Howdy Do It: How to Organize Your Finances When You’re a Freelancer
Laser cut dollar bills by Scott Campbell, via DesignBoom
For the next few Howdy Do It posts, I’m going to be answering some reader questions on freelancing. If you have a question you’d like to ask, shoot me an email or leave a comment!
Q: When you’re first starting out as a freelancer, is it a good idea to rely on the help of something like Quicken to keep your finances in order, or should you start directly working with an accountant to keep your finances tight? Or perhaps a combination of the two? —Kimberly
For me, it was absolutely necessary to talk to an accountant as soon as I started freelancing. Taxes are way too confusing, and I had a feeling (confirmed by my accountant) that I was over-doing it in terms of record keeping! I was keeping a log of every single project with what I spent on supplies, shipping, paper, etc… a great way to be sure your prices are good, but way too much work for each and every project in the long term. And my long, weirdly-organized Excel documents made things very confusing for my accountant during tax time.
Now, I use QuickBooks, and once a month I go in and make sure everything is entered and organized properly. I get in touch with my accountant when quarterly taxes are due (yes, you need file quarterly estimated taxes if you’re a freelancer) and when I need to file my yearly taxes. Accountants really aren’t that expensive, and they’ll take a huge weight off your shoulders. {Side note: for a comparison of QuickBooks and Quicken, check here.}
So, let’s say you’ve purchased some accounting software. Now what? My accountant gave me this list, which was enormously helpful in organizing my QuickBook “accounts,” so things stay organized and in their appropriate categories. At the end of the year (or any time I feel like checking), I’ll have a breakdown of exactly where my money’s coming from, and where it’s going.
| Expenses: Training Gifts Advertising and Promotion Telephone Professional Fees Bank Service Charges Office Supplies Computer/Internet Exenses (hosting, etc) Insurance Miscellaneous Charitable Contributions Dues and Subscriptions Automobile Expense Shipping Business Licenses and Permits Travel Expenses Utilities Continuing Education Rent Payroll Meals and Entertainment | Current Liabilities: Taxes – Federal Taxes – State Taxes – Sales Payroll Equity: Retained Earnings Owners Draw Owners Equity Opening Balance Equity Income: Product Income Design Income Cost of Goods Sold: Vintage Items Digital Files (stock imagery, typography) Paper Printing Subcontracted Services My personal favorite: Ask My Accountant |
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Other helpful resources to check out:
• Small Business Administration
Online training in topics like finance and accounting, help finding a business mentor, guides for writing your business plan, and info on current events that affect small business owners, like Health Care Reform. Tons of information.
• Tax info for small businesses & the self-employed
The IRS website isn’t really that scary. In addition to tax info, you can find information on business workshops in your area, get a new business checklist, and find out if what you’re doing is considered a small business or a hobby.
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Howdy Do It came from “how do you do It,” the question Ellie & Margot found themselves asking about their freelance lifestyles, and so Howdy Do It was born, a column about the things we do to keep ourselves organized, inspired and on track.
Responses to “Howdy Do It: How to Organize Your Finances When You’re a Freelancer”
Hilary
October 20, 2010 at 3:37 pmI HAVE to add one thing: Do NOT ever give an accountant your only copy of anything.
Hopefully you pick a good accountant from the get go but I had the unfortunate circumstance of going with an accountant that had been great for several people I knew who wouldn’t return my phone calls, faxes emails and literally wasn’t in the office when I would show up. I ended up having some hefty back taxes by the time I got my documents back from him and was able to get another accountant to do my taxes…. after researching that I could contact the state board of accountants and have his license revoked (in my state he was required to not discard any paperwork for a certain number of years. 5 or 7, I’m not sure) and sending him a letter that said I would do so if he didn’t return my materials. The letter was notarized and used signed delivery confirmation. He finally responded when I went to that extreme.
I still don’t know what I would have done if he hadn’t found the materials since I didn’t have a copy. And I would have had a lot less stress and wasted time if I hadn’t given him my originals to begin with because I could have just moved on to another accountant when he wouldn’t return my calls.
Hopefully my experience will spare some other people some headaches!
littleshop
October 20, 2010 at 4:00 pmThanks for doing these posts. Even though I’ve been in and out of freelance for years, I still have major panic attacks when it comes to organizing my $ and expensives (I think I was tending towards over-organizing that ended up being confusing). I don’t know why it’s so hard for me! I think I’ll finally check out Quick Books, and I’ll use your categories as a guide.
Jeanelle
October 24, 2010 at 11:07 pmThanks for this post, anything that involves the IRS is just confusing as heck. I like the categories, is a good basic breakdown to work from.
Corinne
October 26, 2010 at 4:45 amAs an accountant, but also from a personal perspective, I highly recommend using MYOB over Quicken or QuickBooks. It really is a far superior (and very easy to use) program. Their online help is also fantastic. I’m not sure if MYOB is more of an Australian thing, but check it out. (P.S. I don’t work for MYOB!!).
bigBANG studio
October 26, 2010 at 6:48 amUnbelievably helpful. THANK YOU for posting about the business side of your creative endeavors! I had a tearful tax season last year and hope not to repeat this year. I bookmarked this post and will send it out to my painter friends.
Thank you! xo.
mike
December 15, 2010 at 6:03 pmDo you know of some ominous (detailed, itemized) list of what can be a business write-off? That is the only detail of taxes I still feel a bit confused
ellie
December 15, 2010 at 7:15 pmHi Mike,
The list above is exactly how I organize my expenses for business write-offs. But I would suggest talking with an accountant… I was hesitant to do so, but it was not expensive, and enormously helpful. Now I can do the bookkeeping myself, and just use the accountant for tax time. Since my bookkeeping is organized exactly how the accountant wants it, it cuts down the time it takes him to do my taxes — win win!
Ellie