Bookkeeping is just one of those things that, as a freelancer, is easy to push aside. You are too busy dealing with clients and working on projects to invest any time into it. Anyone who has been a freelancer has been in that position, especially when business is rolling in and things have begun to pick up. But this is when bookkeeping is most important. Good bookkeeping can really make or break your business in the long term. Being able to easily understand where money is coming and going, potential new revenue streams, and better strategic investments can really help in increasing profitability. As well as this, it may just save you when business gets a little rocky. Here are 10 reasons why you should be bookkeeping.
Organisation
Organisation is the bread and butter reason for bookkeeping, it essentially makes every other advantage possible. By having all of your expenses and revenue laid out in front of you it will become incredibly easy to understand where your money is coming and going. Without organisation it will become incredibly difficult to manage you finances, so start as soon as possible.
Better Tax Management
Now that all your expenses are organised it will become increasingly clear where you can get tax offsets or if you are overpaying on tax. Talk to a professional bookkeeper and you may find that you could get more tax offsets than you first thought. Work from home? You may be able to claim tax offsets for rent for a room in your home. There are a lot of potential tax offsets that a bookkeeper will be able to help you find, putting more money in your pocket. A good bookkeeper will also help you avoid potential offset pitfalls so that you can limit those nasty surprises in the future.
Get Paid faster
One big benefit of having your accounts up to date and organised is that late paying clients become increasingly obvious. Especially if they regularly pay late. Collecting payments can be hard for freelancers but by utilising bookkeeping you can keep on top of late payers helping you get paid faster. Things improves even further when you use a good bookkeeping software. A good software will allow you to identify late payers at a glance and set reminders for both yourself and your clients ensuring that everyone knows when payment is required.
Keep records of your business
By bookkeeping you will be keeping records of your business including past revenue sources, expenses, cost per hour of a job, and hours spent working on each client. All of this information is extremely useful as it can allow you to streamline key aspects of your business. Combine this with a good bookkeeping service, that are experts at using accounting software like Xero, and you can easily look at ways to streamline your business. For example, you will be able to easily know at a glance which clients are your best, offering you high returns per hour, and your worst, offering low returns per hour. You can also keep track of any owed debts, by others or to others. Allowing you to understand how you can sort out your debts.
Better position for asset protection
Sometimes things go wrong. Whether it be a lawsuit from angry clients, or your business becomes the subject in a messy divorce. It is important that your financial records are ready and easily understandable if this happens. If you have been keeping up with your bookkeeping your lawyer will have an easier time generating a defence, helping to prove that your assets and funds are truly yours.
Identify potential problems
If you have been bookkeeping from the moment you started freelancing all of your debts, revenue streams and expenses will be accessible to you. This will help a reliable bookkeeping service in pointing out potential financial problems. Let’s face it, freelancing has its ups and downs in terms of generating work, and sometimes a dip is predictable. This means that your bookkeeper can help you prepare for a dip by limiting expenses or by limiting debts. Its far easier to whether a storm when you have a stable foundation.
Avoid legal ramifications
You could potentially face fines if you haven’t been keeping track of your finances. For example you may not have realised that you have passed the $75,000 GST turnover rate threshold and may face fines from the ATO. Its easy to avoid legal ramifications if you do your bookkeeping. You will want to avoid these penalties as they could be significant.
Help reduce expenses
Being able to easily see your expenses at a glance will help you and a professional bookkeeping service gauge out any unnecessary expenses. Reducing your expenses could help put money in your pocket and allow you to invest strategically to improve your business.
Help make smarter investments
Knowing how much money you have to work with in an easily accessible format, such as in Xero, can help you manage your investments more strategically. Say for example, you want to invest in translating your website into a different language to hit an international market. You will be able to see quickly and easily if this is an investment you can afford in both money and time. Say you can afford it monetarily, but, you see that your time is filled for the next year with your current clients. Maybe you could invest into other avenues that will help clear the backlog instead.
Build a ‘war chest’
With freelancing as volatile as it is in terms of work availability, you may need a decent ‘war chest’ for when things go south. By ‘war chest’ we are of course referring to money saved away for emergencies. By bookkeeping you can see how much extra income you are receiving that, instead of being wasted, could be put into a ‘war chest’ for a rainy day. This will improve your piece of mind allowing you to push through when there is less work and fill it back up when there is more.
Conclusion
Getting started on bookkeeping as soon as you start freelancing is one of the best decisions you could make for the future of your business. It will allow you to easily understand where your expenses and revenue are and where changes can be made. The best thing to add to your bookkeeping is a trustworthy bookkeeping service. This will allow you to get expert advice, and give you access to the best accounting software, helping you make the most of your business.
