One of the most overwhelming parts of owning my own freelance writing business for me are the bookkeeping processes. It's all fun and games when you are doing what you love while getting paid for it, but that all changes when you have to start keeping track of finances. When I was just starting out and making a part time income, I wasn't too concerned about it, but it has grown to a point where I have to start thinking about tax time.
Just the word "taxes" is enough to give any entrepreneur the chills. Not only is it physically painful paying in almost 30% of your hard earned income, but the terms and conditions are sure to send me into a cold sweat. How do you keep track of your expenses? What expenses are eligible as business write-offs? How do you keep track of your income when you have payments coming in from multiple sources at random times of the week? It is overwhelming, that's for sure.
Taxes don't have to be as scary as they seem. If you take it one step at a time and do your homework it will all be ok. Whether you are a pen and paper kind of person, or tech savvy, it can be simplified. Break down your income sources, and then break it down into payments. Track every payment transaction as you go. At the same time, track every single expense you incur while operating. There are many different expenses that you can deduct come tax time, so track each and every penny you spend on your business. Once you have these two figures you can determine your net profit or loss. It is also a good idea to track your working hours each week, so you can break down your hourly rate if need be. These things can be tracked on Excel, certain bookkeeping programs, or other spreadsheet platforms.
Luckily I just recently took Excel, personal finance, and accounting classes, which have given me a head start in the process. I have heard of multiple bookkeeping software programs and apps you can use, but honestly it seems too complicated for a simple gal like myself. By taking my knowledge in Excel functions and personal finances, I decided that I can do it myself right from my own computer. It is smart for most people to hire an accountant, but since I am in the process of getting my accounting degree I decided it would be good practice.
The thing I like the most about Excel is that you can personalize your workbooks and worksheets, with whatever functions suits your business the best. Some of the top functions like SUM, VLOOKUP, COUNT, MAX and MIN. These functions help you look up figure in a table, calculate the sum, count the days, or find the highest and lowest figures. These functions can help you sum up your income and expenses, find a transaction, count the days from invoicing to payment, and figure out your hourly income, to name a few ideas.
It's easy to get overwhelmed by all of the complicated rules out there, but just try to simplify it the best you can. It may be best for you to personalize your own books, because every business is different and there is no "one size fits all." There are millions of books and sites out there dedicated to helping you understand spreadsheets and their functions, so don't be discouraged if you lack knowledge on them. If you aren't confident in your ability to track your income and expenses, while knowing the laws regarding income taxes, don't be afraid to hire a professional. You will be hurting yourself in the long run if you make a few too many big errors when you are paying Uncle Sam.