5 Common Financial Mistakes to Avoid for Freelance Business Owners

Published on: April 10, 2019

Last Updated on: March 8, 2022

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Whether you’re a newbie to the world or freelancing or you’ve been hit hard by tax season, you’ll learn sooner rather than later that every dime counts when it comes to running your business as a freelance business owner.

Sadly, many freelancers make a number of costly mistakes that hurt their bottom lines, most of which are totally avoidable. Rather than rethinking your freelance career and going back to a dreaded nine-to-five, consider instead how you can keep more money in your pocket by making a few small changes to your spending and saving habits and give a serious thought on the financial mistakes to avoid.

The following five tips for finance are essentials for freelancers looking to keep their businesses afloat and ultimately protect their financial future.

1. Track Any and All of Your Expenses:

While tracking your expenses as a freelancer may seem like a no-brainer, many newbies fail to do so simply because they don’t actually think of themselves as business owners. Even if you’re working a solo gig, the fact remains that you’re probably spending money on your business daily whether you realize it or not. For example, consider how the following expenses can quickly add up over time:

Money spent on marketing software and advertising (think: social ads, SEO platforms, and email marketing). Trips to your local coffee shop or co-working space (after all, those lattes and the gas in your car aren’t going to pay for themselves).Payment processing fees from platforms such as PayPal or Upwork.

Freelancers should, therefore, invest in a mobile receipt handling system as a means of saving money for the long term. The more you can wrangle your nagging daily expenses, the more you realize how much money you’re really making. Additionally, you should use software like Knuula for the creation of business agreement letters.

You can also make separate accounts and divide your revenues there. However, it is highly essential that you not only keep a track of how much money is there in each account but also keep documents regarding it so that you can show valid proofs.

Taking personal loans to start a freelance business is the most beneficial decision because it helps you a lot by reducing the taxable amount and budgeting your office expenses and profits earned.

2. Learn Your Deductions:

Similarly, keeping an eye on your expenses will also save you big bucks during tax season. There are a variety of tax deductions for freelancers out there, including deductions for your home office space, business travel, and marketing expenses.

By having these expenses clearly tracked and defined, you can easily file them on your taxes and provide proof to the IRS if necessary. As a freelance business owner, this tip is very much essential for you.

Nowadays there is a lot of online books keeping methods that make transactions easy. One such software for transparent and profitable invoicing and accounting is QuickBooks. There are a lot of benefits of using bookkeeping software and they are:

  • You can track invoices and see them whenever a client opens them.
  • You can easily connect the software with your bank accounts for a smooth cash flow.
  • It is a user-friendly software that is easy to understand, especially in the case of customizable reporting.
  • You can even customize the invoice according to your wish per client.
  • Providing your CPA login details during income tax season so that they can get every detail easily without any hassle.

QuickBooks is the wisest decision if you are looking forward to digitizing your business. It also minimizes the risks of making financial mistakes.

3. Rethink Your Pricing Structure:

If you’re a first-time freelancer, you probably aren’t making nearly as much money as you think that you’re making. Time changes and markets fluctuate so it is always better to upgrade your pricing structure with the changing market trends.

Often draw your existing customers with exciting offers and sales if you think you are running short of money and have excess stock that needs to be cleared. Holding old stocks is one of the financial mistakes to avoid because people change with changing trends, so they lose interest in your product in the future.

For example, if you’re charging an hourly rate or have clients asking for constant revisions on projects, you’re inevitably hurting your earning potential. Take the time to calculate your true hourly rate and consider charging on a project-by-project basis versus by the hour: after all, time is money.

4. Don’t Neglect Your Non-Billable Hours:

Seemingly minor tasks such as responding to emails, filling out invoices, and marketing your businesses can quickly add up week-by-week in terms of your time. Non-Billable hours are often neglected but at the end of the financial month, it mounts up to a big amount which you may find difficult to pay. Hence, it is essential that you calculate those hours tactfully.

However, bear in mind that you aren’t getting paid for these tasks and therefore should do everything in your power to streamline them. From invoicing software to apps such as Hootsuite which queue up your social posts, simply be aware of how much time you’re spending on “the small stuff” and don’t let these duties get in the way of your bottom line.

5. When In Doubt, Put More Money Away:

It never hurts to put more money away than you think is necessary. Rather than constantly worrying about tax season, retirement, or medical emergencies, strive to save as much disposable income you can into a high-interest savings account, for example.

Don’t put yourself in potential financial ruin by not saving enough: instead, do everything in your power to build up a nest egg to avoid any “what-if” scenarios.

While there are many benefits of being your own boss, there’s plenty of stress that comes along with flying solo. One of the most effective tips for finance says that you must protect yourself financially by plugging up the holes in your spending and saving habits accordingly: you’ll thank yourself when tax season rolls around again.

Also, leave a comment in the comment section below and let us know whether this blog on tips for finance was useful to you or not. We are literally waiting for your success stories!

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Mashum Mollah is a tech entrepreneur by profession and passionate blogger by heart. He is on a mission to help small businesses grow online. He shares his journey, insights and experiences in this blog. If you are an entrepreneur, digital marketing professional, or simply an info-holic, then this blog is for you. Follow him on Instagram, Twitter & LinkedIn

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