Ask any experienced small business owners the key to their success and you’ll likely hear, “I ran my business like a business.” For example, business owners often keep business and personal finances separate, reconcile their bank statements promptly, and put legal firewalls between business and personal assets. Your freelancing business is no different—to succeed, it has to be run as a business, including staying in tune with your finances. So what steps can you take to propel your freelance business to financial success?
1. Separate Business and Personal Accounts
Never mix business with pleasure. We’ve all heard that line, right? That holds true for your financial accounts, too. As soon as you can, separate your business and personal accounts. This means you need to set up business-only bank accounts and credit cards and use them for all your business transactions—no more buying ink for the home printer and office printer on the same receipt.
Professionally, separating accounts sends a signal to your customers that you are serious about your business. Additionally, it allows you to build a business relationship with your bank—which can make securing financing easier down the road.
If upping your professional game doesn’t convince you, how about the idea that business-only credit cards and bank accounts can save you time? Using business-only accounts enables you to integrate those accounts into bookkeeping software, reducing the time you spend on routine accounting tasks.
2. Categorize Business Expenses
Separating your business and personal accounts is a good start. Next, focus on a method to track and categorize your business expenses. Without documented expenses, it’ll be impossible to generate the monthly reports—P&L statement, balance sheet, and cash flow statement—that illustrate the financial health of your business.
And since you’ll be filing quarterly taxes, you can set yourself up for success 4 times a year by categorizing your expenses as they happen. As part of tax documentation, the IRS expects you to use specific expense categories to justify deductions that reduce your tax bill. Eliminate tax filing drama by tracking and categorizing expenses as you go, ensuring that your books are clean and reliable.
3. Check Your Prices
What should you charge for your product or service? It’s an age-old problem. Charge too much, and your customers may run to the competitor. Charge too little, and you risk negatively impacting your cash flow.
Rather than guessing or simply undercutting your competitor’s price, use a pricing guide when setting your prices to help determine what makes your service or product unique. Your pricing strategy may include a mix of pricing types to help you attract and keep customers. Maybe you offer a promotional price to hook customers initially, and then, once they become loyal, you can offer them a new product at a premium price. If you offer free services to lure in new clients, have a game plan to convert those clients into paying customers.
And setting prices isn’t a one-and-done task. Monitor your cash flow regularly to determine when you may need to adjust your pricing strategies.
4. Automate Your Invoice Process
Unless you are volunteering your time—and as a freelancer, you shouldn’t be—establish a routine invoicing process. If you don’t bill your clients, you won’t get paid. Just like you balance your personal checkbook each month, you should make sure you actually got paid for what you invoiced. Without a proper invoicing routine—which includes sending out timely invoices and not letting unpaid invoices linger—you may encounter cash shortages, which can impact your ability to pay your own bills.
To reduce the time you spend invoicing, consider using invoicing software. If your business provides a repeat service, such as a coffee subscription club, you may be able to use software to set up recurring invoices. Remember, the more you automate your invoice process, the more time you can spend on tasks that produce revenue.
5. Protect Your Business
Don’t let a legal snag be your financial downfall: consult your legal advisors to ensure your business is established properly. As a freelancer, you may start as a sole proprietor or incorporate as a limited liability company (LLC). But like your pricing strategy, evaluate your legal framework periodically to see if another incorporation type would serve you better.
And prepare for the unexpected with business insurance. While no one wants to think about being sued or dealing with a cyberattack, these things do happen. Review the list of insurance policies that every small business should consider and then talk to your insurance advisor for specific recommendations.
Staying on track with your business finances doesn’t have to be a burden. Let Sunrise help ease your bookkeeping challenges—that way, you can focus on other healthy financial habits for your freelance business.