a second opinion or a second pair of eyes when you think it’s necessary. You are a freelancer, not a miracle worker! Even if you hired us for only one task, come back for more whenever it’s needed.
Keep track of the money that you need to receive. If a client is late with the payment, make sure to remind them about it. If you don’t keep track of these things, you will end up not being paid for your work. Bookkeepers cannot know everything that you do, so you can help by keeping track of these kinds of things.
Proledge is a company with over 20 years of experience in the industry. We have assembled a team of experts that can help you with any problem that you have. We are reliable, professional and good communicators. If you have any questions, you can just contact us, and we will make sure to find a solution to your problem. We are passionate about what we do, which makes us stand out! We are available for both calls and online meetings. Moreover, our company always tried to find the perfect balance between price and quality. So, you will get the best for the smallest price. Don’t worry, we’ve worked with freelancers before, so you are in good hands.
If you don’t have to just take us on our word, because you can always check our reviews. All of the clients we worked with had an amazing experience with us. We care about your business, and we always come up with personalized strategies. And when it comes to bookkeeping for freelancers, we can be a great help. We can even help you with learning how to use the most famous bookkeeping software.
Let’s take a look at all of the services that we are offering:
The ProLedge team is ready and able to answer any questions regarding the services that we offer, besides double entry. You can contact us anytime, and we will make sure to accommodate your business. We are available for both online meetings and calls.
OUR BLOG
Our blog provides information on the latest bookkeeping news and tips. We always keep this section updated, so check our website regularly!
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