You’ve managed to successfully bootstrap your business.
With little capital and lots of hard work and perseverance, you got your website up and started.
You’re finally writing for clients and making money.
Now you have to manage that money. But bookkeeping and accounting is not your favorite thing to do.
Am I making enough money to support my business?
You spend a lot of time creating spreadsheets that track your expenses and income, but it still stresses you out because tracking your money feels like you’re searching in the dark with a tiny teeny flashlight and asking yourself…
Am I doing this right?
Am I making enough money to support my business?
If you’re bootstrapped and on a budget, you can’t afford to hire someone else to manage your money (at least not yet).
Not to worry, there’s very little math involved – it’s more about staying organized.
Thankfully, as a freelance writer, your overhead is small, there’s no merchandise to keep on hand, and your business equipment is minimal.
The following 4 steps guide you on how to manage your money for your freelancing business.
Remember: Income must always exceed business expenses
Before starting, you should already have a business name, an optional registered tax ID, and a business email/contact information that’s separate from your personal information. This makes the following steps easier to do.
Keep All Business-Related Finance Separate
Always keep your business money and personal money separate from each other.
Keep them banks apart!
It makes bookkeeping easier and more organized.
Everyday transactions, whether personal or business, add up quickly.
You don’t want business payments from invoices and expenses to be mixed up with your personal grocery and utility bills.
It’s a headache trying to separate them during tax time. And it will be a major headache for that bookkeeper you’ll hire in the future.
1. Open a Separate Checking and Savings Account
I recommend using a bank that’s different from your personal bank.
It keeps things completely separate.
Use an online bank like Capital One Spark (for business, not the credit card), Discover Bank (also not the credit card), Ally Bank, or something very simple like Simple.
Online banks can easily link up with PayPal and Stripe – the two most used online payment systems.
Whatever bank you choose to house your business money, make sure they don’t have fees or minimum balance requirements.
If the bank you choose offers it, open both a checking and savings account.
Checking accounts come with a debit card that can be used as a credit card to make online payments.
And savings accounts are useful because you can stash the taxed portion of your income to pay your taxes at the end of the quarter, or end of the year.
It’s good practice to separate that taxed portion from your income as soon as you can so you’re not scrambling for money when it’s time to pay taxes.
2. Open a PayPal Business Account
Even if you have a personal PayPal account, open a business PayPal account with your business email (your business email should be different from your personal email).
You’ll essentially end up with two PayPal accounts.
But this is necessary because the more options you give clients to pay with, the more likely they are to work with you and pay you.
A majority of your clients and customers will want to pay through PayPal. And most international clients prefer using PayPal to send payments anyway.
A PayPal business account can also be used as your main checking account if you don’t feel comfortable opening a separate bank account.
But having both a PayPal and a separate checking and/or savings gives you more options for receiving payment and a safe place to keep your tax money.
Track Your Spending and Income
This is where the spreadsheet comes in.
Spreadsheets are an amazing tool for tracking and organizing, but they are time-consuming.
If you’re using a spreadsheet to track all your freelance money, I’m here to tell you there’s an easier way (more on that in a minute).
Save your amazing spreadsheet skills for other projects like tracking your business subscriptions, clients, and or projects.
1. Use a Subscription Tracker
Track all business-related subscriptions and memberships on a spreadsheet.
Because it’s very easy to forget a payment that you only make once or twice a year.
Tracking it and saving up for the payment protects you from a surprise subscription renewal later in the year.
Track things like website hosting subscriptions, WordPress plugins, job board subscriptions, business licenses, or any writer’s tools that you use strictly for your business.
Find out how much it costs you every month to maintain those subscriptions and/or memberships, even if you only pay it once or twice a year.
This will give you an idea of how much it costs each month to run your freelancing business.
Always aim to make more income than your monthly expenses each month.
2. Use an Online Money Management Tool
Here’s where you can stop using a spreadsheet to track your money (like I promised).
Mint.com, YNAB, and EveryDollar are popular money management apps that you can use.
Link your business checking, savings, and PayPal accounts and track all your expenses.
Get Your Business On A Budget
If you don’t have a personal budget, now is a good time to learn how to do one.
Get on a zero-based budget.
A zero-based budget makes you give every freelancing dollar a job.
You take what you think you’ll make in income for that month and keep allocating it to all your expenses (or savings) until you reach zero.
As a freelancer, your income will be irregular.
So, the best way to begin this kind of budget is to take a low average of what you think you’ll make in the next month and use that amount to start with.
If you end up making more, then you can adjust your budget later.
Make a list of all your business expenses and the monthly cost for each (even if you only pay for them once a year).
After listing your business expenses, you budget out the amounts to each expense until your number gets to zero. Every dollar has a job!
Before you get out the spreadsheet, read on, there’s a program you can use that’s free and walks you through creating a zero-based budget.
It basically does all the hard work (and math) for you!
Use an Online Budgeting Tool
Mint.com has a budgeting tool, but it doesn’t allow for future budgets or a zero-based budget.
EveryDollar is a good tool to help you with a zero budget.
Setting a business budget is the most important thing you can do to manage your freelance money.
“Here’s why” example:
You set a dollar amount for each business expense you have. Pre-planning your money will protect you from overspending your income.
Let’s say you expect your freelancing income to be $500 this month and you’re in the market for a new office chair or desk.
Budget (or put away) a percentage of that income for taxes (let’s say 30% = $150), that leaves you $350.
Your monthly expenses are $100 a month. That leaves you with $250.
You then decide to budget some money to go to savings or to pay off debt. Let’s say $100.
That leaves you with $150 free to budget for new office furniture.
If you don’t make a plan for your money, you’ll always end up overspending on stuff and underpaying on bills.
If you’re just starting out freelancing, you won’t have a lot of items to budget for, but it’s a good idea to get started early so you can get the bookkeeping and budgeting concept down for when you make more money and have more business expenses.
Stay Away From Debt
“Never go into any kind of debt to start or maintain a business.”
Some experts say you should have a separate credit card for business expenses, but if you don’t have the money to pay for something, you don’t need to buy it.
Sorry, I can’t give any good advice on the use of a credit card for your bootstrapped business.
Starting a freelance business is not expensive, so there’s certainly no need to use debt to get it going.
In truth, you can start your freelancing business with no money down.
Your website name may have “.wordpress.com” in it, but it’s still a website where clients can go to see all your work.
Save up money to pay for a domain and hosting, they don’t cost very much. Most are under $100 for one year.
If you start using a credit card to pay for purchases, you’ll be less likely to have restraint on the amount you spend.
Studies have shown that people who use credit cards end up spending 12-18% more than if they used cash or a debit card.
You don’t want to derail your business efforts later down the line when you have a client dry spell, and you can’t pay your credit card bill that month.
Yes, client dry-spells are real!
Don’t let the words “bookkeeping” and “accounting” and “managing money” scare you from making money as a freelancer.
The apps I mentioned above are excellent helpers that can teach you how to manage your successful freelancing business.
It’s best to start managing your money properly now, while your expenses are low and few.
You just may find that you won’t need to hire a bookkeeper or accountant to track and manage your freelancing income in the future because you’ve already got a handle on it. And that will save you money!
Over to you – How have you been tracking and managing your freelance income?