At the beginning of the year for your business there are a few things to get in order before you start sending out invoices and collecting payments. (Hint: depending on what you do and how your business is structured, this may not be January.)They may seem tedious now, but it will all be worth it when you’re calm, cool, collected, and organized during tax time. To that end, here are nine helpful freelance finance tips for greater peace of mind in your independent business.
A collaboration with Pallo.
1. Establish a personal budget
One of the challenging pieces of being a freelancer can be the inconsistent income from month-to-month. This makes it difficult to plan. That said, there are some expenses that never change.
Take a look at your monthly recurring expenses like:
- any insurance premiums
- internet or phone bills
- utility bills
- loan payments
Tally up the absolute minimum you have to pay each month. This can help you set goals for your business and keep you on track. Further, this especially important if you plan to take any extended time off or if your business goes through busy and slow seasons.
2. Keep track of outstanding invoices
If you have any outstanding invoices, track them down. Most freelancers only track income when they have the check in hand. For example, if you send the invoice in March but receive payment in April, you might only count that income in April. However, it’s important to understand how much you are working and how much money you make each month. Most importantly, if you did the work, you should get paid for it!
3. Set up a meeting with your accountant
Visiting an accountant isn’t just for tax time. (Though you can certainly kill two birds with one stone and get everything done in one visit.) Making sure your finances are in order at the beginning of the year can make tax season a lot less stressful — and significantly less expensive. An accountant can ensure you are organized and help you set up a quarterly tax payment schedule. Consequently, you will not be hit with self-employment tax all at once at the end of the year.
4. Create an email address just for business transactions
Most of your expense receipts will be online these days. Having a separate business email address makes it easier to get your expenses in order for tax deductions. If you do have a hard copy receipt or invoice (like from purchasing something in a store) you can take a picture on your phone and email it to that address. That way, if you lose the paper copy you still have a digital scan.
5. Automate invoices for long-term clients
As mentioned in the first item, it can be hard to establish consistent income from month to month as a freelancer. If you have long-term clients on a monthly billing cycle, look into your accounting software. You may be able to send out automatic invoices as needed and save yourself valuable administrative time. You also may be able to automate reminders if an invoice is more than a certain number of days overdue, which saves you time and awkward emails.
6. Establish a business checking account
These days, it is more than likely that most of your invoices will be handled digitally. But, in the event you need to cash a check from a client or accept a money order, this account will come in handy for practical purposes and establishing legitimacy. Keeping your business finances separate from your personal ones is especially important once you establish an LLC or other legal categorization and can help establish business credit if you open a corresponding business credit card.
7. Check on your retirement account or savings account
Budget experts always recommend having some money set aside for a rainy day: car repairs, emergency travel, medical expenses, or other things you may not necessarily see coming. If you are not regularly contributing to your retirement or savings account, set up automated payments so that you don’t have to think about it. If your income is very inconsistent from month to month, consider establishing payments that are a percentage of your check instead of a flat rate — for example, 5% instead of $100 each month.
8. Meet with your attorney
The beginning of the year is a great time to check in with an attorney to see if your contracts need to be updated. The purpose of your contract is to protect you and protect the client, so review them periodically to ensure that nothing has changed and that they are still covering everything you need them to. While it may be expensive to set meetings with an attorney, it is even more costly to end up in a legal altercation that could have been avoided.
Prioritize running through this checklist once a year. These little things can fall by the wayside once clients come calling. But both your tax professional and future you will thank you!
Hello Alice caught up with the experts of Pallo to discuss how getting acquainted with your finances can lead to small business success! Watch the full video here: