Understanding when your business is heading for financial trouble

The success of any freelancer depends upon their ability to win commissions and, ultimately, get paid for a good job. Yet with new clients, pitches, articles, and deadlines to focus on, many freelancers will happily leave the business admin for another day. Be warned, if you neglect your finances you could find yourself without a business to focus on, and all your hard work will have gone to waste.

Avoiding financial difficulty by taking care of your company books does not have to be mind-boggling. Don’t wait for trouble. Here are some strategic tools to ensure your business is not derailed through an unexpected cash crisis as told by Lee Murphy, the founder of Pandle.

Take control and be the boss.

Choosing a freelance career means you are now CEO of your own company and you must adapt your mindset to this. As well as winning new clients and providing good copy, it is essential that you take the time to pay close attention to your finances.

Get organised

Keeping track of who owes you what and when they were supposed to pay you can be time-consuming and frustrating, however being organised is key. Getting a diary and keeping on top of who owes you what and when will help you take control of your finances.

However, even with the right attitude, it can become a huge task to even identify when invoices become late – and to chase them. You can be sat wasting your time flicking through your diary and tallying it to your bookkeeping spreadsheet.

There are online tools available, many of them free that can help with your bookkeeping. Some can automate the process of chasing and reminding clients for you.

So, get a good diarising and reminder system in place, and you’re part way there. In our experience, the majority of invoices aren’t paid on time due to disorganisation and a slippery mind – rather than a desire to deprive you of your hard-earned cash.

Stop giving it away

If you are working flat out yet making meagre money it is a sure sign that either your own costs are too high, your prices too low or both.

Consider what you are asking the client to pay for. A straightforward article may come with a £250 price tag, but what if you are required to do further research or interviews? Should you be charging for your time?

Track everything

As the deadline for self-assessment edges closer (paper tax returns must be filed by 31 October, 31 January 2019 for online returns), it is a timely reminder that your job is to track everything.

Set up separate accounts for your business and personal finances and keep them separate. Don’t be tempted to dip into the company account for a personal luxury as you could need that money to pay a tax bill.

Make sure you’re on top of your own expenses. Not only will this help when it comes to doing your tax returns (new laptop? tax write off), but it will also give you a clearer picture of your company finances so you can plan for the future.

Remember appointing a professional can often be worth more in tax savings than the fee they charge. Bookkeepers and accountants can often offer invaluable advice around what is claimable, and what is not, so that you pay less tax and, more importantly, the right amount of tax.

Beware your clients!

Clients can cause the sudden demise of your business in several ways - and only occasionally is it through having too few of them.

Becoming over-reliant on one client could also have implications for your tax bill under the IR35 regime. If you are found to be a “disguised employee”, in other words, you fail to meet the taxman’s definition of what it means to be self-employed, you may find yourself having to pay national insurance contributions – cutting your overall net income by as much as 25%. There could also be fines if you have failed to submit the right tax return on time.

Get ready for self-assessment

Employees will have tax automatically deducted from their pay packet, but as a freelancer reporting income and paying taxes is your responsibility.

Do not miss the self-assessment deadline – remember, paper tax returns must be filed by 31 October, but if you’re doing it online you have until 31 January 2019. The fines for missing a tax return deadline start at £100 for being even a single day late. After that, things just get worse.

Don’t leave it to the last minute, if you encounter any problems there may not be time to resolve them. If you are considering using an accountant be mindful that January is one of the busiest times of the year, so it may well be wise to start now.

It is essential that when filling in your tax reform you pay meticulous attention to detail; often it’s the simplest details that can trip people up. You may have been super organised and have kept a record of all your expenses but that will go to waste if you mistakenly put in the wrong figures or fail to date the form.

Claiming your expenses correctly is vital for getting your tax return right. There are strict rules about what counts as a business expense and it would be to advantageous to be familiar with these. While it may be tempting to throw in some added extras, this could land you in hot water further down the line.

That said, a lot of freelancers miss out on expenses claims they could make and end up paying more tax.

Are you using your existing laptop, printer, car or mobile phone? All of these are capital assets and you can claim a proportion of their costs as business expenses

Where are you working? If you’re using your spare bedroom as an office you could claim a tax deduction. For example: if you use one of the four rooms in your house as an office for a full normal working week, you could claim a deduction of 25% of eligible and relevant home costs.

Remember you are looking to claim the additional costs you incur by working from home that you would not have incurred in any case.

Master your bookkeeping and you master your financial destiny

Bookkeeping, you will be pleased to hear, is not rocket science and regularly using basic tools like those above will keep your business in good financial health. With the wide range of software available online – and often free – it has never been easier to master this vital area.

More on freelance business accounts and accounting software for freelancers.