Tracking Income & Expenses
To be a successful freelancer, you should run your operation like a business. This not only means getting business licenses and insurance, but it also means closely tracking your income and expenses. The information is necessary for your taxes, of course, but it is helpful to see where your work is coming from, who pays and with what terms and how you are investing back in your business. It can also help you identify important patterns in your business, so you can budget for the future.
For example, maybe December is always a slow month for you. If that’s the case, then in the late summer, put together a solid marketing plan to pitch stories and seek out new clients to help fill the gap.
So how do you record this info.? When I first started freelancing, I simply made up two Excel spreadsheets: one for income and one for expenses. In the income spreadsheet, I tracked sequential invoice numbers, date of invoice, client name, project or work performed, amount due, date billed and date paid. I could then take this info. at the end of the year and sort by client or by date to see which clients were the most lucrative and determine which months were the busiest.
For expenses, I created a simple spreadsheet to record date, vendor (Staples, Office Depot, Target, etc.), item(s) purchased, cost and how paid (credit card, business debit, business check, etc.). I also created a spreadsheet to track my mileage, collecting date, reason for trip, client or prospect, location of trip, and miles driven. All of this was useful at tax time.
As my business grew from part-time to full-time, Excel spreadsheets were not robust enough to handle my bookkeeping needs, so I switched to QuickBooks SimpleStart. This special edition of QB is a scaled down version of the full program, providing tracking for income, expenses and assisting with tax prep. This was a great program – at the time, it was very affordable (less than $100) and it served my needs without giving me too many features.
After about three years with SimpleStart, I upgraded to QuickBooks Pro which is a full-featured bookkeeping and accounting program. At this point, I realized that managing my freelance business was becoming a bigger task than I’d imagined, and I hired a bookkeeper. She visits my office for a few hours each month, enters my expenses (I still track invoices and payments), reconciles my bank accounts and prepares my 1099s at year end. Yes, this is an added expense, but it frees up my time to focus on other tasks like writing, editing, business development and continuing education.
Not sure where to start? Ask other freelancers how they manage their bookkeeping and accounting or consult with a small business expert or accounting professional for advice. Good luck!
Dana Neuts is a freelance writer, editor and marketing professional based in Kent, Washington. In addition to writing for publication, she edits books and is the owner and publisher of iLoveKent.net and iLoveCovington.com, hyper-local blog sites. She serves as the SPJ freelance committee chair as well as on the national SPJ and SDX Foundation Boards. For more information, visit VirtuallyYourz.com.