S2 E11: If you're freaking out about freelance finances, you're not alone!

Episode Transcript:

Okay get ready for some real talk in this episode, because if you're like me, the topic of finances can carry some real baggage.

Yikes - if you had told me this time last year that I'd be recording a podcast episode about doing my self employed accounts I would have laughed in your face! It's crazy how times change, and I'm really proud of myself for finally getting to a point where I feel not only comfortable and knowledgeable about my business finances, but actually EXCITED to go through my accounts each month and keep organised.

12 months ago I had my head completely buried in the sand with it all. The issue was, my business had grown quite quickly a couple of years before and I'd made the switch to a Limited company due to that growth, and handed my bookkeeping and accounts over to an accountant, washing my hands with it all.

I know what you're thinking - if I had an accountant what was the issue? The problem was that I had NO idea what was going on month to month or day to day with the money coming in and out of my business. I'd literally send over 12 months' worth of random receipts and poorly managed invoicing details to my accountant at the very last minute in a panic, nodded and smiled and signed whatever I needed to sign and paid whatever I needed to pay to the tax man, and then forgot about it.

Then I got my tax bill after that growth year. It was somewhere in the area of £4,000 - which may not seem like a lot to some, but to me and I'm sure to many listening to this, it was a LOT. It was also unexpected, and I was totally unprepared.

Nodding and smiling my way through any talk about accounts and taxes had got me to this point. If I hadn't buried my head in the sand I would have done the sensible thing and saved a portion of my earnings each month to account for taxes at the end of the year. But I was clueless. LUCKILY I had personal savings that I was able to use for this, but if I hadn't I would have been in a very sticky situation.

To some of you I probably sound really, really naive, but you have to understand - I've always HATED numbers, and I'd built up so much fear and stress around the idea of 'doing my accounts' that it made me feel sick to think about it. It also didn't help that for a year or so after this I ended up taking a LOT of time off in my business due to personal reasons, which meant I was scared of even looking at my business bank balance.

I was in a mess, and it was seriously stressing me out. I've always been a bit of a control freak, so feeling so out of control with my money was really getting me down. One day I broke down about it to my partner Alex, and after a talk with him and a good sit down with Olivia (aka my business bestie and general emotional support) I knew I needed to take back control.

And this meant I needed to take ownership back of my accounting process. Like me, Olivia also used to have a Limited company, but had recently made the switch back to being a sole trader for various reasons. She sat down and showed me her Quickbooks 'Self Employed' account and showed me how it all worked, in simple terms, and how easy it was to set up.

So I went back to my accountant and explained that in order to feel more in control and have more ownership of my business finances, I needed to close down my Limited company and go back to being a sole trader again. Even though it may not have been the most cost-effective option with regards to taxes, this was a really important step for me to be able to understand my accounts better. I also knew that if Olivia and I were using the exact same system, we would be able to help each other out too.

I'll just pause here to say quickly how brilliant it is to have friends who are also freelancers or who run businesses. I'm so lucky to have Olivia, and Alex as well - who also runs a small business. It's so valuable at times like these where you really just need someone to sit you down and make you feel calm again.

Anyway, it didn't take too long to switch back. I had to pay a small cessation fee once I'd stopped trading as my Limited company for a few months, and other than that it just involved changing all my invoices & business contact detailed and changing bank accounts. I was able to start trading as a sole trader instead pretty much as soon as I'd done that!

I got myself set up on Quickbooks Self Employed and connected my bank account (I have a separate business one from my personal bank account, obviously) and Paypal straight away, and the rest is history.

So that's a bit of my business accounts history. I wanted to share that because I know that lots of creatives and freelancers really struggle with the finance side of their businesses, and when I was feeling really shit about it, what really helped was hearing similar stories from other business owners. I know Alice Benham did a whole podcast episode about how she couldn't pay her taxes, and I listened to a few others at the time that really made me feel not so alone with it all.

But let's explain where I am now and what I do with my accounts today. I'm not sponsored by Quickbooks in any way, by the way, but it honestly is a game changer! I currently manage my business finances using this and I recommend it to everyone I know, just like Olivia did to me.

It connects to your bank accounts and Paypal, and lists all your transactions, automatically marking them as income and expenses. You can then categorise them into what they are, such as 'advertising and website fees', 'phone and internet' or 'professional services'. It's really easy to attach receipts to each expense transaction too, or attach invoices to income.

Speaking of invoices, I use Quickbooks to create all my invoices, and it sends it to my clients automatically, and I can also download them as PDFs for my records, and to attach them to income transactions as I mentioned.

I also have the Quickbooks app on my phone, which allows me to see my transactions and invoices, but also automatically tracks my journeys using the GPS on my phone, so that I can go into the 'Mileage' section of the app and select which journeys were either personal or business, and this will automatically calculate my mileage tax deduction, adding it to my 'Self Assessment' tax summary.

