Bookkeeping 101: How Organized Freelancers Manage Their Finances
Here’s the thing about being self-employed: a boatload of administrative tasks come with the territory that have absolutely nothing to do with your actual craft. And among those tasks, it’s safe to say that managing your finances is the most daunting — and annoying, and time-consuming. But keeping detailed books is also among the most important.
Why? It’s two-fold: Obviously, it’s important to understand how much money is coming in versus how much you’re spending — a crucial part of doing business. But more importantly, tracking your expenses well can actually help you bring home more money at the end of the year and be of immense importance in the event of an audit.
“Tracking your expenses is the number one rule of freelancing because you only pay taxes on your profit,” explains Russell Garofalo, founder of Brass Taxes, an accounting firm that specializes in tax help for freelancers and artists. “So to be clear, it doesn’t matter how much you were paid, it matters how much is left over after expenses. And when people keep good records of expenses, they have higher expenses, making their profits lower.”
Keeping detailed records is important in case you were ever to be audited, as well. “Getting audited is the government saying ‘show me how you got these numbers,’” explains Garofalo. “To do that, you need to show what, specifically, the expenses were for. So a statement showing you paid $140 at a store isn’t enough detail, but if you can show it was for a digital camera for work as a graphic designer, you now have a valid business expense.”
Understood. But…how? We asked a handful of real people — not experts, not econ majors, not accountants — who have developed successful systems to stay on top of their finances to explain their ways.
Who: Grazina Snipas, Creative Director
How: Google Suite and Regular Upkeep
“I’m a little old-school and keep track of work and invoices manually. I’ve tried apps and online tools but I found that there was too much linking out to other accounts and systems so it was easier for me to just keep track myself. I use Google Suite so I have quick and easy access to documents, and I stay organized by using spreadsheets and folders. I think the most important thing is staying on top of tracking every couple of days if not daily — it’s a good habit to get into and it only takes a couple of minutes each day. When tax time comes I just send my spreadsheets to my accountant and he does the hard part!”
Who: Stephy Miehle, Creative Director/Co-owner, North X South
How: Wave Accounting and Gmail Labeling
“I’ve switched from system to system (FreshBooks, Hiveage, AND.CO) but ultimately settled on Wave for bookkeeping, invoices, and nicely-organized expenses. I already have labels in my business Gmail account that I use to tag receipts in case of an audit, but managing multiple inboxes means that receipts can sometimes end up in the wrong place. Wave’s online version gives me peace of mind and also accounts for the odd paper receipt with an app. I’m much better about tracking my expenses these days now that I have a better workflow; I reconcile expenses as they arrive. When it’s time to do my taxes, a fully-categorized report is just a click away — much faster and more organized than my old method of checking spreadsheets and email labels.”
Who: Toby Reiter, Freelance Digital Content Producer + Voice-Over Talent
How: Excel and a Specialized Accountant
“I don’t do anything fancy — no special apps on my phone, no special small business accounting software. However, I am VERY meticulous about record-keeping and maintain a running Excel spreadsheet that I not only keep for me, but also for my accountant. In one tab, I track all the movement in my business bank account, which includes notes about payments/transfers and a running account balance, like a checkbook register. In another tab, I track all my main business expenses (supplies, bills, recurring monthly charges), which is also helpful for my accountants so they know what to safely write off at tax time. Most importantly, though…I have an accountant I trust who specializes in working with freelancers/consultants, who keeps up on all the various rules and regulations that shift with ever-changing tax laws.”
Who: Scott Alden, co-founder at Alden Wolf
“We’ve experimented a bit at our small creative firm but haven’t found anything we like better than good ol’ FreshBooks. It links right to our bank account for easy expense tracking and we’re able to generate invoices and see revenue/spend all in the same place.”
Who: Matthew Potter, Graphic Designer
How: And.Co, Quickbooks, and Adobe Sign
“I predominantly use AND.CO for all of my invoicing and time-tracking for client projects. The app was free back when I first started freelancing full-time, but when they made the move to a paid subscription, limiting the number of clients you could have with the free version, I liked the app so much I stuck with it and paid up. It’s so easy to use. The interface is clean and uncomplicated, and it’s both mobile- and desktop-friendly. Another thing I love about AND.CO is that it lets my clients pay their bills via the invoices (either as an ACH or Credit Card payment — it integrates with Stripe, so I can look back over a client’s history to confirm I’ve received a payment.
I tend to use TurboTax each year to do my taxes, so I also use Quickbooks Self-Employed to do my mileage tracking. I used to use DocuSign for contracts, but they upped their prices, and I just didn’t feel like I was getting enough value for what they’re offering, so I switched to Adobe Sign which is perfect because it comes with my Creative Cloud account.”
Who: Andrea Napierkowski, UX Designer and Project Manager, owner of CurlyHost.com
How: Wave Accounting
“I’ve been using Wave for my bookkeeping for the last four years. I love that it’s free, for one, and also that it separates my business and personal accounts. Not everything is kept as neatly as I’d like, so it’s great that I can change a purchase made on my business credit card for groceries over to my personal account. I can send out invoices, get paid through a variety of avenues, and keep track of everyone I’ve ever had as a client to quickly make a new invoice on the go. I know that there are a lot of options out there but Wave continues to innovate and change their platform to meet my needs as a freelancer. The app’s end-of-year reporting has been a godsend — I can just send the report to my accountant and everything is already organized and sorted into the needed categories.”
- Decide what your priorities are: Invoicing? Taking credit card payments? Managing personal and business expenses? Hourly billing? Look for apps that optimize the features you need most.
- Experiment. Most of the people we spoke with tried a few different methods before landing on what worked for them. It’s ok to abandon a process that’s not working for you.
- Don’t be afraid to ditch the tech. If a spreadsheet does it for you, great! No need to unnecessarily complicate things with an app or piece of software if you prefer low-tech.
- Stay on top of it. Build bookkeeping into your schedule to keep it from becoming a source of dread.
There’s no one-size-fits-all bookkeeping solution — the goal is to find something that works for you. Because once you do, it’s game changing. “You’ll feel so on top of it,” says Miehle. “Bookkeeping is no longer that scary, stressful, time-sink.”