For any freelancer, an understanding of good bookkeeping practice is essential. An organised approach to bookkeeping is sure to keep your cash flow running smoothly by giving full control over outstanding invoices, bills and payments. As your client base increases and time becomes more precious, being in control of your bookkeeping is of paramount importance.
Many people rely on their accountant for an annual financial overhaul, but this is far from efficient. Regular maintenance of your accounts will give you a more fluid insight into your financial affairs.
The idea of regular bookkeeping can be daunting if you’ve never tried it. Luckily, we’re well versed on the tips and tricks that can help you make light work of managing and monitoring your cash flow. In our opinion, keeping things simple is the best approach for most freelancers – there’s no need for the complex bookkeeping systems utilised by larger companies.
We’ve put together this simple guide to clarify exactly what makes good bookkeeping. Each section focuses on a different key aspect, so it’s sure to answer all your bookkeeping questions.
What is Bookkeeping?
It may seem obvious to some but many people overlook what bookkeeping is and what role it serves. In a nutshell, bookkeeping is the process of keeping track of your past financial transactions. Organised financial records provide an all-important window into your business, showing exactly how much you’ve earned, as well as how much you’ve spent.
The information gleaned from accurate bookkeeping is vital in planning and developing your business but organised bookkeeping really pays off when it comes to tax. Tax returns are often a contentious point for freelancers and detailed records of your financial transactions will only serve to make the process as smooth as possible.
What records should I keep?
Bookkeeping is concerned with two key aspects:
i) Money coming into the business (income)
ii) Money going out of the business (expenses)
Good bookkeeping practice means recording all transactions, whether income or expenses. More specifically we need to record four main points relating to these transactions:
- The date
- The amount
- The reason for / details of the transaction
- The person or organisation the transaction relates to
By keeping a simple table for both income and expenses, with columns for each of the four key points, you have a fantastic starting point for efficient bookkeeping. You can then complement this easy to follow record by keeping receipts and invoices relating to each transaction.
Keeping your records organised
Once you start tracking your transactions and gathering your receipts, things have the potential to start getting messy. Organisation comes into its own here and there are two main approaches to ensuring you remain in control.
The most accessible way to organise your records is with a trusty Excel spreadsheet. Simple and easy to use, a spreadsheet allows you to create tabs to breakdown your transactions and allow easy comparison of weekly, monthly and annual financial figures. The Financial Management Centre has a free cash book template which you are welcome to download from our start-ups page.
You need to keep copies of all invoices and receipts whether that be using a manual filing system or electronically. If you opt for the electronic method that will involve getting your receipts and invoices scanned onto your computer and organised into dedicated files. Don’t forget to give each document a relevant title so it is easily identifiable and can be cross referenced to your spreadsheet. If you don’t have a scanner, you can use a smart phone to take a photo of original receipts – you can then upload them to your computer.
The second, more advanced approach is by downloading a financial management programme or app that has facilities to record and scan all the essential information you require. These programmes offer a really wide range of functions and options that are really worth considering, particularly as your business expands. The Financial Management Centre mobile app has got many features that will help you including a receipt manager. The app is FREE and you can download it in the Apple App Store or the Google Play Store, just search for "TFMC".
How long should I keep my records?
No matter how organised you are, after several years of successful bookkeeping, things might start to become a little cluttered. However, before you hit delete or start shredding last year’s receipts, think carefully about how you can use the information you have gathered.
In the UK, self-employed business people are legally required to keep their financial records for six years. This means you are obliged to maintain these records in case they are needed by HMRC. It may be tempting to clear the decks as soon as the six years has passed but many freelancers like to keep a record of their financial development as they can be used to highlight patterns and trends in their earning, spending and customer base.
Many also like the sentimentality – after twenty-five years of building a successful brand it can be good to look back at your humble beginnings. Perhaps streamlining older records can give you the best of both worlds, providing solid data without the risk of clutter.
As you can see, bookkeeping is as simple as you want to make it. Our final tip would be to get started immediately if you’re not already doing so.
Our guide can help you to get your bookkeeping up and running however DIY bookkeeping is not for everyone and can be very time consuming where your time may be better put to use elsewhere. At The Financial Management Centre we are professional bookkeepers and we can save you time and money by assisting or taking over your bookkeeping and accounts. If you need further guidance on this or any other financial advice please get in touch and we’ll be happy to help! You can call us on 0800 470 4820 or 0333 202 7198, contact your local office direct or fill out our contact form here.