Tracking your finances when your a freelancer or a contractor is tricky
Small businesses, those led by contractors, have a lot of benefits. They afford independence, flexibility, and the power to conduct your business how you want. No overseer. No one is telling you what to do. Nonetheless, they also have a lot of drawbacks, one of the most critical and one that often pops up during tax season is income tracking.
Tracking income flows for contractors is a bit tricky if you have multiple projects happening simultaneously. Each one has different deadlines and different settle-by dates. Each one has different costs and factors that are unique to them. That’s why it is critical for a contractor to have certain practices in place for keeping track of their income.
Contractors have to keep track of dozens of factors that influence their income:
- They have to keep a record of their expenses.
- For IRS purposes they have to know what qualifies as a deductible.
- Funding and financing.
- They have to pay quarterly taxes and self-employment taxes.
- They have to keep track of their clients and their current contracts.
- They have to be on top of payments and money flow.
And those are just some of the many factors that contribute to a contractor’s income. They are key elements they have to record and document properly. One simple mistake in any of those accounts and it could end up costing them a lot. An otherwise-normal and simple mistake in a ledger could translate to huge financial problems down the road.
Best Practices for Income Tracking if Your A Contractor
Documenting your money flow is a tough thing, practically when it’s not your forte or you don’t particularly like all that accounting nonsense. There are hundreds of ways for you to take the lead on this subject.
Hire an accountant
Hire a consultant, an outside party to track your expenses, and your income, and take the baton of your book-keeping lifestyle. Accounting services, nowadays, are extremely affordable and can be found just about everywhere on the net. You no longer have to employ a person but software or service – of multiple people and apps – that can keep track of your revenue stream.
It’s called virtual bookkeeping and right now, although most are in their infancy, it’s becoming a trend for some contractors.
Benchmarking
What is benchmarking? Benchmarking is the practice of comparing your business, your metrics, and standards, to other companies in your same field. It’s a clear way to see how you stack up to your peers and competition.
Want to know if you’re treading water? If you’re overpaying for something? If you’re underselling your services? Or any other one of your business practices? Then the best thing you can do is to examine by contrast.
Mobile Apps
Quickbooks, FreshBooks, Xero, and dozens of more apps can help out in tracking your income. They are great for small businesses. They help track expenses, deductibles, incomes, invoicing, bank reconciliation, and dozens of other key characteristics that influence your finances.
Most keep track of expenses automatically by linking up to your bank account and various financial institutions. They even allow for payments to be made directly from the app. For instance, FMD has a great option of funding deductibles in their app to save lots of time and stay legally compliant.
Such mobile apps give out easy-to-read financial reports and customization makes them unique to each contractor’s needs.
Free Online Options
If paying for an app, given that most have a yearly or monthly subscription rate, is not your cup of tea, then you can always go old-school. There are dozens of spreadsheet options available online that are free.
Amongst them, and quite frankly the most popular, are Microsoft Excel, Google Sheets, and Apple’s Numbers. They all offer cloud-based services and intuitive designs, as well as multi-platform connectivity. What you do on your desktop immediately appears on your cell phone app.
Monthly Audit
Finally, the most sensible and often overlooked method of keeping on top of your expenses and income is by submitting yourself to a monthly audit. Simply assigning yourself one day a month where you will go over your revenue stream in a dedicated way, rigorously examining every receipt, client, invoice, and all your business practices really does a lot.
Why keep track of your Income?
Never leave money on the table, that’s the first rule of business. Always be on top of your finances. Every penny counts. It’s important to keep track of your income for the simple reason that you worked like a dog for that cash. The last thing you want is to feel that an error on your part made you lose out on the cash you labored for.
Not only that but keeping track of your expenses is key to almost every aspect of your life. It tells you how much you have, how much you can spend, and a careful analysis of your business metric can even allow you to make projections and wise investment decisions.
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