Working as a freelancer can be extremely rewarding. The very idea of setting your own schedule, working in a profession that you love, and even controlling your own wages (to a certain extent) is the ultimate dream. Unfortunately, there are so many talented people out there that simply don’t take that last step and make it a reality.
But all of these benefits don’t come without at least a few negatives (although they pale in comparison). A common issue that freelancers face is their ability to conduct their own reporting. Tax returns, accounting and general day-to-day bookkeeping often gets lost in the slush pile, only to reappear when there’s a problem.
If you’re thinking about moving into freelancing but are put off by the fear of accounting, these tips will help.
1. Separate Your Bank Accounts
You absolutely must keep your business and personal expenses separate from each other. Failure to take this simple step will make your financial reporting so much harder. Ensure all of your payments and expenses go directly in and out of your business account, and then pay yourself into your personal account when the time is right, keeping a buffer for any unforeseen costs.
2. Register For Online Reporting
Filing your tax return can be tricky, but you only need to do it once per year. Signing up to HMRC’s online portal will take some of the weight off your shoulders by providing step-by-step instructions. It only takes a few minutes to register, and then you’ll be sent an activation code in the mail to complete the process.
3. Number Your Invoices
Invoices aren’t just for prompting clients about making payments, they’re also your record of the transaction. Make sure you get them right from the start and number them in chronological order. If you have to go back and make changes after they have been filed, be prepared for a major headache.
4. Let Technology Help You
Small businesses lose billions of pounds each year due to incorrect reporting. There are literally hundreds of apps out there that will help you keep in control when you’re out and about. By tracking your expenses in real time, you’ll never have to worry about missing out on tax rebates at the end of the year.
5. Create Profit & Loss Statements
A profit and loss statement (also known as a P&L) will show you exactly how well your business is performing by summarising how much money you’ve gained or lost within a particular period (usually monthly, quarterly and yearly). By creating a P&L you’ll also be able to figure out if your reporting is all in order.
Don’t let your hatred of accounting get in the way of your dreams. After all, it’s a difficult sector to navigate on your own. If you’re a flat rate VAT IT contractor who is unsure how to report your earnings or how much VAT to charge, and/or whether or not you should register as a limited company or sole trader, hire a professional to do everything for you. While an accountant or bookkeeper may seem like an unnecessary expense in the early stages, they can be a valuable asset, helping you save money and time – time that could be better spent on revenue generating activities.