Photo: Anna Shvets from Pexels
Gradually making the transition from side hustler to full-time self-employed freelancer is a great plan to be sure that you’re able to support yourself with your new business. That said, it can often lead to a bit of a messy overlap between personal and business funds.
You may keep pushing off getting organized until “tomorrow” and let the task of figuring it out, fall to the bottom of your to-do list. That was my story until I realized that I was losing money because of missing receipts and not planning for tax deadlines.
Follow my four steps below to make getting organized easier, painless, and dare I say it, maybe even a little fun. Let’s get started!
Step 1: Open a separate bank account for your business ASAP.
Is this something that you legally need to do for your business? Maybe. Is this something that you financially need to do for your business? Absolutely.
Even if you’re starting out as a sole proprietor, which is the default structure for anyone who earns income from self-employment, you should set up a separate bank account. Why? Because even if that’s the only thing that you do to get your money organized, you’ll be miles ahead of everyone else in the organization game. You won’t need to sift through a bunch of personal transactions to find business deductions and you won’t lose precious time looking through all of those same personal transactions to see if your client has paid you.
Don’t overcomplicate your business or waste any more time looking at a hodgepodge of transactions, hoping that you’re not missing something. Take 15 minutes to set up a separate account and you’ll be one big step closer to organized money management (congratulations!).
Step 2: Create a list of deductions you can take.
My mom is also a CPA, but unlike me, she actually does taxes for a living. She’s constantly sending me little reminders about deductions I can take because I often don’t catch everything. It’s awesome, but since she’s not with me every day to keep me on track, I’ve created a list of things I can deduct to make sure I’m not missing anything. I keep this list taped to the outside of a folder and store my receipts in there until I can get them entered into my bookkeeping system.
Everyone will have different expenses, but a good list to get started with is:
• Web hosting
• Vehicle mileage
• Work travel
• Courses, seminars, licensing, business-related books
• Shipping, packaging
• Office supplies and equipment
• Health insurance premiums
Step 3: Know what tax forms you need to file, and when.
During my first year in business, I wasn’t too concerned about filing my taxes because I had made no money. Well, it felt like no money. But technically in the eyes of the IRS, it was enough that I needed to file and pay quarterly estimated tax payments.
I think most people have the same cavalier attitude that I did because they don’t know the IRS rules and it’s just something they feel like they can take care of later. I can tell you from personal experience that those first few months of starting a business will fly by and you’ll be left scrambling the night before filing deadlines if you don’t pay attention to some key forms and dates.
To get this started here is some basic information for sole proprietors:
• Who has to file? Generally, anyone who has net earnings from self-employment of $400 or more needs to report this income at the end of the year. And anyone who is expected to owe more than $1,000 in taxes at the end of the year needs to make quarterly estimated income tax payments.
• What form to file? Most people start their business as a sole proprietor, and the forms that you need to file at the end of the year are Schedule C or Schedule C-EZ (profit and loss from business) and Schedule SE (self-employment tax).
• When to file quarterly estimated tax payments? If you’re rational, you would probably think these payments would be made quarterly. Well the IRS throws in just a little change-up, so your payments are actually due on an odd schedule. The non-quarterly, quarterly schedule that they’ve come up with is:
Jan 1 - March 31: estimated payment due by April 15th
April 1 - May 31: estimated payment due by June 15th
June 1 - August 31: estimated payment due by September 15th
September 1 - December 31: estimated payment due by January 15
Step 4: Set a weekly money date.
This won’t be your most fun date, but it’ll probably your most profitable. Set a time to check in every week and make sure that your money is on track. If you do this weekly, it’ll become so easy and quick. I save my money date for Friday afternoons when I’m at my least productive. Once I have this done, I know I’ve earned a glass of wine and a good weekend.
Some things that I do weekly are:
• Send any invoices that are due
• Look at who hasn’t paid me and send reminders (+ cash any checks!)
• Pay any outstanding bills
• Pay myself my weekly salary/stipend
Bonus step: Set up a bookkeeping system.
Oh, look at you, overachiever! You’ve got this organization thing down and you want a bonus step? You can feel even more legit and in control of your money by setting up an easy bookkeeping system. This doesn’t have to take a long time and it doesn’t need to cost a lot. There is a range of easy to use programs out there (some are even free!) that are better than that excel sheet you’re using. If you don’t need many bells and whistles but are looking for something free, try Wave. It’s pretty simple to use, and it’s free.
Now, set aside 30 minutes a week to work through this list and start feeling in control of the business you are creating.
About the Author: Erica Gellerman is a small business strategy and finance expert who has a passion for helping creative entrepreneurs start, launch, and grow their business. After getting her CPA and MBA and spending a decade working at some of the best finance and marketing companies in the world, she started her own small business. Realizing that there weren’t enough resources dedicated to helping solopreneurs build profitable, small businesses, she set out to share everything she’s learned through her site. Follow her on Twitter @ericagellerman.
Love this story? Pin the below graphic to your Pinterest board.
This post was originally published on March 2, 2019, and has since been updated.
MORE ON THE BLOG
Missed out on Gina Bianchini’s incredible session from our Offsite? No worries! We’re sharing her insights on building a thriving community that feels like a real network, not just an audience.