KNOWLEDGE BANK

How to Get Your Business Finances in Order ?

To put all this information into practice, this step-by-step guide walks you through a basic plan for getting your accounting in order. Consider it your financial to-do list.

1.) Open a Separate Business Bank Account

You’ll want to keep your business income separate from your personal finances. The easiest way to do this is to set up a separate bank account for your business. It pays to do your homework before signing up for an account: shop around to see what business accounts are available at different banks and compare the banking fees charged.

It might make sense to just open a business checking account when starting out as a freelancer, but as your company grows you might want to add a savings account to stash away money for taxes and other expenses

2.) Develop an Expense Tracking Method

Good record keeping will help you get a handle on the overall health of your company and help ease the pain of tax season. Tracking your expenses is an important part of that. Make sure you’re looking at all expenses related to your business, including -

• Meals and entertainment related to business meetings.

• Travel for work.

• Living expenses that overlap with your home office (if you have one) including rent, internet, phone bills, etc.

• Costs related to your car, if you use it for work purposes.

You can track these by physically filing receipts, or you can sign up for cloud-based accounting software that digitally tracks all your expenses and can even do it automatically.

3.) Create a Bookkeeping System

Much like with expense tracking, there are accounting tools that can help you manage your bookkeeping. But if you’re looking to handle bookkeeping manually, you’ll need to develop a system and stick to it.

There are two basic ways to oversee bookkeeping -

• The cash method involves recording revenues and expenses at the time they’re received. So a freelancer would record their invoices at the time they receive payment from a client.

• The accrual method involves recording revenues and expenses at the time of the transaction. So you would record a payment when the invoice is sent, rather than when the payment from the client lands in your bank account.

4.) Learn Your Tax Obligations

The tax obligations of your business will depend on the legal structure of your company. In many cases, self-employed workers (like freelancers) can claim their business income on a personal tax return.

As a freelancer, you should be sure to withhold taxes from your income, as you’ll need to pay taxes to the government that would normally be withheld by an employer.

5.) Review Your Methods to See What Works

The needs of small businesses evolve over time, as your company grows and your services evolve. The accounting methods you start out with might not serve you in the longer term.

As your business expands, be aware of the time you spend on accounting and reflect on how much that time costs your business. If the burden of handling all your accounting needs becomes to great, you might want to seek the help of a professional accountant.