1. Keep track of money in and money out.
You will need to implement an accounting system. It can be simple or complex, but you need a system. I don’t recommend using a typewriter with carbon paper and paper ledgers like I did in the good old days. I’ve been using AccountEdge software on my Mac since 1996, mostly because I need to do payroll. It may be overkill for someone starting out, but it does handle accounting well. Luckily, there is a wealth of intuitive and affordable software available for all levels, including Quickbooks and many cloud-based programs. A program called Billings is a simple and inexpensive solution, though it does not track expenses.
2. Invoice promptly.
Develop a standard method for sending invoices, and email them promptly. I prefer PDFs over .doc attachments; a client should feel that he is looking at a finished product, not a work in progress.
3. Keep track of who owes you money.
My accounting software shows me who is past 30 days in making a payment. Email slow payers. Sometimes I find that they never received the emailed invoice. Sometimes I find that they are a slow-pay. Don’t be afraid to call people who owe you money.
4. Create a filing system to save crucial paperwork.
Save your receipts. Save your bank statements. Save your utility bills and credit card bills. I assume that someday in my financial life I will be audited. And when that day comes, I want to be able to show the tax auditor my receipts.
5. Hire an accountant.
Establish a relationship with an accountant by January 1. April 14 is not a good date to find an accountant. (Accounting for Dummies hint: April 15 is the day that annual tax returns and payments are due.) Ask family, friends and colleagues for recommendations; if your parents use an accountant, that might be the place to start. Most importantly, find one that you are comfortable with. My first accountant made a big mistake one year. My next accountant was too "creative" for my tastes. My current accountant is knowledgeable and approachable, and he will answer tax questions during the year.
6. Don’t forget about taxes.
Profit equals gross receipts minus expenses. You will have to pay social security taxes, federal income, state income and possibly local business or income taxes on all of your profit. As you make money you need to set aside money for taxes. You will likely have to pay quarterly taxes in your first or second year as a freelancer. Ask your accountant.
7. Separate work and play.
As your business grows, get a separate bank account and credit card for your business. This can make accounting for your business life easier.
Read the other parts of this series.
Look for Part 4 next Monday.