Day 19: Tracking Your Freelancing Income and Expenses

studying till the sun goes down

This is Day 19 of 31 Days to Start a Freelancing Business (or Make Yours a Better One). If you want to catch up, click here to read Day 1.

Did you finish your client communication templates yesterday? If not, you’ll have time to continue making them today. As soon as you complete today’s task, which is to create a spreadsheet for tracking your income and expenses in your freelancing business.

Why Track Your Income and Expenses

Even if you’re only freelancing part-time or as a sideline, you’ll see many benefits from tracking your income and expenses, such as:

  • You’ll be able to see at a glance if you’re really making money. You can easily tell how much money you’re making, how much you’re spending, and how much is left over.
  • You’ll be able to track the growth of your freelancing biz.
  • You can see which clients or types of services are bringing in most of your earnings.
  • You and/or your accountant will have a much easier time when you file your income tax.

A Spreadsheet

If you’re just starting out, I suggest that you create a simple spreadsheet using Microsoft Excel, Apple Numbers, Google Docs, or OpenOffice.

Your income spreadsheet could be as simple as this:

Date

Income

Client

Service Type

Amount

Running Total

Total:

$0.00

And your expense spreadsheet could look like this:

Date

Expense Type

Establishment

Cost

Running Total

Notes

Total:

$0.00

You can also combine both income and expenses on one spreadsheet, such as this monthly budget tracking spreadsheet you can download here for free.

Don’t stress about creating a perfect system now. In the end, what matters is that you have a financial tracking system in place, even if it’s still imperfect.

Financial/Accounting Software

As you start making more money, it makes sense to invest in financial software. As I mentioned previously, I use Less Accounting. It’s an online service for individuals and small businesses, which lets you:

  • track income and expenses
  • create proposals
  • turn proposals into invoices or create them from scratch
  • generate receipts
  • Email proposals, invoices and receipts to your clients
  • create reports for your own monitoring or for your accountant

Oh, and did I mention my clients can click a PayPal button on the invoice, to pay me instantly?

I like Less Accounting because I can do all these things for a small subscription fee every month. Other online services only let you do billing and invoicing, but doesn’t track your expenses. That just doesn’t make sense to me. For example, if you use Freshbooks for billing/invoicing, you’ll need a separate accounting software or service, such as IAC-EZ for bookkeeping. That adds up to costing much more than Less Accounting by itself.

That said, eventually, I would like a solution that doesn’t require me to pay a monthly fee. I may bite the bullet and buy Quickbooks, FirstEdge or similar software that’s Mac compatible.

Outsourcing

Other home-based and small businesses outsource their bookkeeping tasks. I myself am not comfortable with this. But then I’m a control freak and numbers don’t intimidate me (after all, I was a computer engineering and physics major at one time, many years ago).

However, if you can afford to outsource your bookkeeping and find somebody you’re completely comfortable with – and if this is the only way you can keep your bookkeeping up to date – then go for it! That’s much better than neglecting it altogether.

Further Reading:

1. Online Bookkeeping for Freelancers that Won’t Cost an Arm and Leg (FreelanceSwitch) – Suggests a solution which combines three separate online services. I don’t like it, but hey, it might just work for you.

2. Money Matters: 13 Resources for Freelancer Writers (Men with Pens) – Other freelancers can use these resources too. I like the Canada-specific resources ;-)

3. Top 5 Accounting Software for Small Business (About.com) – Brief description of five accounting software for small businesses

If you know of other accounting or bookkeeping solutions for freelancers, do share by posting a comment below, ok?

Lexi

Creative Commons License photo credit: jekert gwapo

7 Responses to Day 19: Tracking Your Freelancing Income and Expenses
  1. James Chartrand - Men with Pens
    October 20, 2009 | 6:08 am

    I remember putting that post together – SO hard to find Canuck-relevant money stuff to include, but I did it!

    Good series, btw!
    .-= James Chartrand – Men with Pens´s last blog ..Are You a Snotty Artist? =-.

    • Alexis
      October 20, 2009 | 9:50 am

      Thank you, James! You and the rest of the MenWithPens.ca team are an inspiration as well as a source of practical advice.

      Lexi

  2. Chris Anderson
    October 26, 2009 | 9:13 am

    This is definitely one area I need to just do. Someday I’ll outsource it. But for now, I’m just gonna have to suck it up lol.
    .-= Chris Anderson´s last blog ..OMV Update Oct. 25th =-.

    • Alexis
      October 26, 2009 | 11:43 am

      Yeah, it’s no fun, but it needs to get done!

  3. Craig
    November 2, 2009 | 10:13 am

    Just want to mention Simplybill – the easy way to create and send invoices – it has plans start at $5/month and we’ve just updated it with a new look and more features. Why not try it out free for 30 days. Look out for the upcoming free iPhone app to do invoicing on the go.

  4. Rachel Waldron
    July 11, 2011 | 1:14 am

    I use Outright.com. I believe they are starting to charge, but it has always been free for me to use, and extremely useful come tax season. They do all the necessary forms based on your income and expenses and all you have to know is how to manage a check register :)

  5. Thea Dam
    April 30, 2013 | 5:44 am

    A accounting software can be a great help to any freelancer
    :)
    Thea Dam´s last blog post ..Excel Spreadsheet vs. Accounting Software: Billy’s Billing

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