Bookkeeping for Freelancers: A Beginner’s Guide

As a freelancer, getting paid and preparing for tax season are essential to your business, making bookkeeping skills vital.

Tracking clients and payments can be challenging, but effective accounting management helps you stay on top of invoices and collect outstanding payments.

Maintaining accurate records of your business activities provides a clear view of your cash flow, ensuring you’re ready for tax season and potential audits. If you’re struggling with accounting tasks, using bookkeeping software can free up time to focus on what you love about your business.

Key Takeaways

• It’s important to stay on top of your accounting all year long so you’re prepared when tax season comes around. 
• Keep track of all your expenses and set aside cash to avoid surprises during tax season.
• Accounting software is a major help to freelancers.
• Bookkeeping helps you manage your freelance income and ensures you’ll be ready for an audit.

7 Bookkeeping Tips for Your Freelance Business

You don’t need an accounting degree to keep your cash flowing and your books in order. Here are 7 bookkeeping tips to keep your freelance business on track.

1. Stay on Top of Your Finances

Set your freelance career up for success by allocating time daily or weekly, depending on transaction volume, to organize your bookkeeping and ensure you enter every invoice or expense receipt.

Keeping track of your bookkeeping is so important when it’s time to file your taxes. Here are a few write-offs and data to track for the end of the year:

• hours you worked on a project
• jobs you have completed for clients
• fees charged per hour for every client
  • Common business expenses
• payments you made
• bank transfers and online payments
• client payments

2. Establish a System That Works for You

There are many tools in the marketplace that will help you easily input your financial data anywhere and at any time. Accounting software will help you organize your finances by tracking outstanding invoices, managing your cash flow, invoicing clients, and ensuring you have accurate financial records for your freelance business.

3. Use Invoicing Software

A program like FreshBooks online accounting software will have advanced features to help you:

• quickly create and send custom invoices
• set invoice alerts for you and your clients
• upload receipts and keep them organized
• identify and follow up with late payers

Ultimately, accounting or bookkeeping software helps you bill clients faster, reduce errors, and maintain clear records for loans or audits.

4. Separate Personal and Professional Assets

Separating your personal and business finances can be tricky. To make it easier, open a separate business bank account for business transactions. Here’s why this is key:

• You can easily accept cash, checks, and electronic payments (bank transfers, online web-based payments like PayPal, etc.). 
• You’ll have a clear view of your business’s finances, making bank reconciliation, budgeting, and pricing easier.

Once you’ve set up a business bank account, you can easily keep tabs on business expenses with a system like FreshBooks expense tracking software. It links to your business bank account or credit card to automatically import and track your business expenses.

5. Reporting Lets You See the Full Picture

When you’re a freelancer, business decisions are squarely on your shoulders. Business reports give you the information you need to make informed decisions.

Some of the most important reports to analyze on a regular basis are the:

• income statement (profit-and-loss report)
• balance sheet 
• cash flow report
• accounts receivable aging report

Regular financial reporting can demonstrate the strength of your business’s financial health to potential investors. And when tax season rolls around, you’ll already have these important records on hand.

6. Send Invoices and Payment Reminders

Too often, freelancers don’t get paid on time because their clients focus on other things and forget upcoming bill due dates. Recurring invoices with clear due dates and planned reminders will get you your money with minimal effort.

FreshBooks Payments enhances freelancers’ payment processes by automating their invoicing and payment processes. Share invoices online and send automatic payment reminders to clients to save time and energy. You can also send custom payment links and accept credit, debit, and bank transfer payments online, making payments easier for your clients and helping you get paid faster.

7. Create Quotes and Estimates

Landing clients and negotiating contracts can be tough for freelancers, but offering upfront quotes or estimates helps set clear expectations and boosts your chances of closing deals. Include project timelines, rates, estimated taxes, and scope of work in your estimates. If a client is unsure, send a more detailed quote to clarify any costs.

Once agreed upon, this quote acts as a contract and can easily be converted into an invoice after the work is done. With clients already aware of the costs, it’s easier for them to pay you faster.

Why Freelancers Should Care About Bookkeeping

Bookkeeping isn’t always at the top of a freelancer’s mind. You start your business because of an idea you are passionate about, and often that doesn’t include accounting. However, there are many reasons freelancers should care about keeping on top of their bookkeeping:

• Easier trips to your accountant: By organizing your information, they can focus on ensuring your tax forms are correctly completed and filed.
• You’ll be ready for an audit: To avoid audit issues and minimize future risks, keep your financial records organized, especially for deductions like home office, travel, and mileage, as the IRS often selects freelancers for audits randomly.
• Keeping up with your daily business tasks: Daily accounting and organizing receipts will streamline your operations, reduce tax season stress, and free up time to focus on work and future growth.
• Protecting your assets when things go south: Good bookkeeping provides clear financial records that protect assets, preparing you for unexpected challenges like legal disputes.
• Avoiding legal problems: Failing to meet legal record-keeping requirements can lead to penalties, so stay informed of state and federal guidelines.
• Recognizing potential issues: Staying on top of your accounting lets you spot financial issues early, like cash flow problems or expense losses, before they impact your business.

Streamline Your Finances with FreshBooks

A good bookkeeping system is essential for every freelancer. It helps ensure your finances remain tax-compliant, empowers you to make the most of your tax deductions, and enables you to create effective financial strategies for your business.

FreshBooks accounting software helps you stay on top of your small business bookkeeping. The easy-to-use invoicing system streamlines your invoicing process with professional templates, automated due date reminders, and a versatile online payment system. It also makes it easy to keep track of your business spending and revenue so you’re ready for tax season.