As a freelancer, bookkeeping is an essential requirement. Nevertheless, it can be challenging especially if you have no accounting background. Accounting errors are inevitable; however, common accounting mistakes can be easily avoided when an appropriate plan is provided. Moreover, it is easier and cost effective to correct mistakes earlier than later especially if it’s a long-term project since it gives you a competitive advantage hence saving costs. When all your books are in great shape and have considered all aspects which include accuracy, consistency and up to date records, the business operations will be well streamlined thereby improving efficiency.
The five most common bookkeeping mistakes freelancers make include:
Linking personal and business expenses
Lack of knowledge to properly categorize incomes and expenses especially personal payments being expressed as a business expense is a common mistake which most freelancers make during record keeping. As a sole proprietor, it is important to keep your personal expenses personal, be keen on all money coming in and out of the business and ensure they are always be allocated to their proper categories.
Lack of proper receipts storage
Every single item you purchase however big or small should have a receipt. This is also mandatory for any services received in connection with the business. Having a systematic storage and filing system of receipts allows you to easily retrieve a specific receipt when the need arises. This ensures control of the business and facilitates its progress. Furthermore, it simplifies the preparation of financial statements and reconciliation processes.
Recording transfers as income
When you receive funds from an online foreign exchange service, the type of account the money is being deposited to determine whether the transfer is an income, expense or just an account transfer. This is a common mistake which is usually made by most freelancers. It is therefore important to give a detailed report of the transfers for it to be well categorized.
Failing to have an accounting system
Every business requires an accounting software for backup purposes. Backing up your data is important since it ensures the operations of the business are maintained as usual. With accounting software, it is easy to double check your back up files in case a problem is identified and it is also crucial to initiate a quick check so as to ensure everything is in order.
Working without a budget
As a responsible and hardworking freelancer, budgeting is not an option for your success or failure depends on it. It is important to note that a budget guides you on how to spend with regards to your priorities. Having a clear budget also helps you to avoid getting into debt and keeps you on track from surprise spending which can actually help you save.
After you have done an evaluation of your bookkeeping and realized you make one or more of the above mistakes, it’s time to make the appropriate corrections.