This is the second installment of my post from earlier this month with a suspiciously similar title, where we looked at some of the techniques to help keep money coming in the door. Now that we've got the income coming in, what the heck do we do with it? Spend it? Unfortunately, it's not that simple. Let's take a look at some ideas for how track your accounting and keep your freelance businessup and running.
Budgeting and Expenses
As freelancers or contractors, it can be tough to separate business and personal budgets. You may already have a detailed household budget - but if you don't, then it's time to take a look at your bank statements, credit cards, and any other accounts from the last year, and try to get an idea of what you spend every month. Keep an eye out for expenses: Rent, Utilities, Cable, Car payments/repairs, Health Insurance, Loan Payments, Cell phones (remember, though, that if you use it 100% for business, you should put it in your business budget), etc. Mint is a great online app that can help you track personal spending and these types of expenses, and is worth a try if you aren't happy with your bank's online options.
Now, how much does it cost to run your business? Make sure to take into account your Internet connection, phone lines, fax machine, computers, cell phones, marketing and advertising expenses, etc.
These budgets are crucial to managing your cash flow - in the words of G.I. Joe: "knowing is half the battle!" With the above figures, you have the tools to forecast your monthly expenses and make sure that you are saving enough to help weather those tough months when work is slow. I find it helpful to keep enough in the account to make sure that I can pay for next month's expenses with the current month's pay, so that any delays in payment don't effect my immediate ability to pay the bills.
Invoices and Income
If you are an oDesk user, then you don't have to worry about invoicing your clients. You should, however, be keeping track of your withdrawals from oDesk and your email conversations about payments with your clients.
Take a look back at the last year, or as far back as your freelancing career goes, and figure out (1) the average monthly income, and (2) your worst month income-wise. If you are cautious - like me - then you'll want to use your worst month ever as your worst-case scenario of expected income, then adjust your budget accordingly and do your best to save every penny that exceeds that.
If oDesk is not your only revenue stream, then invoicing may be on your mind. If you're still generating invoices manually, and having trouble keeping track, then the following info is for you:
There are several software packages that can help keep track of your accounting, invoices and time sheets. Quickbooks is a popular option, and there are countless online apps, Freelanceswitch has a great article that details out some of these options.
A very popular choice is Freshbooks, which handles invoicing, project expenses, time tracking billable time, managing subcontractors, and more. When combined with the web app Outright, Freshbooks becomes an even more compete solution, allowing you to import data, itemize expenses for tax purposes, and help you manage your self-employment taxes, Schedule C forms, and W-9's (if you are a U.S.-based provider).
Don't Forget to Save!
It's easier said than done, but If you get a big payment, save it. In an article for freelancewriting.com, Kathryn Lang gives some great tips on budgeting and suggest saving 40% of any large incoming payments from clients as well. I second this suggestion, and while it's tough for most of us to save during the holidays, this time of year is when those year-long savings can come in handy.
Money fuels your freelance operations, hopefully the above will help put you in control of your money, rather than feeling like your money is in control of you.