Freelancing as a Business: The Dollars and Sense (Cents) of It

Know More: Work from Home Advice accounting records, expenses, FreelanceSwitch, Income Tax, Record Keeping, tax savings

Over at the FreelanceSwitch Shane is running a series on the business of freelancing. The latest entry in the series, Bookkeeping, the Difference Between Profit and Loss is a must read for anyone who owns their own business.

You may think that you know this already, but think again.

Here are some questions that every small business owner should ask:

1. Do I keep accurate records of my expenses?

Expenses include more than just material costs. Expenses could include advertising, equipment use (such a computer) or facilities use (such as a room in your house), and the cost of collections. Many work-at-home business owners are lax about truly tracking expenses. To get a more accurate picture of how much you are really earning you should subtract your expenses from the gross amount that you receive.

2. Do I keep accurate records of my time?

If you had to convert the income you receive to an hourly pay rate, could you do it? As a small business owner, it's easy to be blinded by a big number (say a thousand dollars), but to truly be profitable you also have to factor in the amount of time a project will take. A thousand dollar project is not very profitable if it takes you 400 hours (or over thirty days, working twelve hours a day) to complete.

3. Do I keep accurate records of my revenue?

If you have multiple clients, you are probably receiving revenue from many sources. Some clients may pay you through PayPal or a similar online service. Other clients may send checks to your home or P.O. box. Still other clients may deposit payments directly into your bank account. You should be recording all of these payments (no matter how small) as revenue. If you are a US citizen, it WILL make a difference when it is time to calculate your taxes.

Note: If you have specific questions about accounting, bookkeeping, or income taxes, you should consult with your own accountant or attorney. This post does not constitute legal advice.

What about you? How important do you think bookkeeping is to a small business owner? Have you ever been blinded by a big number?

Leave a comment and let us know.

Devoted to WAHMs -Work at Home Moms

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