Freelancers often manage many facets of a running a business. One of the most important function involves maintaining ordered accounts. To ensure that your accounts are kept up-to-date, an organized system should be put into place right from the start of your business. An accountant will give you advice regarding the best method to use to achieve this. Using an online software package like Xero can also help you maintain your accounts in an organized manner.
Start an organized system
The following steps can help you maintain an organized structure. Remember to dedicate a portion of your time to this part of your business as it can have legal and financial implications in the long-run.
- 1. Ensure that you do your accounts every week so that they do not pile up and remain up-to-date
- 2. Set a specific date and time to do your accounts
- 3. By entering all your paperwork into Xero, the built in software functions can assist you in running your business
- 4. If you feel that you are not able to cope with maintaining your accounts, then hiring a bookkeeper is a good idea
Records required for an organized accounts system
These records are required to maintain an organized system and should be entered into your Xero accounts software weekly. In the long-run, this will ensure that you have all the documents that your accountant will need to complete the end of year accounts. They are also important if you ever have an audit by the HMRC.
- 1. Accurate client invoices
- 2. Business and personal expenses
- 3. Bank transfers
- 4. Payments received from clients
- 5. Payments made to suppliers
- 6. Money that is owed to you
- 7. Money that you owe
- 8. Amount of hours worked per job
- 9. Cost per hour for each job
- 10. Details of clients
- 11. Bills of Materials used for each project
Deductible Expenses for Freelancers
Freelancers are self-employed hence they are able to claim certain expenses which are deductible from the tax that they owe. This includes the following expenses of which a record must be kept.
- Travel expenses
- Office rent
- Telephone bills
- Power bills
- Expenses on computers, printers, phones
- Some client entertainment expenses
Manage Payments to ensure efficient collections
By keeping an organized accounts system which is up-to-date, collecting payments is easier and more efficient. Late payers are also a real issue for Freelancers. By taking the following steps, you can minimize late payments and unnecessary stress.
- 1. Invoice on-time and include your time and any materials used for the project
- 2. Send invoices via email. This gives you written proof and a date and time to use if late payment become an issue
- 3. Xero identifies late payers for you as long as all your accounts are up-to-date. Using an ageing summary report, Xero will show you which invoice are unpaid and overdue
- 4. Use reminders that notify you and your clients when an invoice is due to be paid. Xero allows you to send automated emails to clients to notify them
- 5. Late payers must be chased. Always be professional but firm. If you work has been completed to the agreed project scope and time limit, then legally they must pay you. Repetitive late payers should be warned and dealt with.
Plan for your tax in advance
When completing your Self-Assessment each year, you will need to pay owed tax to HMRC. To plan for this cost, you should save money each month to cover this cost. It is advised that Freelancers open a separate savings bank account for this purpose. It takes a disciplined approach and needs to be done each month.
Xero allows you to use specialized reports that can estimate your Self-assessment tax bill. This can be used to calculate what percentage of your monthly earnings should set aside in your bank account. Please note that you will have make a record of this money set aside in your accounts system.
Fusion are Certified Xero Advisors, view our dedicated page on Xero Accountants