8 Common Bookkeeping Mistakes to Avoid as a Freelancer | SCRIBACEOUS.COM

Freelancers are responsible for their success. You must advertise yourself and solidify a stable income. However, your nitty-gritty financial commitments could take a back seat in the flurry of freelance obligations. In this post, you’ll discover the most common bookkeeping mistakes freelancers make.

8 Most Common Bookkeeping Mistakes

1. Waiting Too Long to Get Started

Do not wait until your first quarterly taxes to start worrying about organizing your freelance financial life. Some freelancers make the mistake of waiting to file yearly taxes when they should have made payments throughout the year. When deadlines start rolling around, you spend hours gathering receipts.

Procrastination feels justified because you gather leads and engage in your first projects, but bookkeeping is just as essential as these business-critical tasks. Starting early with a strategy to avoid beginner bookkeeping mistakes reduces stress and increases chances of financial stability. Schedule regular time in your day or week to reconcile and back up financial information to form a positive association with the practice.

2. Dismissing Receipts Under a Certain Amount

Rule #2 of freelance bookkeeping is to keep track of every receipt. It feels simpler to dismiss a $10 receipt for office supplies than to record and categorize it, or file it away to send to your accountant. The truth is no receipt is too small. In the United States, the IRS could audit even the most negligible business expenses if there is a discrepancy.

Some apps take photos of receipts so you do not have to worry about piling papers. The best way to deal with seemingly inconsequential purchases is to make it a habit early in your freelance career.

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3. Taking On the Bookkeeping Burden

Doing the number-crunching yourself feels like an inexpensive way to manage the task. However, you will miss vitally important aspects of the job if you do not have a bookkeeping or business-finance background. It is not as easy as keeping track of bank statements and tracking mileage — though both of these are important.

Outsourcing bookkeeping in the beginning is critical for a professionally accurate perspective of the most vital years of your freelance journey. Professionals have the knowledge, software, and resources to devote 100% of their attention to your financial security and legality. It prevents mistakes in manual bookkeeping from an inexperienced freelancer whose attention is split in numerous places.

Eventually, you may learn enough to handle matters independently if your bookkeeper or accountant is willing to help you understand the jargon. However, your primary concern should be developing your business in other ways.

4. Not Backing Up Data

Depending on your access to tech, software and demographics, you may or may not prefer paper documents. Even if you do everything manually, every cent and receipt must have a copy filed away in a secure environment. Digital documents are just as crucial to secure in external hard drives or the cloud.

Countless influences could completely uproot a freelance bookkeeping operation and you should be prepared for all of them, including:

  • Fire
  • Flood
  • Physical or cyber theft
  • Spills on your work laptop
  • Machine failure
  • Lost or stolen flash drives or hard drives
  • Corrupted data
  • Cyberattacks and breaches

Make sure you are consistent with how you back up information. Know where every copy is, how frequently you back it up and what versions are available for immediate recovery if necessary.

5. Combining Personal and Business Expenses

At the beginning of a freelance venture, you may feel tempted to buy cheap essentials with your personal money. Early stinginess makes you want to save as many freelance dollars as possible, but you should always keep personal and business expenses distinct. It sets a bad precedent for future spending and creates confusion come tax season.

If you are shopping for corporate and personal reasons, do two transactions linked to two different bank accounts, whether you are a graphic designer or custom jewelry maker. If you have questions about what to count as a business expense, discuss it with a tax professional.

6. Failing in Categorization

There are several ways freelancers could make bookkeeping mistakes in categorization. First, you can over or under categorize expenses. Putting them in distinct categories helps you understand where most costs lie and assists future growth by knowing where you can cut from. It also helps with knowing what reimbursements to make and if you are saving enough for various taxes.

Only try to create your own categories if it is necessary. Most bookkeepers have suggested guidelines for how to separate expenditures. It keeps the books as tidy as possible.

Additionally, a freelancer may have part-time assistance or other hired help. It is essential to categorize these people under the correct working classification to avoid lawsuits and penalties. Mark contractors and employees appropriately.

7. Neglecting Petty Cash

Petty cash is the coins and bills you forget about but keep around just in case. Even if you receive a receipt, that petty cash is vital to record. The best way to track it is to have a few select corporate purchases allowed for and dismiss it for everything else. Write out a petty cash policy for yourself.

Even if you are the only person managing your funds, it helps with accountability and consistency. Plus, explaining how you use petty cash is easy if you have it outlined for your bookkeeper.

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8. Forgetting Business Expenses for Deductions

Freelancers have many surprise expenses they can mark as business deductions when filing annual taxes. This varies for every country, but here are some notable ones you might look over, depending on your circumstances:

  • Tax filing fees
  • Educational expenses related to your work
  • Tech equipment and software
  • Licenses or permits
  • Industry-related event tickets
  • Interest
  • Domain and website costs

How to Avoid Bookkeeping Mistakes

Are you making any of these common bookkeeping mistakes? Bookkeeping is an intricate and complex system out of necessity. It is the foundation that keeps your freelance operation transparent and sensible. Accurate books build you a sustainable freelance future, and researching before it gets too late will make it easier on you and anyone helping handle your finances.

There is plenty of support available for you to learn the ropes and spend money wisely. Once you are triumphant here, subsequent years will run more smoothly.

Eleanor is a UX/web design and digital marketing writer based in Philadelphia, PA. She spends much of her time as the Editor-in-Chief of Designerly Magazine, an online publication dedicated to providing in-depth content from the design and marketing industries. Her writing and knowledge covers the depths of web design, digital marketing, user experience, social media and branding and how it relates to small/medium businesses.

About the author : Janet Doré

Janet Doré is the founder and CEO (Chief Everything Officer) of Scribaceous, Inc., a boutique design company specializing in branding & graphic design, IHubApp PWAs, WordPress websites, and optimized blog content. She is also the proud creator of the Hub Mama program where she trains and mentors those looking to grow their own freelance Hubmaster business.