That brings me on to the best thing about Quickbooks. At a quick glance on my dashboard, I can see exactly what my turnover, expenses and profit has been over the last month, quarter, year, or any time period I choose in the filter. It's as easy as a click of a button for me to see exactly what my business' financial health is, and it even shows you patterns over time using simple graphs. Perfect for a visual person like me!

It automatically generates things like tax summaries and profit and loss reports, that you can easily download and submit to HMRC yourself OR give to an accountant. And yes, I do still have an accountant to submit my self assessments and check everything over, but I am now confident in doing my own bookkeeping which is a big step from where I was!

So what do I actually do every month to stay on top of it?

At the end of each month, I log in to Quickbooks and take a look at all my transactions that have been synced from my bank account and Paypal. I match them up and categorise them into expense categories, and attach their relevant receipts.

Throughout the month if I receive receipts via email, I'll add them to a folder in my inbox called 'receipts', but if not I just take a few minutes to log into all my accounts and download a PDF receipt or invoice for the relevant transaction.

If you deal with a lot of paper receipts, the Quickbooks app also lets you take a photo scan of your receipt to attach easily as well, but it's a good idea to keep the paper version safe somewhere too.

I also swipe through the tracked journeys on my phone, marking which ones were made for business, so that this is kept up to date as well.

I do the same with my income - going through each transaction and attaching the relevant invoice that I created in Quickbooks and downloaded to a folder on my computer during the month.

Once I've finished, Quickbooks calculates my figures for my total income, total expenditure and total profit for the month.

The next step is the most important, in my opinion!

Remember that huge tax bill I hadn't been expecting? Well now I am 110% prepared for anything the tax man throws my way!

I now put 30% of each month's profit into a savings pot for my taxes. And 30% is likely way more than I need to, but at this point I'd rather be super safe than sorry. If I end up having spare cash left over in that pot after my tax bill, well then that's a nice little bonus for me, right?

This happens before I pay myself (ie. before I transfer what I set as my 'salary' from the bank account I use for my business to the bank account I use for my personal stuff) so that I always know it's there ready for tax season.

I do something else at the same time as transferring this money into my tax pot too. Each month I take 5% of my income and put it into another savings pot. This is based on a principal from the well-known finance book, 'Profit First' (which I recommend every small business owner read, by the way!). I basically plan on letting that 5% mount up over the year, and then after 12 months I'll either use it to invest in something for my business, or treat myself with it as a kind of bonus!

The idea behind this is that when you go freelance, it's easy to just get caught up in the making ends meet mentality. Sometimes it feels like you graft so hard and it's only just about working, and yet the whole reason you started your own business was so that you could have more freedom and run things on your own terms, right?

When you put yourself through the stress of running your own business and being responsible for every penny you earn, you've got to make sure it's still serving you. You've got to make sure your business is working FOR you and you're not just working for your business, just like you would as an employee for someone else's business. Giving yourself a bonus in this way means you're actually getting a benefit by working for yourself, even when sometimes it can feel like it's not worth it all.

That's a slight tangent, but definitely something I'd recommend doing! It makes me happy seeing this little pot build up and up, because I can see that what I'm doing is really worth it after all.

So each month I go through my expense receipts, income invoices, mileage, before putting 5% into a savings pot, and 30% into a tax pot, and then finally paying myself. In amongst this I'll be looking at my income, expenditure and profit reports and comparing them against other months, because now I am genuinely interested and exciting to see how things fluctuate.

Even though I am a sole trader, and so technically not an employee or director with a fixed salary, I try to pay myself the same amount each month as though I was.

By doing this, I am preparing myself for some day going back to having a Limited company. Now that I've built my confidence up, and I have a system each month for doing my bookkeeping that I know will also apply to a company, I feel much more comfortable with the idea of making that step in the future.

But for now I'm just so happy to say that each month I actually look forward to going through my accounts and organising my finances. Staying on top of it makes me feel in control, and I love being able to look at my reports and say with certainty exactly what position I'm in financially in my business, which is a total turnaround from where I was just over a year ago.

This may have been a bit of a rambly episode, but I think it's so important that we talk openly about money and finances, as especially for us Brits it can be such an uncomfortable topic that leads to so many of us burying our heads like I did. If you're struggling at the moment I want you to know that you're definitely not alone - so many small businesses have been through this learning curve and all it takes is to sit down and find a system that works for you and consider maybe investing in a software that makes everything simpler. I think my Quickbooks only costs me around £7 a month and I can say it's truly worth every penny due to the ownership it's given me.

If you have any questions or want to chat about anything I've mentioned in this episode, the best place to reach my is on Instagram at @by.rosanna.

Thanks for listening!