Freelance working: 10 bookkeeping basics every sole trader must know

Freelancing is becoming an increasingly popular way to work. The Association of Independent Professionals and Self-Employed (IPSE) states that around 15% of the UK working population are self-employed.

Whilst freelancing offers a more flexible approach to working, it also comes with added responsibilities that you may not have had to deal with before. One of the biggest responsibilities is staying on top of finances.

From understanding assets to monitoring expenses, this guide to bookkeeping will help you set up your own accounting system or find the ideal bookkeeping service to assist you. Here at Wright Vigar, we have a specialist bookkeeping team who can make sure your books are in tip-top condition. Give us a call on 0845 880 5678 to speak to a member of our team.

What does bookkeeping involve?

The technical definition of bookkeeping is “the recording, storing and retrieval of financial transactions for a company or an individual.”

Common activities that are carried out in the bookkeeping process may include invoicing for goods or services sold, verifying and recording invoices and paying suppliers.

Having a solid bookkeeping system in place for your freelance business is a must as it enables you to have a better understanding of the financial position of your business. It can also aid with cashflow as you can easily see when invoices are due and chase if they are late.

Fundamental elements of bookkeeping explained

Being able to manage the bookkeeping of your business does require a basic knowledge of financial accounting. Here is a breakdown of the underlying elements involved in bookkeeping:

1. Balance Sheet
   A balance sheet is a financial statement that details a snapshot of a business’s position to a specific point in time. The figures outlined should ‘balance’, so the assets equal the business’s liabilities and equity.
2. Assets
   Assets are items that are owned by the business and can include things like cash, buildings, land, tools, equipment, vehicles and furniture.
3. Liabilities
   Liabilities are financial claims that are made against the business. Examples of a typical liability are bank loans, overdrafts and unpaid bills.
4. Profit and Loss Account
   This is a financial statement that outlines the financial activity of the business over a set period of time e.g. one month, a quarter or a year. It starts with the business’s revenue and from this, the cost of goods sold, and any expenses are subtracted. The figure that is left is referred to as the ‘Net Profit or Loss’. Our bookkeeping team will be able to advise you on the best time period for your income statement. You can get in touch with them on 0845 880 5678.
5. Revenue
   The revenue is the money that has been made from the sale of goods or services.
6. Cost of goods sold
   The costs of goods sold is the money that the business has spent on making the goods or services that it intends to sell to its customers.
7. Expenses
   The term expenses relate to the money that has been spent on the running of the business. This money may not be directly related to the sale of goods or services. As a freelancer, expenses you may be able to claim for include costs related to marketing your business, purchase of computer software, travelling costs and using your home as an office.
   Expenses are one the most misunderstood areas of bookkeeping. For further clarification on what constitutes a legitimate business expense get in touch with our experienced bookkeeping team on 0845 880 5678.

Managing the bookkeeping system as a freelancer
If you choose to manage your own bookkeeping, it is important that you keep on top of it and don’t let things slide. Our best advice for freelancers who are worried about getting into a financial frenzy is:

1. Get organised
   Being unorganised will make it difficult for you to manage your finances. Trying to implement a system in the mist of running your business could lead you to making mistakes or missing out valuable data. Therefore, it is advisable to get an organised bookkeeping system in place at the beginning of your business. Set aside a dedicated time each week where you can work on your bookkeeping without distractions.
2. Keep accurate records
   The bookkeeping system will prove fruitless if you don’t keep accurate records. Key information that must be recorded is details of sales invoices issued, details of your expenses and purchase invoices, payments made to suppliers and payments received from clients. A good accounting system with a bookkeeping function will make recording information much easier. Most accounting systems offer you the ability to upload copies of receipts, issue invoices and produce income statements. If the accounting system is cloud-based, you can even provide access to your accountant, so they too can have real time information.

   We can offer advice on which cloud bookkeeping system will work best for you. Give us a call on 0845 880 5678 or email us on website@wrightvigar.co.uk

3. Still struggling, outsource it
   If for whatever reason you find that you are struggling to manage the bookkeeping process for your freelance business, there are numerous bookkeeping services available who can handle part or all of the bookkeeping process for you. The cost of this will vary depending on the complexity of the bookkeeping process and the level of involvement you want in the process. We will be happy to provide more information and an indication of the cost of this service.

Whilst the thought of bookkeeping may not fill you with excitement, it is an integral part of running your own business. Without a stringent bookkeeping system in place, your business will struggle to survive and to make a profit. At Wright Vigar we have an experienced team of bookkeepers who help thousands of businesses in and around Lincoln, Gainsborough, Newark, Retford, Sleaford and London. If you would like to arrange a free initial consultation, get in touch with us on 0845 880 5678 or email website@wrightvigar.co.uk.