Working as an independent contractor is very different from working as an employee in a corporate office. It certainly has its perks: you don’t have to report to anyone or get into the perennial race to get that promotion. But being your boss also means having to do everything yourself — sending your invoices, recording your expenses and even deducting your taxes. Running such a one-man show is a tremendous task. But there are ways to make them a little quicker and easier so that you can devote more time to doing your professional work. Here are a few actionable tips that can help independent contractors like you ace your bookkeeping game without compromising on the quantity and quality of your work.
Six Tips for Effective Bookkeeping
Bookkeeping is an essential job for any business. Not only does it help keep all your financial records streamlined, but it also plays a significant role in taking your business to the next level. All you have to do is keep these few things in mind:
Keep Personal and Professional Finances Separate
This may sound obvious to some, but many independent contractors use their personal bank accounts as their professional accounts. While doing so does help keep costs low initially, as work starts flowing in, it becomes difficult to separate the personal expenses from the business ones. The critical thing to understand here is that taxation rules for personal and business finance are very different. So, jumbling up the two can create problems later on. Right from the start, the right thing to do would be to open a separate checking account for your work-related money matters, with an individual credit card for professional expenses. The cost of opening and maintaining two accounts is much lower than the confusion a single account will create in future.
Track All Transactions
The first rule to effective bookkeeping is tracking every financial transaction you make and recording proof. This means you must meticulously track every expense or purchase you make for work purposes and file away every receipt, bill, invoice, or bank statement you get. Consistency and regularity are key to doing this task correctly. So make sure you make time to record and update all your financial records regularly. Why is this necessary? Because you juggle so many tasks simultaneously, remembering the details of every transaction is impossible. This could lead to gaps in your books of accounts, giving you an inaccurate picture of your business and creating problems for plans and taxation.
Use Technology to Your Advantage
The introduction of bookkeeping and accounting software is a godsent for independent contractors. A host of software and applications can cater to your bookkeeping needs, including tracking expenses and payments, automatically sending invoices, and compiling spreadsheets. That’s not all. You can now link your business account to such software to integrate all your bank and other financial records automatically and seamlessly! With the CRA now accepting financial details in digital and physical form, storing your financial data using such apps saves a lot of time, effort, costs and stationery. Not to mention, it also makes it more secure with the latest encryption technology and cloud backup.
Standardize Your Paperwork
Whether drawing up a contract for a new project or issuing invoices for work done, ensure your paperwork leaves no gaps or loopholes. Consult an expert to understand what terms need to be mentioned in the contract, especially the financial terms agreed upon by both parties. Also, while making invoices, design a template that covers required fields — the name of your business and your contact information, the client’s name and address, the date, the invoice number, the description of work and, most importantly, the date when payment is due. Once designed, use the same template for all invoices to all clients, irrespective of the kind of work or project you do for them. Such standardized paperwork makes bookkeeping easy and helps in the case of a CRA audit.
Understand Taxation Rules
Taxation rules for independent contractors are different than those for employees. Some independent contractors might also have multiple revenue streams, all of which must be considered before filing taxes. The good news is that independent contractors and freelancers are also eligible for several deductions and claims. Understanding the various tax-deductible expenses you can claim, including the rent and utility bills for your home office space, software subscriptions, business travel expenses, and website fees, can significantly affect your tax amount. At the same time, make sure you pay any quarterly estimated taxes in time to avoid penalties.
Hire a Professional Bookkeeper
As mentioned at the start, being your boss has its advantages and disadvantages. Being an independent contractor means being a bookkeeper, accountant, receptionist, inventory keeper, and maintenance guy all rolled into one. And, of course, doing the actual work! Constantly donning these various hats day in and day out is exhausting and can lead to lapses in work. However, lapses in bookkeeping can cost your business heavily. So, a better alternative would be to entrust the job to a specialist who can give undivided attention to ensure all your financial records are up-to-date and in shape. It certainly is an added expense that will help improve your business rather than hamper it. A seasoned bookkeeper can go beyond just recording and storing and give you helpful insights to grow your business.
Hiring an experienced bookkeeper is an investment in saving more money in the long run, thanks to their expertise. Not only does it keep you in good financial health, but the peace it brings also helps enhance your work performance.
Contact Edelkoort Smethurst CPAs LLP in Burlington for Your Bookkeeping Needs
Hire a professional bookkeeper to outsource your bookkeeping requirements so that you can give your business the attention it needs. At Edelkoort Smethurst CPAs LLP, our trained and experienced bookkeepers can provide services for all your bookkeeping needs. To learn more about how Edelkoort Smethurst CPAs LLP can provide you with the best bookkeeping expertise, contact us online or by telephone at 905-517-2297.