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Beginner's guide to effective bookkeeping as a freelancer

As a freelancer, effective bookkeeping involves keeping track of all money coming in and going out. It’s a fundamental part of working for yourself and managing your finances. This beginner's guide explains why bookkeeping is essential in small business accounting – and provides a list of hacks for keeping your books – and your sole trader finances – organised. 

Why is bookkeeping important for a freelancer? 

Bookkeeping is important for a freelancer for myriad reasons. It helps you track expenses, as well as amounts owing to you. With this information, you can quickly assess the state of your cash flow, chase outstanding invoices, and prepare your tax returns. 

You're prepared if you get audited 

You're prepared if you get audited when you have good bookkeeping practices. Getting through the auditing process is much easier when you have organised and accurate financial records. Authorities will have a clearer, more transparent view of your business and are less likely to encounter errors that can result in costly penalties. 

Simplified accounting when you need to pay tax

Simplified accounting when you need to pay tax is another reason bookkeeping is important for freelancers. Under the IRD's regulations, a freelancer is a sole trader for tax purposes.

That means you’re responsible for reporting your income and business expenses. With good bookkeeping, you'll be able to submit accurate sole trader tax returns quickly, and you won't miss opportunities to save money with tax-deductible expenses.

Stay on top of your business's financial health

Staying on top of your business's financial health is fundamental to its growth and success. Accurate bookkeeping data can produce financial statements that show how your business is performing. Using these insights, you can identify areas for improvement and make informed decisions that increase your profitability. 

9 important tips for freelancer accounting

1. Keep detailed records from day one

You want to keep detailed financial records from day one as a freelancer. Even if you work exclusively with one client, noting key information like your cost per hour, the number of hours you worked on a job, any associated business expenses, and when you receive payment for invoices will ensure you submit your sole trader GST return and income tax accurately – and on time.

2. Separate personal and business finances 

Separating personal and business finances using a sole trader bank account is crucial to keeping your bookkeeping manageable – and reducing the time it takes to reconcile business transactions. 

3. Put money aside for your tax bill 

Putting money aside for your tax bill so you can pay it on time is the best way to stay compliant and avoid any penalties or late fees. As a freelancer, you must consider the tax you’ll need to pay on your income and how you’ll manage this liability. For example, you could set up a recurring automatic payment into a separate bank account just for tax purposes or save a percentage of your income each month.

4. Use accounting software

Using accounting software helps simplify and automate key bookkeeping tasks. Choose a system that works for you and helps free time that you can devote to your clients. Accounting software for sole traders also makes it easier for you to collaborate with your accountant (if you have one) – give them access to your file and they can help you meet your tax and reporting requirements.

5. Track all income and expenses 

Consistently tracking all income and expenses is the foundation of accurate financial reporting. With modern accounting software, you can generate invoices, upload receipts, track expenses and produce cash flow statements to get a real-time overview of your finances. 

6. Invoice promptly and regularly 

Invoicing promptly and regularly is the easiest way to ensure your clients pay you on time – and you don't run into cash flow problems. 

Read more tips on how to invoice as a sole trader and get paid faster. 

7. Create and stick to a budget 

Creating and sticking to a budget will help with cash flow management by giving you a way to monitor your spending habits. It'll also encourage you to develop healthy financial habits so your freelance business has long-term stability.

8. Have a plan in place for quieter periods 

Having a plan in place for quieter periods is smart. It's generally the most significant challenge freelancers face — not knowing where your next job might come from. If you can, put aside some money to provide a financial safety net when you have a gap between projects. 

9. Hire an accountant 

Hiring an accountant is a big step for many freelancers. Still, there are many benefits to seeking professional support. An accountant can help you assess and understand your financial performance and advise you on improving your sole trader profitability. 

Bookkeeping for freelancers FAQs

What is the most important part of bookkeeping? 

The most important part of bookkeeping is organisation — without it, you'll struggle to manage your finances. This means scheduling time each week or month to do your bookkeeping tasks. Track expenses and income and collect documentation, preferably using online accounting software so the data is easily shareable and secure. 

Can you write off business expenses as a freelancer? 

You can write off business expenses as a freelancer — and offset the tax you owe. There are rules around which expenses are tax-deductible and the portion of each expense you can claim. For example, you can claim 100% of some working from home tax deductions, like home office equipment, whereas only a portion for additional household expenses. Consult the IRD to find out more.

Do I need an accountant as a freelancer?

No, you don’t need an accountant as a freelancer, but many choose to work with one for various reasons. The greatest benefit is that you can lean on their expertise to make smarter financial decisions and get peace of mind knowing that you've met all your tax obligations. 

Keep your books tidy – and smash freelance life

As a freelancer, understanding the value of good bookkeeping will pay dividends in the long run. With an accurate and up-to-date record of income and expenses, easily accessible through MYOB's accounting software, you and your accountant can work effortlessly together to keep your sole trader business profitable and tax compliant. 

Get started with MYOB today!

Disclaimer: Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, MYOB disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.

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