How to Track Your Freelance Business

By Jessica Brita-Segyde on September, 25 2020
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Jessica Brita-Segyde

If you don’t have a business plan, write one. This will take some time, but a solid plan is essential to a successful business. According to the United States Bureau of Labor Statistics, 50% of businesses fail within the first five years. 

It’s likely that those hardworking entrepreneurs didn’t write a business plan or didn’t stick to the one they created. Do you need some help getting started? The Small Business Administration offers resources to help entrepreneurs calculate startup costs and create a business plan.

The First Year

Advice for first-year business sense could (and does) fill entire books. To keep things simple, here’s a top-ten list of the things you must do to build your business on solid footing:

  1. Keep accurate accounting records. Create a Profit & Loss spreadsheet (or an Income Statement) to track every dollar that comes in or goes out. Yes, even the paper clips.
  2. Keep all receipts related to your business. This is required if you plan to deduct the related expenses from your taxable income. Also, keep seven years of tax records if you’re self-employed.
  3. Be aware that taxes are a whole different bird when you run your own show. The DIY approach is not recommended for business taxes. Ask other entrepreneurs for a CPA referral. You will want to enlist the help of a professional who can advise you on what’s needed for your yearly tax preparation and filing.
  4. Remember to withhold a percentage of your income for taxes. Since you’re not working for a company, there’s no one to do tax withholding for you. Most business owners pay estimated quarterly tax allocations to their Federal, state, and local governments. If you underpay (or worse, forget to pay) you could get stuck with a penalty in April. Your CPA can advise on the tax bracket you’re likely to fall into next April.
  5. Consider charitable contributions of your time, your abilities, or a percentage of your profit. Charity can boost morale, help your neighbors, and may help you find new ways to network within your community.
  6. Keep separate bank accounts for your business, maybe even at a different bank form the one you use for personal accounts. One simple approach to business banking is to have two accounts: the first is a business checking account used for income and expenses – including the monthly paychecks that you pay yourself (see #7). The second bank account could be another checking account or a longer-term savings account. This is where you move business profits so you won’t spend them. Profits should stay in the second account (i.e. profit account) for business emergencies or opportunities. You can also use the profit account to demonstrate your ability to retain a surplus if you want to apply for a small business loan in the future.
  7. Yes, it is normal to write a check from your business account to your personal account. This should be a typical paycheck for a predetermined amount every month. You will need to keep your personal and family expenses on a budget.
  8. Don’t forget to save for retirement. Pay yourself first – This is a monthly expense, not something you take from your profits after the fact. If you need to open a retirement account, see the Ruoff Archive for advice on starting an IRA.
  9. Learn about marketing statistics and which ones could be useful in your business planning. Data are everywhere and you only need to spend time researching the stats, facts, and figures of use to you. Google Analytics, the United States Bureau of Labor & Statistics, and nearby colleges can be good sources for the stats that might affect your industry. If dissecting marketing research is overwhelming, consider taking a course online or at a local school. For example, Purdue University offers an online course in market research.
  10. Maybe purchase a software system to track finances and/or other aspects of your business (but creating your own spreadsheet and systems is fine as well). If you hire employees and deliver paychecks you will probably want to invest in payroll software.

Stay With the Program

Did you make it through your first year in business? Congratulations! Here are eight more tips to keep you on track:

  1. Keep up with your taxes, Profit & Loss Statement, and market research. All of this information is useful as you track the progress of your business.
  2. Regarding marketing statistics: Do month-over-month and year-over-year comparisons once you’ve amassed enough time on the job.
  3. The personal/family budget from the first year still applies, even if your business is profitable. You can adjust your budget based on changes in your personal life, but you must live on a budget. This advice applies even if you’re not self-employed.
  4. Keep saving for retirement and enjoy the related tax benefits.
  5. Number five is tedious but necessary: Track your work hours and provide professional receipts or invoices, even for your repeat customers.
  6. Regarding the feeling of overwhelm and general organization: Go digital if it helps. Productivity and time-tracking apps exist to keep you focused.
  7. Don’t neglect your health. It is okay to take a scheduled lunch break and/or make time for fitness. Preventable illnesses and other health-related costs are expensive, so take care of yourself.
  8. Thank your clients, thank your clients, thank your clients. A commitment to gratitude is essential to the life of your business.