Freelance Accounting: Get Fantastic at Finances as a Freelancer


Oh man. I hate doing accounting. So writing a whole article about freelance finances might be the undoing of me.

But as a freelancer, your finances are one of the most important parts of your business.

If you don’t keep on top of your income and outgoings, your invoicing, your tax returns and everything else that comes with running your own freelance business, then you could dig yourself into a big hole – a hole that’s difficult to dig yourself out again.

I don’t want to scare you. But I do want to emphasise the importance of keeping on top of your freelance finances.

How I learned to take finances seriously

A few years ago, I was running a small voluntary organisation called Bright One. We matched small charities that needed PR and Marketing support with volunteers who wanted to learn more about PR and Marketing or to give something back.

We did well as a small volunteer-run organisation, often punching above our weight and delivering millions in value to out clients, some of the worthiest causes out there.

What I didn’t do very well was keep on top of the organisation’s finances.

Accounting always fell to the bottom of my to do list and I made the mistake of not constantly keeping the books updated. So whenever I fell behind, I put the finances off even more and only got back in track through spending all-nighties getting everything up to date.

Bright One was a small organisation with little running costs, so the accounting was a relatively simple affair. But I still missed tax deadlines on several occasions, having to pay fines for late submissions.

Working with a brilliant accountant, we were able to get everything in order and had our finances running smoothly, but these stressful periods taught me several lessons and hammered home the importance of keeping finances in order.

Now I’m running a freelance business, here’s how I keep on top of my freelance finances.

NOTE: These points below are based on my own individual experience. If you any financial concerns about your business, please consult a professional accountant.

Hire a good accountant

You can save yourself whole heaps of stress just by hiring a good accountant to help you stay tax-efficient and compliant.

They don’t need to be expensive (check for local accountants for example) but they’re worth every penny. They know all the ins and out of accounting law, so will save you a lot of time, money and stress by handling your freelance accounts for you.

The best way to find a good accountant is to ask for recommendations from other freelancers or small businesses you know. If they are happy with their accountants, then it’s sign that you will likely be too.

If you can’t get a recommendation, look for local accountants in your area. By going to meet two or three different accountants, you’ll be able to find out more about what’s involved, ask questions about what’s involved and find the accountant that’s best for you – both budget wise and in your relationship with them. After all, they’re one of the most important business relationships you have, so it’s important to find an accountant that fits.

Another option is in the new wave of online accountancy options. These take the old notion of accounting software and bring it up to the modern age, with the backup of accountants being available on end of a phone call if you do need to speak to someone about an accounting issue.

I’ve been using Crunch accounting for 3 years now and am delighted with their service. If you’re looking for an online accounting service, then I (and lots of other freelancers I know) highly recommend them.

Of course, you’re business might be small enough that you just want to keep track of your own finances, then send them to an accountant to prepare for filing. This is more cost effective, but does require more effort on your part.

Whichever option you choose, getting an accountant in place is one of the first things you should do when setting up your freelance business.

Understand the basics

In the UK, the HMRC has a great guide for what you need to do when you start a business, including guidance on what you need to do for tax and National Insurance purposes when you start a business, return filing and paying deadlines and what records you must keep.

You don’t need to go into the full details (your accountant can help you with that), but here are the main sections you might like to spend some time reading through:

  • Starting up a limited company
  • Getting started with VAT
  • Self-employed tax and National Insurance
  • Record keeping

In the US, the IRS has listed basic federal tax information for people who are starting a business, as well as information to assist in making basic business decisions.

  • Is it a Business or a Hobby?
  • Selecting a Business Structure
  • Business Taxes
  • Recordkeeping
  • Checklist for Starting a Business
  • Small Business Publications

They also helpfully include information about specific industries and professions, as well as state-level requirements for starting and operating a business.


Little and often

Accounting doesn’t have to be a once-a-year fight to the end to get your books in order and our tax return in time.

Just spending a little amount of time on it, say once a month to get everything up to date, is enough.

Even better, updating however you track your finances as you go along will save you even more headaches in the future.

Make a note of everything

At the very minimum make a note of every sale you make an everything you buy through the business.

Keep all receipts in a separate folder and make a spreadsheet with all information – date invoices, date paid, product or service purchased, amount, who (company and party).

If you’ve got an online software package for your accounting, then this might be overkill. However, it can be handy to practice the above in case you need to go back and review specific items.

There are also a few important dates in all companies’ financial years, no matter how big or small you are.

It can be helpful to make a note of these dates in a calendar, so you’re aware of any upcoming deadlines and can prepare accordingly, avoiding a last minute rush.

Here are a few suggested dates to keep track of:

  • Year end
  • Annual return due
  • Tax returns due
  • Payments in tax returns due
  • Self assessment tax returns due

Make a note of these dates in your calendar and it’ll help you keep to deadlines.

Keep some income back for taxes

When you get a client payment, it can look really nice to see that lump sum in your bank account. But some of that isn’t yours and needs to pay for taxes.

Keep 20% (or whatever you tax rate is) stored safely away, preferably in a separate bank account.

You’ll thank me when the time comes to pay your tax and you saved that money, rather than splurged it on nice new shiny things.

Keep a separate bank account

Having a separate bank account for your business means that you can keep track of your income and outgoings easily, without complicating it with your personal transactions.

Plus, it’ll be easier to keep money aside for tax purposes and other expenses. You won’t be so tempted to dip into your business funds when you see a large client payment come in.

Keep some back for slow periods

Every freelancer goes through slower times of work. That’s why freelancing is known as a "feast or famine" culture – you’re either too busy, or not busy enough.

For this times when you aren’t busy, it can help to have saved a little for when you where working plenty. This stashed away cash will help you through the slower period and means you can still live a normal life and pay your bills.

Most people recommend that you try and save 2 months worth of living expenses, just to be on the safe side.

That can be tough to save for, so plan for whatever’s comfortable to your circumstances. But do make sure you put a little aside for rainy days.

If you get in trouble, shout for help

There’s nothing worse than not facing up to the facts when you’re in trouble. I learnt that the hard way.

If you’re behind on payments or don’t have enough to pay your tax bill, facing be inevitable sooner rather than later is the best thing you can do.

There’s plenty of ways to get help, so start by discussion with your accountant about your situation and they can advise on the options are available.

You can also contact your local tax office to discuss your circumstances. You may be able to stagger the payments on anything you owe, which will make the cash flow easier.

These are just the main points I’ve learned to keep my freelance finances in a healthy condition.

However, this is just my own experience, so make sure you consult with a professional accountant for any financial concerns you have about your business.


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