Amid the inevitable bustle and stress of the holidays, I make a point to carve out time during the last week of the year for introspection. During this designated “me” time, I’ll turn inward for some much-needed reflection to plan for the upcoming year.
One of my favorite end-of-year rituals is marking off the boxes on my financial checklist for my freelance business. It’s true, this is something money nerd me actually looks forward to. It helps me push the “refresh” button and allows me to stay focused on my long-term goals.
For fellow freelancers who might also want to spend some time during December tending to their financial situation, here are a few to-do items.
Tweak Your Business Budget
Besides making changes to my regular budget for living expenses, I’ll re-evaluate my business expenses and spending plan.
This requires looking at my books for the year to see which expenses have spiked, and which have bumped down. If I find that I spent more this year on, say, hiring independent contractors, or meals and entertainment, I tweak my budget to accommodate these changes. I’ll also try to save on business expenses when and where I can, and will cut back as needed.
I also will create a spending plan for anticipated expenses in the new year. For instance, I plan on attending more professional conferences, and might invest in a revamp of my website. I’m also publishing the first of a series of books geared toward freelancers. I’ll also consider vacations I want to take and budget for time off.
If you use accounting software, you can easily spit out an expense report to see where your money is going. If you’re new to freelancing, you could aim to set aside 10% of your after-taxes income toward business-related expenses. This money can go toward health insurance, equipment and supplies, a coworking space, and professional mixers and conferences.
Make a New Money Flow
In a nutshell, a money flow is the system of cards you use to make your purchases. It also includes the bank accounts where you keep (and move) your money. My money flow is pretty straightforward, and I’ve aimed to make it as streamlined as possible. I make the majority of my purchases on my business credit card, and pay contractors via PayPal. Everything drops into a business checking account. And from my business checking account I pay all my bills.
In years past, my money flow sometimes became unnecessarily complicated. There were too many “bank accounts in the kitchen,” or I moved money around unnecessarily. When that turned out to be the case, I would simplify accordingly.
Prep for Taxes
While I make a point to log in to my accounting software regularly to make sure my transactions are accurate and up to date, when the end of the year rolls around, I go through my books again to see if I missed anything. I also spend time exploring nifty features with my accounting software, such as creating customized reports.
Something I learned from my accountant: If your business is cash-based, sales and purchases are recorded when the money drops into your bank account, and not when the services were performed or billed (that’s known as accrual accounting).
So if you have pending payments for work you performed in the year prior but you got paid this year, then that counts as income for the current year. And if any payments for work you performed this year spills over to the next year, that will be included in next year’s income, and not this year.
I’ll also schedule a call with my accountant to see if there’s anything I should do before the new year. For instance, if I hired independent contractors and paid them at least $600, the IRS requires me to file a 1099 tax form for each person.
Review Your Insurance
Insurance can be one of those unpleasant purchases that many of us dread. It’s an understandable feeling: no one enjoys spending a lot of money on something that they won’t need unless something terrible happens.
As solopreneurs it’s crucial that you have ample coverage. When stuff happens — and it inevitably will — not having proper insurance could be a devastating blow.
Commit to Regular Financial Housekeeping
To avoid having the tasks on my financial housekeeping list pile up, I’ll also create a plan for staying on top of these tasks. For instance, balancing my books every week, and sending invoices at the end of the month. Not terribly sexy or exciting to many, but taking a bit of time during the end of year to tend to financial housekeeping will help you continue to grow and strengthen your freelancing business. You’ll have one less thing to stress about once things get busy, and it could help you avoid freelancer money woes.
Do you have any tips to add to the year-end checklist? Let us know in the comments.