Keeping track of your finances as a freelancer is vital, and a core consideration in your business.
There are 3 central ‘departments’ for your business – all of which are fundamental to your success – and they contain within them every facet of your business. They are Marketing, Operations, and Finance.
Here we look at some basic records and documentation to keep your business running smoothly where finance is concerned.
Time or work/value tracking
Whether your clients request it or not, you should keep a track of how much work/time you’re doing compared to how much you are getting paid. It helps you to stay in control, and to manage client expectations. It can also help you to provide accurate estimates, quotes and invoices.
You can stay on top of how profitable your work is, and make sure you aren’t under-pricing, wasting time, or losing money in some way.
If you haven’t done this before, simply track time spent – or work/value you provide – on tasks or projects. Work out what individual aspects of your services cost you (in time, money, resources…) Once you have a clear idea of these things you’ll know the base rate you need to charge the next client as a starting point.
Professional invoices are very important, and are highly recommended, as apposed to simple email/message payment requests or similar.
Firstly they’re an official record of your transactions with your client, which gives you security if it ever came to a dispute or legal proceedings between you and a client. Also, of course, it can save you a lot of time and headaches when it comes to filing your tax returns, being as they are, a clear record of transactions you can refer back to if need be.
They can be created in various ways, and/or payment processors such as Stripe or PayPal can generate invoices for you. However you do it, each invoice should include at least this information:
- Your branding and or business information (Business Name; Address; Contact Details).
- At least the business name of your client. Identify your client as clearly as you can though.
- An Invoice Reference Number.
- Itemised list of services/products provided.
- Total amount due.
- Payment due date.
- Payment methods and details, so that the client knows how to make the payment.
When a client makes a payment, logging it and sending a receipt is the best practice.
It’s a part of keeping track of payments due to you, and maintaining your records. It’s also good for your clients and their own records.
Using professional invoices and sending receipts is a basic activity of business, and also helps portray you to the client as a professional service, rather than a ‘side-hussler’.
Whether you use spreadsheets or other software, money management is crucial.
Even if you hire an accountant, they will of course need you to create and maintain your basic ongoing records yourself.
It doesn’t need to be complicated, and in fact, the less complicated the better. Clarity and easy maintenance are what you need. Personally, like most businesses, I keep ‘Cash Flow’ and ‘Profit & Loss’ documents, as spreadsheets
Cash Flow is where I keep track of the day to day accounts, so that I’m always on top of where I stand, know what to expect in the coming days/month, and am aware of what still needs resolving. Cash Flow is the lifeblood of your business!
Your Cash Flow includes:
- Who is paying, or being paid.
- What the payment is for.
- Date the transaction was (or is expected to be) made.
- The above separated into outgoing payments and expenses (Debit) and incoming payments (Credit).
Profit & Loss is a breakdown of what has happened in your Cash Flow over the month, and the year. A whole year can be recorded in one spreadsheet, with columns that break down the cash flow grand totals for each month. You can update it on a monthly basis, and have a clear record that saves time at the end of the year, when doing your tax return..
As a side note, if you haven’t yet, make sure you open a separate bank account for your business, to keep business finances separate from personal finances. This is a more in-depth conversation for a later post, but basically, always keep business and personal money separate.
Why Settle for Your Current Freelancing Income Level When There Are Simple and Effective Ways to Increase It?
This free guide will inspire you with lots of practical methods for generating additional income from your existing freelance business. Presented in a concise, quickly digestible, and easy to refer back to format.
The quality suggestions in the guide cover various areas of your business, with methods pertaining to your fees, your services, different strategies, business practices and more…