As a self-employed salesperson, revenue tracking is essential to your accurate tax reporting and ability to avoid penalties — whether you’re selling products online or in-person. The key is to set up a successful financial process that makes it easy for you to track your income, categorize expenses and follow-up on money you’re owed.
By taking the five steps outlined below, you can optimize your tracking and feel in control of your finances as a self-employed salesperson.
1. Find the Best Revenue Tracking Method
You’ll need to consider a variety of factors when determining the best income tracking method for you. Some of the main factors here are your lifestyle, personal preferences and ability to work with technology.
Overall, there are four main revenue tracking methods to consider:
Pen and paper
Test out a few different tactics and strategies to see which one works best for you. Are you a salesperson who’s regularly on-the-go? A mobile app may be ideal for tracking your revenue. Can you visualize your financial state better when you write it all down on paper? Going old school with a spreadsheet or ledger might be the right option for you. Determine which strategy you’ll actually use, and stick to it.
2. Record Your Income Regularly
Now that you’ve determined the revenue tracking method you want to implement, the next step is to record your income as you receive it. This requires a bit of discipline, but it gets easier with time. Get into the habit of tracking revenue on a regular basis by taking the time once a week to record your earnings.
Automating this process could help you avoid miscalculations entirely. Consider syncing up your bank account to an online program or mobile app. Many financial apps, like Mint and FreshBooks, allow you to record income on-the-go, so you don’t forget to do it later.
If you’re more of a spreadsheet kind of person, make recording your income part of your end-of-day closing routine. Before leaving your coworking space or home office for the day, enter and categorize your revenue properly.
3. Categorize Your Sales Revenue Correctly
Recording your income on a regular basis is a must, but you also have to make sure it’s divided into the right categories and accounts. If you don’t, you could end up overpaying on your taxes, or find that your financial reporting isn’t accurate. As a best practice, you should avoid mixing your business and personal accounts.
Need an example? Imagine you want to increase one particular area of revenue from 25 to 35 percent of your overall sales. If you don’t properly categorize your income, you won’t really know if you’ve hit your goal. Or, you could mistakenly decrease your monthly income if you think you’ve already earned enough in another category.
It’s also important to understand how to keep your financial reports balanced throughout the year. When tax season comes around, your accountant will probably ask to see your profit and loss statement as well as your balance sheet. Take the time to regularly check these so your tax reporting is accurate. Most accounting programs and apps can print out these financial reports, so all you’ll likely need to do is a quick spot check to make sure your revenue and expense tracking matches up.
4. Schedule Regular Financial Check-Ins
A great way to see if you’re tracking revenue properly is to perform regular financial check-ins. Think of this as a “budget meeting” of sorts, but one that can actually be fun (depending on how you approach it!).
At the very least, you should check in on your account status and profit margin on a quarterly basis — but scheduling a regular review at the end of every month will be more beneficial in the long run. Block out a time on your calendar to do a quick review of your received payments, profits and losses each month. Devoting a little extra time to your finances intermittently will make a big difference when it comes time to file your quarterly taxes.
5. Follow-Up on Overdue Invoices
Another important part of successful revenue tracking is making time to follow-up on any overdue payments you’re owed. Sometimes, your customers will need a gentle reminder that they have an outstanding balance on the products you’ve provided them. Use the time during your regular financial check-ins to invoice for work performed and follow-up on any late payments.
Not only will this help you get in a regular routine of getting paid on time (and who doesn’t want that?), undergoing this process could also help your boost your bottom line. After all, cash flow is a much-needed ingredient for a self-employed salesperson to continue their work — which is why you should make following up on overdue invoices part of your monthly routine.
Take some time to implement these smart financial habits today. By following these tips, you’ll be able to optimize your overall operational tracking, avoid penalties and feel more prepared for tax time.