Finding common ground has been a theme since the dawn of civilization. Let’s look at the classics and hunt down a handful of examples.
- “If you prick us, do we not bleed?” (“Merchant of Venice,” Bill Shakespeare)
- “A rose by any other name would smell as sweet.” (“Romeo and Juliet,” Samesies)
- “We hold these truths to be self-evident, that all men are created equal.” (Declaration of Independence, Thomas Jefferson and some other folks)
- “All businesses except partnerships must file an annual income tax return.” (Business Taxes, IRS)
That last one is a little less poetic, but no less important. Well, maybe a little less important.
The point I’m trying to make here is that you need to keep your accounts in order, no matter how big or small you are.
The IRS does not look the other way re: small business bookkeeping, and your banker isn’t going to accept “I didn’t realize my cash flow was negative” as a reason to extend the terms of your loan.
Freelancers are self-contained businesses, and you need to run your operations just like the bigger players. Track your revenue, manage your expenses, keep the cash coming in through thoughtful planning, and file your taxes.
That said, there are a few software features freelancers should be on the lookout for and few they can typically avoid. We’re covering both sides of this accounting software coin here.
3 accounting software features freelancers need
1. Invoice management
The most important thing a freelancer can do is get paid. The way you get paid is by doing work and then—and this is the important bit—telling someone that they owe you money for the work.
Invoicing is the first step to getting paid for any company, but, for freelancers, it takes on special significance, because freelancers are often the last folks in the getting-paid pecking order. In fact, a recent Xero study found 60% of small business invoices are paid late.
This is, in part, because freelancers have fewer resources available to chase down late payers. You also have fewer revenue streams to absorb the impact of those late payments.
As such, you should look for an accounting solution that’s going to help you get paid. That can include features such as:
- Generating invoices
- Sending invoices
- Tracking invoices
- Accepting payments
Automation tools can take some of the reminder burden off your shoulders, allowing you to send emails whenever an invoice is near due or past due by a predetermined amount of time.
If you get nothing else out of this article: Make sure you’re looking at invoice-friendly accounting software.
2. Expense management
The profit you take home is determined by a simple equation: revenue minus expenses.
We’ve already looked at invoicing and getting paid; now let’s talk about tracking the money you spend.
Expense management is huge right now. Everyone is getting on the expense tracking bandwagon, and freelancers’ lives are being made a little easier with advances such as:
- Improvements in mobile technology
- Optical character recognition (OCR)
When you’re looking at options, find a program that either has built-in mobile expense management or has an integration for mobile management. Even if you don’t travel for work, the ability to take a picture of your Office Depot receipt right in the store is going to make a huge difference.
Third-party solution Expensify in action.
OCR strips out all the relevant information and drops the entry in your accounting package. It can even precode it to make sure you’re charging the right account.
If you are on the road, a good expense management system might be even more important than a good invoicing tool.
Having accurate measures of time and travel details can help you get the money you’re owed and can be the difference between a contract that just barely covers costs and one that helps you grow your business.
Of course, as FreshBooks points out, expense management only helps you get paid if you communicate with your clients upfront and get everything in writing. Just as you have to tell the client to pay you for work, you must also tell them you’ll be charging them for some incurred costs.
3. Accountant access
You’re a freelancer, so you should understand the value a specialist can provide. Accounting software is a great step toward increasing revenue and managing expenses better, but those features don’t get the whole job done.
Working with a great CPA or bookkeeper can help you make the most out of every dollar you earn. Instead of just collecting a bunch of billing and cost data, you can turn it into actionable insights with the help of a professional.
The easiest way to achieve this is to give your accountant access to your books directly. Most cloud-based options offer this feature as standard.
Depending on how you work with your accountant, you’ll want them to take a peek into your books once every month or quarter. They can help you plan your upcoming work and keep you in positive cash flow territory.
3 features freelancers can probably skip
I know. This is just the beginning, and in a mere three years, you will be running a 15-person content generating machine. Bully for you.
This can be said of a few software features, but payroll jumps to mind: Don’t buy more car than you need.
Most payroll options can be added on later or managed through third parties. Don’t worry about getting it set up in the early iteration of your business.
2. Multicurrency support
You’ve got three Canadian clients in addition to your pool of Americans. Or maybe you’re interested in branching out into another country later this year. This might seem like the perfect time to get multicurrency support, right? Meh.
Multicurrency tools are really valuable for businesses that depend on hitting certain foreign exchange rates or that can see cash flow fluctuations with currency movements. They can also be useful for businesses that work in a series of volatile currencies that need constant monitoring.
For most freelancers, you can get what you need from a good relationship with your bank and some basic math supported by the info you can find on XE.com.
3. Special reporting tools
There’s a tendency to think that more information alway equals more power. That’s usually true, but sometimes information is extraneous, overly complex, or so obvious that tools to explain it are effectively worthless.
Most freelance businesses have a simple operating model, easily captured using the three standard financial reports: income statement, balance sheet, and cash flow statement. You can spend a lifetime looking for subtle trends in basic data and, in the end, find nothing more than the information in those three reports.
Almost every accounting software system ships with some detailed reporting options, but you don’t need to seek those options out.
Freelance accounting in a nutshell
Get paid for the work you do. If you’re a freelancer, that should be your financial mantra.
- Don’t worry about bells and whistles
- Don’t buy more tech than you need
- And don’t get sucked into thinking you can do it all yourself
If you can follow those tips, you’ll be fine. Managing your finances is just like any other skill; it gets easier with practice.
Find an accounting software solution that resonates with you—hey, we’ve got a whole directory of accounting software for you to peruse—and figure out how to get what you need out of it.
If you’ve got a favorite, drop a line in the comments to let other readers know what you’re using, and why it’s worked well for you.
Looking for Accounting software? Check out Capterra's list of the best Accounting software solutions.