Are you a freelancer, contractor, consultant, or coach looking to get a handle on your finances in 2024?
Whether you’re new to the game or a seasoned pro, understanding how to manage your finances can feel like juggling hot potatoes.
But don’t worry; with a few simple strategies and the right tools, you can stay on top of your finances without breaking a sweat.
Let’s have a look at some key tips, including the importance of keeping good records and choosing the best software. 🧑💼💼
Why Is Good Record-Keeping Essential?
Have you ever wondered why keeping meticulous records is so crucial?
Good record-keeping isn’t just about staying organised; it’s your best defence against unexpected tax liabilities or worse, an HMRC investigation as well as being a vital tool for understanding your business’s financial health.
In the UK, for personal self assessment, HMRC requires that you keep detailed records for at least five years after the 31 January submission deadline of the relevant tax year.
If you operate via a limited company, financial records must be kept for a minimum of six years from the end of the last company financial year they relate to.
This means you need to keep all receipts, invoices, bank statements, and any other documentation that supports your income and expenses… (see our separate article on “Legal Requirements for Keeping Records for Limited Companies” for more details on this)
Keeping good records helps you:
- Track income and expenses: Understand where your money is coming from and where it’s going.
- Prepare accurate tax returns: Avoid penalties by submitting accurate figures to HMRC.
- Budget effectively: Plan for future expenses and save for taxes or unexpected costs.
Choosing the Right Financial Software: Xero and DEXT
What tools should you use to manage your finances?
The right software can simplify your life and help you maintain those all-important records.
If your business is VAT registered, then ‘Making Tax Digital’ (MTD) legislation requires you to keep your records digitally, and submit your quarterly, monthly or annual VAT returns via MTD compliant software.
But even if you’re now required to do so by law, it really is best practice to keep digital records for all the reasons outlined above.
Two standout software options we recommend are Xero and DEXT.
- Xero: A cloud-based accounting software perfect for freelancers and small businesses. It offers an intuitive interface, real-time bank feeds, and excellent reporting features. You can easily track expenses, send invoices, and manage your VAT returns. Xero also integrates with many other apps, making it a flexible choice for growing businesses.
- DEXT: Formerly known as Receipt Bank, DEXT is a fantastic tool for managing receipts and invoices. Simply snap a photo of your receipts, and DEXT extracts the data, categorises it, and sends it straight to your accounting software like Xero. It’s a huge time-saver, especially for those who dread the thought of manual data entry.
Tips to Manage Your Finances Efficiently
How can you streamline your financial management process?
Here are a few tips to help you stay organised and stress-free:
- Set up separate accounts: Keep your business and personal finances separate. This makes it easier to track business expenses and income, and it simplifies your accounting.
- Automate where possible: Use software like Xero and DEXT to automate invoicing, expense tracking, and bank reconciliations.
- Review your finances regularly: Set aside time each month to review your income, expenses, and cash flow. This will help you spot any issues early and adjust your strategy accordingly.
- Seek professional advice: Consider working with an accountant, especially when it comes to tax planning and compliance. An accountant can provide valuable insights and help you navigate complex tax rules.
Final Thoughts
Managing your finances as a freelancer, contractor, consultant, or coach doesn’t have to be a daunting task. With good record-keeping habits and the right software tools, you can keep your finances in check and focus on what you do best. 🌟
For more tips on how to manage your finances, check out our blog on budgeting or visit HMRC’s website for detailed guidelines on record-keeping.
Remember, a well-organised financial system is the backbone of a successful business. So, get started today and watch your business thrive! 💼🚀
If you’d like any further help or guidance on this subject please do reach out to the IN Team and we will be happy to help 🙏🏽
You can read more about how In Accountancy is a leading accountant for freelancers.
