I wish I had paid better attention when my friend, a successful freelancer, shared her best bookkeeping tips. You’ve never had a “questioning your life choices” moment until you realize — the day before you’re meeting your accountant — that your expenses are spread across two credit cards, a bank account, PayPal and a strange system of haphazardly tagging email receipts for future “easy” access. After a process that took hours and two glasses of wine my first year of tax prep, I promised myself I’d create a better system. Not only was I making tax time harder, but I was missing critical ways to save money for my business. After some research, I found five key bookkeeping tips for freelancers — each of which will help you save money for your business.
Invest in Cloud Software
If you make one investment in tools for your business this year, make it cloud-based software. Heading into year two, I remembered “The Evening of Moscato, Tears and Receipts” with dread. The platform I chose combined invoicing, payment tracking, expense management and mobile expense features. When I’m on the go, I can snap a picture of a receipt and upload it. If I need to audit my quarterly books for payments, I can pull up a report in seconds. Year two of tax preparation involved a few minutes of running through the details and adding a few notes of context, and then sharing access with my accountant. Quick, painless and, best of all, I could deduct the monthly fees from my annual taxes.
The software can also help you save money in unexpected ways. Having your employees fill out timesheets makes it easier to see if they’re filled out incorrectly and costing you too much money. And, it makes it simple to ensure all invoices have been paid and one didn’t slip through the cracks. Ultimately, this software can keep you organized through an all-in-one dashboard that’s easy to manage and doesn’t create an unnecessary workflow.
Cancel Expenses That Aren’t Contributing to the Bottom Line
Early in my business, I purchased subscriptions to premium networking sites. I put the billing on autopilot via credit card, but failed to gain any leads or make meaningful connections. More recently, I signed up for a stock photo site I needed for one client — and when the project ended, I failed to cancel the subscription. Auditing my expenses quickly showed me where I had recurring expenses that weren’t paying off. Canceling them immediately saved me money and helped develop a clear sense of when spending money contributed value. Periodically looking at your expenses can help you develop a better financial sense for how you spend and how to make strategic choices moving forward.
Annually Re-Shop Your Recurring Expenses
As I’ve written about before, I carry a lot of insurance for my business: errors and omissions, general protection and cybersecurity insurance. These expenses are important, because they offer protection and a tax write-off. However, premiums change frequently. For example, my E&O insurance rates are based on both annual income and the type of writing I do. Adding a new client type caused my rates to skyrocket. Instead of just renewing, I shopped around and found a policy that covered all my needs at a much lower rate. Look at the expenses you have — from insurance, to website hosting, to transcription costs — and spend some time getting alternative quotes. You may be overpaying and can save money by simply switching vendors.
Look for Association Discounts
Professional associations offer numerous benefits. Not only can they help you build connections in your industry and stay up on the latest trends, but their dues are usually tax-deductible. One lesser-known benefit is that many professional associations offer discounts to members. A writers’ association I belong to offers discounts on insurance, 5 percent off travel with certain airlines and a host of other discounts on research tools I use daily. By tapping into this benefit, I save 30 percent on an expensive annual database subscription. It’s well worth it and, depending on what benefits you utilize, it can shave thousands off your annual expenses. Keep track of the discounts. If you’re ever on the fence about renewing a specific association membership, it’ll help you decide if it’s a worthwhile investment.
Share Resources With Other Freelancers
Increasingly, freelancers I know are looking for ways to save money by sharing resources. For example, I work with a transcriptionist who will only add you to his client roster if you can guarantee a certain number of work hours. Sometimes I far exceed it, and other times I fall short. By joining with a colleague, we’re able to ensure that we hit the minimum each month, and he takes us on as a “collective.” Look for opportunities to tap into the sharing economy in both straightforward ways and by being creative. Using a site like AirbnB can get you a great rate on a location for your creative retreat. Sharing a virtual assistant can help get you the support you need, while cutting costs. Splitting a household membership to a research database — as long as it doesn’t violate the terms of service — can save you money. And your portion of these services, if they’re focused on your business, can always be written off on your taxes.
Freelancers can’t always afford to have an accountant on retainer, and that’s okay. With a bit of strategic planning, self-education and the right tools, you’ll be in the know about what you should pay attention to. Take the time to get this right, and you’ll always be in control of your taxes, expenses and overall financial picture.