Being in business for yourself is a great thing. Whether you are a designer, writer, crafter, or shop owner, there are some main things you need to know about the financial end of the business. Unfortunately, these things are not so fun, but it’s essential you understand them so it makes your life easier.
Since there are a million and one things one must consider when doing their taxes, most people have a professional take care of this for them. Which makes perfect sense. And others just figure it out themselves and get it done. If you are one of those types, I highly recommend Amy’s Northard’s new course, Be Your Own CFO. It includes everything you need to know about bookkeeping and taxes.
Now, whether you have someone do your taxes or not, you still need to be organized and keep track of your spending, income, sales tax, and profit. I have created an easy way to do this and I am sharing it with you today. I hope it helps you feel more at ease with the financial side of your business, knowing everything is in order and all set to go.
Now just a little bit on me…
I have been freelancing since 2006. And although in the beginning it was a few projects here and there, those experiences helped me prepare for my future of being a small business owner.
Once I graduated, I worked as a freelancer part time for a local Jersey photographer and soon after scored a full time graphic position at a company in Long Island where I would mostly be doing digital illustration. So I packed my things, said my goodbyes, and in 2 weeks I was back to being a New Yorker. Unfortunately, that position only lasted 6 months and I was laid off – without having any idea it was coming. That basically turned my world upside down. Needless to say, the next year or so was rough.
I toughed it out and did what I had to do so I could pay my rent and eat, but it was no fun. I found most work off the books because it was my only option and did freelance work when I could. Once I started designing for Petite Picasso, everything started to look up. Fast forward to now… I am the owner of Gray Star Design, a thriving small design studio, and a Minted designer. It took me lots of time and work to get where I am now and I feel very lucky to do what I love, on my own terms.
During those rough years I told myself I would never work for anyone else again. Well, I accomplished what I wanted and couldn’t be happier.
But one thing I found that truly helped me was my organizational skills. I know not everyone has the ability to compartmentalize things and create systems that work, but its something I have always been good at. So applying this skill to my finances made it so much easier when tax time came around.
Here are some easy tips that can seriously help you get your financial files sorted out and streamlined, so there will be no worries in that department. They have truly helped me in the past and continue to be my one and only system to this day. And because most is done online these days, that makes this process so much easier.
First off, create a folder for the year. Then create sub folders: Income + Receipts. In each folder, create one for each month. Now if you have to charge sales tax to your items, create another folder within the main year folder titled ‘Sales Tax’. In this folder, keep a reference guide of the sales tax schedule and any info pertaining to this subject so its all in one place. Now that I file mine yearly, I have folders titled those dates with the appropriate PDFs in them.
Tracking your spending is so important. For me, its a major part of my business since I do a lot of printing for both stationery items and albums. All you really need to do is keep your receipts organized. So for whatever you spend your income on, create a folder for it. And if you are a little confused on what to include in some of them, take note of what I do. Below are the folders I use and what I keep in them.
Etsy – monthly bill receipts
Services – any service you pay for such as a tax specialist
Fonts & Graphics – any fonts, stock photos, graphic files, templates, etc..
Office Supplies – tape, shipping supplies, ink, packaging for items
Subscriptions – magazines, groups, websites, etc..
Printing – stationery items, albums, marketing materials for clients
Supplies for Orders – envelopes, paper, etc..
Title each receipt/pdf with where you purchased it from and the date so it will automatically be arranged in an order that reads easily. Keeping digital files makes all the difference here.
For this category, just create a textedit file listing all the orders you had to charge sales tax for, per month. Include the total of the order, tax paid, and net profit.
Since I mostly use Etsy and Paypal for my income, its quite easy to use their tools to calculate monthly finances. In your income folder, create a textedit file that lists all your spending (from the folders above), your gross income (total before spending), and then your net income (total after you subtract spending).
Now since I do a lot of shipping, I add that category to the list but it doesn’t need a folder in my spending because Paypal calculates that amount for me. Yay! Just one less thing to do. Another category I add to the income text file are my Paypal fees, which is already calculated for me too.
Now, at the end of the year, you will have already figured out your numbers and doing your taxes should be super easy and less time consuming. For some great information on all things freelance, hop on over to the Freelancers Union, and join while you are there. They have a ton of helpful blogs, benefits, recourses, and tips for all of us. For more guidance on money and taxes, click here.
FREE STAT TRACKER!
And if you want to organize your social media stats, which is a great idea, you can download my nifty stats sheet by signing up for my newsletter. The tracker is an easy way to watch your numbers grow during the year and includes Facebook, Twitter, Tumblr, Instagram, Pinterest, blog stats, and also your income. Just click below to sign up and get your free download now!