Managing your finances as a creative freelancer might mean drawing on skills you haven’t used in years or developing entirely new ones. By seeking out the right know-how and planning ahead, you can increase your chances of thriving financially and creatively.
Making the move to becoming a creative freelancer can be hugely rewarding and liberating, especially if your new business helps you develop your creative talents and find customers who love your work. But when it comes to the nitty-gritty of making your business a long-term success, it can also be a little daunting. Here are our top five financial tips for freelancers:
Creating a profit and loss statement
Whether you’re selling woolly hats, ceramics or circus skills, you’ll need one of these. As a record of your turnover and costs, it will inform your tax return and show you how profitable you are. If you’re a sole trader, you may have to send a copy to HMRC to back up your return – and it’s essential if you’re a limited company. Bookkeeping software can help and some, like QuickBooks Self-Employed, have been designed with sole traders and small businesses (as well as creative freelancers) in mind.
Switching from Excel to a financial management system
A lot of creative freelancers start out by using Excel to track their finances. While spreadsheets definitely have their place, they can quickly become unwieldy. If you want to spend more time creating and less time editing formulae and cells, you might want to consider a cloud-based financial management system. It’s often small businesses that benefit the most from these. Platforms like QuickBooks take care of the maths, freeing up time for the bits of freelancing you enjoy.
Getting to grips with expenses
It might be tempting to put it off, but the quicker you become familiar with HMRC’s guidelines on expenses, the more time (and potentially, money) you’ll save in the long run. Whether you go for an online accounting system or stick to spreadsheets, you’ll want to know what’s tax-deductible, from coffees for clients to heating your at-home studio. Again, bear in mind that the rules for sole traders and limited companies differ.
Creating clear invoices
Invoices needn’t be complex, but clarity and accuracy are essential – you don’t want to give anyone an excuse to delay payment. Crucial elements include a unique ID number, your fee, a description of your services and, potentially, VAT details. If you are looking for a helping hand, we have put together an example invoice that contains details on the kind of information you should include.
Paying yourself – what you need to know
How you pay yourself will depend on the legal structure you’ve chosen. If you’re a sole trader you make drawings from your business account into your personal account. (A business account isn’t a legal requirement for a sole trader but it will make your admin easier.) Set up a regular payment and adjust it when you need to.
For a limited company it’s a little different, so check the guidance on the HMRC website. Lastly, do put aside separate funds for your tax bill – the HMRC self-employed ready reckoner is a handy tool for figuring out exactly how much you will need to allocate.
The first few months might feel a little overwhelming, but by figuring out how to approach the financial side of your creative freelancers endeavour – and enlisting the help of various accounting software offerings – you will soon be on your way to a successful and secure future.