Nowadays more and more people prefer to start their own business or work as a freelancer. This has been possible due to an increase in business opportunities all over the world. In the present state of the world where jobs are not stable due to the global pandemic, more and more people prefer to become a freelancer as they feel this can be more profitable for them.
A freelancer has the opportunity to work for different organizations and entities. This can be a boon for the freelancer but can also increase the problems. Though the freelancer will be able to gain knowledge across different sectors he will also have to keep track of the transactions done with each of them. As various industries and sectors are into play, there are chances that the freelancer can mistakenly miss out on recording a certain transaction which can cause huge problems to the freelancer later on.
The freelancer has to create and maintain transactional records across different sectors and industries which can be a bit problematic. It is hard to keep a record of who owes you money, when, and how much. That is why freelancers need to understand bookkeeping and use different bookkeeping tools. They can even opt for outsourcing their bookkeeping requirements to a third party.
Bookkeeping is the financial recordkeeping aspect of your business. It is keeping track of all the money that comes in and goes out. There are three main parts that, when we put it together makes a perfect harmony.
How Bookkeeping Can create Value for Freelancer
There are many benefits to a freelancer of applying bookkeeping practices to its work. Bookkeeping will make the freelancer more effective and will allow it to handle more work in less time. Some of the benefits of Bookkeeping to a freelancer are:
Organise all Records
A freelancer should maintain bookkeeping records from the start of the freelancing career. For this, the freelancer can take the assistance of various bookkeeping software or can even hire an external third party for the bookkeeping processes.
Maintain Business Records
All the necessary details such as your hours spent working for each client, your business expenses, all payments you make it including bank transfers and all payments you receive from clients etc. should be properly mentioned. Modern accounting software can be used to prepare accurate invoices, produce cash flow reports, and identify your best and worst clients.
- Prepare for Taxes
If you're a freelancer, you can balance many of your expenses against tax. You can offset things like:
- Travel expenses, power, office rent, utility bills, including a room in your home
- Capital expenditure on essential items such as a computer, printer, and phone
- Vehicle maintenance if you were using a car for business purposes
- Client entertainment expenses, though some restrictions apply
So, make sure that you record all of these details when doing your bookkeeping.
Get Paid Faster
One of the significant benefits of having up-to-date accounts is getting paid more quickly. Collecting payment is an actual issue for many freelancers, but bookkeeping can help. As all the records of the transactions are readily available, no delay will b caused in the payment procedure. The freelancer should maintain the following:
- Invoice promptly and regularly
- Identify late payers at a glance
- Set reminders for your clients as well as for yourself
Keep Money Aside
Bookkeeping will allow the freelancer to prepare and maintain a budget which will help the entity to stick to the budget. It will also ensure that the freelancer does not go over budget which can cause problems in the long run.
Common Bookkeeping Mistakes
As a freelancer, maintaining the proper accounting books of the company is an essential requirement. It can be a daunting task, particularly if you have no accounting background. In such cases, Accounting errors are inevitable; however, common accounting mistakes easily avoided when an appropriate plan provided. Moreover, it is more comfortable and cost-effective to correct the accounting mistakes earlier than later, especially if it’s a long-term project as it provided a competitive advantage.
The five most common bookkeeping mistakes freelancers make include:
- Linking personal and business expenses
- Lack of proper receipts storage
- Recording transfers as income
- Failing to have an accounting system
- Working without a budget
After you have done an evaluation of your bookkeeping and realized you make one or more of the above mistakes, it’s time to make the appropriate corrections.
We JAXA Chartered Accountants stand as one of the best business auditors in Dubai. We will help you to understand and channelize your bookkeeping records in a better way. Our experts are well-versed with the relevant proceedings and can guide you at every step. We also provide a number of services that will help your business on its journey towards profitability. If you have any queries regarding the services of JAXA, do speak to our experts. Contact us today-we’d be glad to assist.