Money in the bank: tips for freelance accounting
by Hannah Hoag
Not long ago, one of my regular clients had some hiccups with their accounting procedures. Every month or so, I’d have to contact the department to inquire about a payment and track down the source of the problem. Sometimes the payment had never been processed. Other times the cheque had been lost in the mail.
It was incredibly frustrating, but I always got paid in the end. In part because I’ve been treating freelancing as a business from the get-go and it was easy for me to identify the missing payments and follow up on them.
Sometimes freelancers are too eager to jump into the thrill of the assignment without giving much thought to the business side of freelancing. It doesn’t have to be painful. The basics are simple: Track your work, get paid, pay your taxes, pay yourself. You just have to avoid making it a time suck.
Track your assignments
Deadlines belong in a calendar, not on a scrap of paper or in an email. My online calendar holds final deadlines and individual interviews, but I monitor the money side of the freelancing equation in a spreadsheet.
The spreadsheet is the pulse of my business. It lets me stay on top of my assignments and anticipated income. It ensures that I set enough money aside for overhead expenses (Skype, airfare, external hard drives, etc.) and taxes, and forces me to put money away for retirement. With a glance to the spreadsheet, I know if I’ve got to hustle and send out some pitches, or if I’ve got more than enough work on my plate. I also stay on top of late payments or if I receive an amount that doesn’t match my records.
Here’s a fictitious example of what it looks like:
(Click on the image twice to enlarge it)
I enter each assignment under the month where I expect to get paid, which allows me to project my income for that month. As payments trickle in, I crosscheck them with the amount invoiced (more on that later) and enter in the date I received the cheque.
But I also use the spreadsheet to manage my pitches. If I’ve pitched the story, but haven’t received the assignment, I mark it in red. Once you’ve figured out how long it takes you to report and write a feature, news story, or blog post, you can forecast whether you have the time to take on additional assignments in a given month, or if you should plan for some long days or working weekends.
Get paid
When you freelance, invoicing becomes habit. Or it should. Know the terms of your contract and when the publication will pay you. Some pay on acceptance others pay on publication. Are you being paid by the printed word, assigned word, or the higher of the two? Invoice as soon as you’re able, because you may find that as soon as you’ve invoiced, someone tells you there are forms to sign or that the accounts person has gone on holiday.
Several years ago, I began using Freshbooks for all my invoicing and expenses. The company, which is based in Toronto, built a cloud-based accounting system for small-business owners. It has everything I need to invoice my clients, track my payments, and even follow-up with late fees. Freshbooks saved my sanity during the Great Cheque Hunt of 2011, when I would receive partial payments or nothing at all for my work. It also lets me tack on late fees for slow and delinquent clients. Other colleagues swear by MacFreelance.
Following expenses used to suck up an enormous amount of my time. The first step to recouping that time is to open a chequing account and apply for a credit card that you will only use for your business. Deposit all of your pay into the chequing account and pay for your expenses on the credit card. Get a rewards card that will help you travel for assignments, or pay for your vacation each year. If you do a lot of work for a publication in a foreign country, it’s worth looking into additional foreign currency accounts. That way you can deposit foreign cheques and transfer the money only when you need it–or when the rates are favourable.
Even with this system in place, expenses remained a pain. I would try to log my expenses every month, but the task usually fell to the bottom of the list. Freshbooks saved me again, but you could use another online accounting app too. I linked Freshbooks to my business accounts so that it downloads my expenses. I glance at them periodically and group them according to the categories used by the Canadian Revenue Agency on form T2125 (Advertising, Office Expenses, etc.). Come tax time, have a tally of my expenses to plug into the form. I also know how much GST/HST I have charged, and how much I’ve paid.
If you find yourself on the road or need to document the receipt itself for your records, you can scan and file receipts with Expensify or Neat Receipts, a nifty mobile scanner and filing system. (I don’t use these, but they come recommended by other seasoned freelancers.)
Pay yourself–and pay yourself more
With each cheque–or payment–refer to your handy spreadsheet to determine how much money to transfer to your personal and savings (retirement) accounts. There may be times when you have to borrow money from your business account or vice-versa to pay unexpected bills (new computers are often at the root of the borrowing). But keep track of the loan with an IOU and pay it back in increments whenever you can. The nice thing is that you probably won’t charge yourself interest, unlike your credit card.
The spreadsheet also lets you track your average income per word, allowing you to revisit your rates, set new ones, and decide whether an assignment is worth your time–will it push out another higher paying one? And if you really want to geek out and challenge yourself to earn a higher income, you can start tracking year-over-year changes to your average monthly income and pay-per-word rate.
It will take more than a few minutes to set up these online accounting tools, but it’s worth it in the long run. I’ll never go back to my old ways of tracking income and expenses.
Do you have a tried-and-true approach to keep your operations streamlined? Let us know in the comments.
Hannah Hoag is a Toronto-based science journalist and editor. She writes about climate, science, and global health for several publications, including Nature, Discover, Scientific American and Maclean’s. She is a contributing author to The Science Writers’ Handbook: Everything You Need to Know to Pitch, Publish, and Prosper in the Digital Age (Da Capo, 2012) and an editor for the book’s blog www.pitchpublishprosper.com. You can follow her on Twitter at @hannahh.
