Many people prefer the added freedom that comes with working for yourself as a freelancer, rather than working under or even alongside somebody else.
However, this comes at a cost of being entirely responsible for your own finances. One of the keys to growing your business will be to keep on top of your accounts so that you are always fully aware of your business’ financial stability.
Here at PPS Chartered Accountants, we have compiled a list of the most effective tips that you should consider when working on your own accounts. We can impart the very best advice on all matters related to accounting and tax; our clients are offered free unlimited meetings and phone consultations. If you have any questions that need answering within 24 hours, we are more than willing to help.
Have a Monthly Budget
If you have a solid monthly budget in place, you will be able to keep track of how much you are spending each month. Areas of overspending can be quickly identified and dealt with, while you can maximise your spending to grow the business without unwittingly making a loss.
Make sure to review the budget on a regular basis so that you are not limiting the potential financial growth of your business. Similarly, you may need to reduce your budget if adverse circumstances result in reduced business and profit margins.
Having a monthly budget, rather than a quarterly or yearly threshold, will allow you to react quicker to any changes in your company’s profitability.
Have a Separate Account for Tax Payment
Tax is something that everyone has to pay. Setting up a separate bank account strictly for paying business-related taxes to HMRC is a strong recommendation.
You could choose to allocate 25% of your profits from each sale to the separate account for tax payment. In this way, you will be safe in the knowledge that you can spare enough income for taxes. You will completely bypass the risk of finding out that you don’t have enough money to pay HMRC. This will be an added worry off your mind.
Anything you save is better than nothing, so even if you can’t do 25% each month just put away what you can.
Once your year-end has passed get your accounts together as quickly as possible so that your accounts can be prepared and your final tax payments can be confirmed so that you can make up any shortfalls with plenty of notice.
Agree on Payment Terms
You must make sure you are being paid on time by your customers and/or clients, especially if you have just started up.
The safest way to do this is by agreeing payment terms with your customer base before completing a sale, and send out invoices upon completion. You may even choose to get payments upfront.
Set up reminders for customers who haven’t paid, and continue to chase late payers until they send you the money.
Be Prepared For Dry Periods
As a freelancer, there will be certain periods of time where you won’t be selling your goods or services enough to outweigh the costs of running your business. A simple example is someone with an ice cream business. While sales may be strong during the summer months, they may not expect to push the same volumes in winter.
Have an emergency fund in place for when you have a particularly long dry spell, but otherwise implement good saving practices so that your business can survive several months of poor financial performance.
Register with HMRC
Sole traders have to register with HMRC as soon as possible after commencing trading. By registering with HMRC, you may be able to claim back some expenses that were required to set up the business in the first place, such as advertising and utility costs.
There are also some benefits to setting up a limited company as a freelancer, if you would like to discuss option then just give us a call.