This article was contributed by Jane Sanders from Debt Management. Find more financial advice on her site, like how to improve your credit score.
As a freelancer, you’re a small business owner. Whether you’re a writer, a performer or a web site designer, all freelancers need to track their performance in monetary terms in order to make appropriate business decisions and to accurately report their income to the taxing authorities.
There are plenty of great accounting software packages available, but all you really need is a spreadsheet program like the free Open Office, or even just a pad of columned financial paper. Here are two of the essential items to track and how to document them.
Revenues
Of course you’ll want to keep track of how much money is coming in due to your freelancing efforts. Create a schedule with columns for the date, the customer, the amount and a description of the work it was received in payment for.
Create subtotals each month, then a grand total at the end of your fiscal year. Using a spreadsheet program will allow you to manipulate this data and find valuable information hiding within it.
For example, sort all your income by payer to find which of your customers are providing you the most income. You can now cater to these customers more closely, earning even more of their business and enhancing your income.
Expenses
Any expenditure made in the pursuit of your freelancing work needs to be tracked in the same manner as revenues. Many of these can reduce your tax liability, so you’ll want to be sure to capture everything.
You’ll need to set up your spreadsheet with columns for the date, the payee, the amount, an expense category and a description of what was purchased.
The trick is to find the right amount of categories for your particular business. You don’t need to classify everything so specifically that every payment gets its own category.
On the other hand you need enough categories so that the summarized information provides useful information. For example you won’t recognize that you may be paying too much for telephone use if you have those costs mixed in with your magazine subscriptions and your electricity bills.
One thing to keep in mind is what kind of categories will be necessary for your company’s income tax reporting. Consult with your accountant for this information. Setting up your categories along tax lines is a good starting point if you don’t have additional requirements.
Need an Accountant?
This report is meant to be an overview only, and you should consult a professional accountant for your business accounting needs. He or she can advise you on the best way to keep your books and assure your taxes and other reporting requirements are fully and accurately met.
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