Importance of Bookkeeping for Freelancers

Jul 2020

As a freelancer, you may have various clients, and common concerns of freelancers are getting paid. 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 bookkeeping tools. 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.

Income and expense tracking are recording and categorizing all the debits and credits in your bank accounts. Accounts receivable is the tracking of all of the money that other people owe you, which will likely be your invoicing and payment systems. Accounts payable is the monitoring of all of the money that you owe others.

You'll be able to keep a record of outstanding invoices so that you can collect the amount. You won't miss out on billing your clients, and you'll be able to see the state of your cash flow quickly. If you find that you run out of time to manage your accounts regularly, then investing in a bookkeeper will free up to spend more time doing what you love. Here it is how to make bookkeeping work for you.

Value of Bookkeeping in Your Business

Create an Organized and Structured System

  • Start doing it right away, as soon as you start freelancing. Don't put this off as you will find it difficult to remember at a later date.
  • Seek advice with a bookkeeper. Ask them which software they use for accounting the data. It makes it much easier if you both use online accounting software. That way, you can share data efficiently and securely, from anywhere.
  • You are setting a time to do your books every day or week. If you don't do this, it can be challenging to catch up. Nevertheless, if this is just not possible, consider employing the services of an appropriate bookkeeper.

Keep Records of Key Parts in Your Business

Key elements of your business that you should include, 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.

Record all of this in your software. Modern accounting software uses this information to make accurate invoices, produce cash flow reports, and identify your best clients and worst.

Offset Your Expenses Against Tax

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.

  • Invoice promptly and regularly
  • Identify late payers at a glance
  • Set reminders for your clients as well as for yourself

Keep Money Aside for Your Tax Bill

Unlike a regular employee, your tax is not going to deduct from your pay. That means you need to plan to keep money aside for your tax bill, and you need discipline. It's essential to get into the habit, and the government is unlikely to be lenient if you fail to pay your tax bill. So, keep the money aside and record it when doing your bookkeeping.

A list of 10 Bookkeeping Tips that Help Freelancers Stay on Track

  • Save a percentage of income for taxes
  • Keep track of your expenses
  • Document your receipts
  • Don’t fall behind
  • Let software work for you
  • Hire a CPA to help you
  • Get your clients to pay on time
  • Be strict about your budget
  • Follow the rules
  • Ask other freelancers for advice

5 Common Bookkeeping Mistakes Freelancers Make

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. If you hold any queries, do speak to our experts. Contact us today-we’d be glad to assist.