It’s getting to that time of year for me when thoughts reluctantly turn to sorting out the tax return. Although I try to keep it as simple as possible, the financial side of thing will, by nature, always be a worrying area. I’m always looking for new ways to make my record-keeping more organised, easier to manage and less mistake-prone.
I decided to speak to an accountant about how freelancers can do things better and what the major mistakes to look out for are.
Managing Your Money
Simon Dolan is managing director for SJD Accountancy, which specialises in the contracting sector. He told me about the best ways for freelancers to manage their accounts. He advised: “By far the simplest way is a spreadsheet that details your company income and expenses. The limitations of this will become apparent, though, when you start to get a few different customers at the same time who pay on account, rather than on job completion, as it can be difficult to track who has paid and who hasn’t.
“The same thing would apply when you start to set up credit accounts with suppliers. When your business gets to this stage it’d be worth investing in a simple accounting package such as one supplied by Sage, and crucially get some training on it. All accountants should be able to help you with this and the time spent learning the system will pay ample rewards in the future, both in terms of running your business and savings in accountancy fees.”
Nobody wants to make a mistake and incur a fee or end up under investigation but many freelancers, both seasoned and just starting out, don’t even really know what pitfalls to look out for. Simon outlined what the most common mistakes he sees are. Number one? “Without doubt late filing and not understanding the payments on account system – this always catches people out in year one and two.”
He continued: “The biggest mistake in terms of book-keeping is not grouping things in categories of expenses, for example all motor expenses should be grouped together and so on. Most people for some reason sort by date order which is not very helpful when doing year-end accounts.”
Simon offered some practical tips for us freelancers trying to keep on top of the finances:
· Make sure you keep a clear record of all the money you have earned and all the money you have spent in the business.
· Be aware of all the filing deadlines and dates of payment for tax.
· Always keep money aside for tax and do not dip into it.
· Make sure you get paid – this is absolutely crucial. Get paid as soon as the job is done, if not sooner – don’t be shy about asking. Many businesses have gone bust or really struggled with bad debts by procrastinating about credit control.
· Remember – you haven’t earned anything until the cheque has cleared!
Do you have any book-keeping tips? Do you use an accountant or are you confident doing your own books?