Finance and doing your accounts is arguably the least exciting part of running your own freelance business. Unfortunately, it is one of the most important - getting savvy with your business finance will not only save you considerable stress when it comes to filing your taxes but could also be the key to your business growth and success.
But don’t stress, it’s really not that tricky. Especially if you follow these top tips for the busy freelancer:
Budget your spending
This may sound obvious but poor budget management is one of the top reasons many small businesses fail within the first five years.
In order to run your business well, you should know how much money you need to break even and how much you have to spend to run your business on a daily basis. For example, if you’re a freelance photographer and your equipment, travel costs etc exceed the amount you get paid for a shoot, you’re going to find yourself very quickly in hot water.
Separate your business budget into these four categories:
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Fixed expenses - how much outgoing you always have each month. This will include any office space you rent, company phone, wifi for business etc
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Prospective income - how much you expect to make each month
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Variable expenses - these should be monitored on a week-by-week basis. Can any be cut? Have you ensured these are HMRC compliant and can be claimed back as business expenses?
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Any extra revenue - this includes any full or part-time work you may have that can be invested into growing your business
It’s always good practice to consult your budget before making any business decisions and to update it regularly. Apps such as Expensify and inDinero allow you to monitor budgets, file expenses and make reports on a monthly basis and are great for busy freelancers on the move.
Get savvy with expenses
Claiming expenses is a great way to keep your business tax-efficient - it reduces your profit, which in turn reduces the amount of tax you will have to pay when it comes to filing your Self-Assessment.
You can claim expenses on pretty much anything that relates to your business, including supplies, travel, business training and meals while on the job. Check out the government’s website for a full list of what you can claim.
Make sure you’re up to speed on exactly what you can claim and keep an accurate record of all expenses throughout the year.
Maintain accurate records
Keep all records, including receipts and invoices, organised and in a safe place. This is really important as you will need to refer back to these when it comes to filing your taxes. It’s also important to keep all records for at least four years, as HMRC will need to see an accurate record of expenses should they choose to audit your business. Failing to do so could incur up to £3,000 in fines.
It is advisable to always advise scanning all records and storing them on a cloud to be extra safe - review these at the end of every month to ensure you never forget to file.
Budget for taxes
You’d be amazed by how many people fall short in their first couple of years of freelancing by not keeping money aside to pay their tax bill. In order to avoid any nasty surprises next year, put 30% of everything you earn aside, if your cashflow allows.
This may be over officious; if this is the case then you’ll get a nice little “refund” from your own account at the end of the year - a win win situation.
Plan for the ups and downs
Freelancing is a feast or famine career and it’s very common to earn vastly different amounts from month to month, depending on what jobs come your way. However, there is a way to forecast your income. What did you earn last year? Divide that by 12 and you have your monthly average earnings. Do you have four years of freelancing under your belt? Average those too and look at the numbers.
Use your average monthly income as a baseline for your budget, and remember to keep accurate records and consider your cashflow before you make any big business decisions.
Written by Sophie Turton, assistant editor at Crunch Online Accounting
