Accounting for Freelancers – With Free Resources
Digital marketing freelancers excel at thinking outside the box to create amazing designs, strategies, and creatives for their clients. But when it comes to money matters, many of us find ourselves biting the bullet.
As freelancers, our income tends to vary due to fluctuating expenses and revenue from each client. Accounting is essential to ensure that you are not operating at a loss.
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THE STORY OF AHMAD
Let’s meet Ahmad. A recent graduate from CDA Academy and a digital marketing freelancer in Dubai.
Ahmad always thinks outside the box and can come up with amazing colour and design combinations to create stunning posters and digital resources. However, when he sees numbers and accounting tables, it’s like he is seeing an alien language.
For our accounting example, let’s consider that Ahmad is renting a new laptop to assist with his graphic designing for 50 Dhs per hour. The laptop consumes 10 watts of electricity per hour, and 10 watts of electricity costs 15 Dhs.
John hired Ahmad to create a poster to announce the opening of John’s new business. Ahmad charged John 300 Dhs for the project.
Let’s see how accounting works for Ahmad.
Accounting consists of three main areas:
- Cost Accounting
Your revenue is generated from your customers. Cost accounting is about assigning a cost to each unit of service provided. It helps you understand where you spend the most money.
Example: Ahmad took two hrs to design the poster.
2 hrs of laptop + 2 hrs of electricity = (2×50)+(2×15) = 100+30 = 130 Dhs.
His profit is 170 Dhs. This is part of cost accounting.
- Financial Accounting
Financial accounting is the art of recording, summarising, and reporting financial transactions.
Example: Ahmad uses software to track his transactions. He provided an invoice to John using this software. Recording his income from John, invoicing John, and recording the cost of his laptop and electricity are parts of financial accounting.
- Management Accounting
Management accounting involves using financial data to interpret and grow the business.
Example: Ahmad considered the cost of his laptop and electricity while billing John. He also needs to consider the cost of his time and other factors such as stationery, taxes, internet, insurance, etc., to ensure that he is not operating at a loss. Considering the pricing based on all these is a part of management accounting.
TIPS TO CONSIDER
While doing your accounting, consider the following tips to ensure your finances are managed properly:
- Separate Personal and Business Expenses
Always separate your personal and business expenses to ensure efficient invoicing, costing, and management methods. Mixing these two will make it very hard to calculate your profits.
- Be Aware of Expenses
From day one, ensure that you are tracking all your expenses. Chronology is very important. Include your office supplies, electronics, telecom charges, office expenses, and any other costs. This will help you ensure that you are not overpaying your expenses or undercharging your customers. By maintaining proper records, you will be able to make informed decisions.
- Plan Your Finances
Like most businesses, freelancing will bring fluctuating income. Plan your finances, including your expenses and personal expenses, to ensure that you do not end up with a zero balance account at any point in time. Set funds aside from peak-performing periods to compensate for slower periods.
- Automate or Use Software
Relying on software and automating your records is an efficient way to ensure cash flow, track expenses and income, and prevent omissions from your daily activities. Using only manual bookkeeping is not efficient.
Software will help you generate reports easily based on every transaction so that you can focus on your primary work.
- Invoice
Always invoice your client using a professional-looking invoice stating the date, service, and price. Proper documentation ensures that your services appear professional and aids in cash flow. An invoice will also provide a clear picture to your customer.
- Plan, Review, Upgrade
As a new freelancer, there is a high chance you might undercharge your clients. Proper planning is key to ensuring you receive your worth. As you gain more customers, review your pricing to ensure that your costs, including new subscriptions, new equipment, and any new help you hire, are included in the pricing.
Regularly review and upgrade your prices. Regular planning and reviewing are key to ensuring the long-term sustainability of your services.
RESOURCES
Here are three free resources that you can use regularly for your accounting purposes as a digital marketing freelancer:
- Wave: Wave is a free accounting software that helps you invoice your customers, record your income and expenses, and track your cash flow. Wave
- Zoho Books: Zoho Books’ free version can be used for simple transactions and invoicing. It also has a time-tracking feature. Zoho Books
- Akaunting: Akaunting is an open-source, free-to-use platform (on-premise version). A cloud-hosted version is also available for a charge. Akaunting
These three platforms are free to use. Based on personal experience, if you are new to the world of accounting, I would suggest starting with Wave as it is simpler to understand and easier to use.
FINAL THOUGHTS
Accounting is a vast field with different rules and regulations. Freelance digital marketers like me who are interested in reports and data can easily learn more about accounting from different platforms to increase their knowledge.
Managing your finances is both a science and an art. Clear-cut planning is required to ensure that our banks and wallets do not run dry.
We all know a friend who works in accounting. If you ever reach a point where you cannot understand or move forward regarding accounting, ask them. Share, learn, and grow!
AUTHOR INFO
Mohammed Suhail Abdulla, Digital Marketing freelancer in Dubai
One of the digital marketing student of CDA Live Online Digital Marketing Course.