Self-Employment, such as freelancing and practicing profession, has been changing the landscape of business structure.
There’s a trend where instead of taking the usual career path of being employed in a company, working hard, and contributing to the company in the hope of climbing the corporate ladder, many young graduates and professionals are taking a leap in creating and building their own career by offering their skills and time thru self-employment instead of being employed.
This can be a good thing if you think about the endless opportunities and growth. However, there are also challenges ahead if you are not careful especially in your finances.
You might think that as self-employed you should only think and comply with BIR registration and tax filing requirement. However, not only should you register and file your taxes properly, but it is also just as important to track and monitor your financial records, also known as Bookkeeping. Failure to do so, may lead to uninformed financial decision or worst financial difficulty such as bankruptcy.
It is not uncommon you hear stories of people who rose to financial success only to find themselves back to poverty again due to lack of proper handling and monitoring of their finances.
In this article, I will share with you ten reasons why it’s important to do bookkeeping for self-employed freelancers and professionals:
1. Track how much sales you’re making
As self-employed freelancer and professional, every payment you receive from your customer in exchange for your service rendered to them is considered Sales.
The first importance of bookkeeping for self-employed is you will be able to monitor how much sales you make in each period, normally monthly. This way, you can see if you are able to meet your goal or need to look for ways of increasing your sales.
2. Organize database of your customer
If you use an accounting software like MPM Accounting Software you will be able to have a database or a list of your customer information such as their name, address, tin, contact details and others. You can also set if your customer withhold tax etc.
This is more efficient and better than manually monitoring or writing it down in a notebook or typing it an excel spreadsheet. Cause manually tracking it has tendency you may have a hard time looking for it in the future.
3. Track how much your cost and expenses
It is also important to not only track your sales but also track your cost and expenses. Because not knowing where you spend your hard-earned money may lead you to overspend or increase your lifestyle unknowingly. Many successful self-employed ends up in financial trouble because they’re not able to monitor and control their cost and expenses.
Another importance of bookkeeping for self-employed is that when you record your cost and expenses, you will be able to determine which expense consume your sales, plan or budget your monthly cost to ensure there’s funds for it, and consider these cost when you set your selling price or service fee.
4. Organize database of your supplier or vendor
Just like customer database, if you are using an accounting software like MPM Accounting Software, you can have an efficient list of your vendor or supplier information such as name, address, tin, etc. You can also set if you do withhold tax from your payments to your supplier, such as rent, and so on. Again, it’s better than doing it manually.
5. Keeps you informed if you are profiting or incurring losses
As self-employed, you are in-charge of your own financial success and own future income. Because unlike in employment where you have a defined and constant monthly salary, in self-employment, it’s not as guaranteed. Self-employment is like a normal business where there are peak season and slow season. There are months you earn more and months where you don’t.
That’s why it’s important to track and review which months you profit and which months you have losses so you can prepare well financially and at least keep your self-employment stable.
6. Let you know of your cash standing and cash flow
Cash is king as they say because it’s the most important asset and the medium of exchange. It is the reason why most of us work regularly instead of doing nothing. And due to its importance, you should be able to properly track and manage it so as not to waste your time and effort in earning it.
Another importance of bookkeeping for self-employed is that you will see how much cash you have, where it comes from and where you use it at every given period. If you do so, you know which area you’re doing well and which you need to control or improve. Having such discipline with cash can help you manage and grow your self-employment and your personal finance. Remember that poor cash management can lead you to financial trouble in the future.
7. Track your outstanding loans
When you increase your income thru self-employment you may be able to buy yourself a car or a real estate property by contracting a loan in a bank. You will need to pay such loan’s principal and interest monthly.
Bookkeeping for self-employed can help you track your loan payments, how much interest you’ve spent, and how much is the loan balance still payable. Tracking your loans will help you manage it better by preparing and budgeting for it. You can also use the information in the cash flow to help you plan, control, and manage your loans to avoid financial trouble like bankruptcy.
8. Track how much assets you own
As your self-employment grows, the property you own may also increase. These properties you own are called Assets.
Bookkeeping for self-employed can help you also track the things you own, or asset, such machinery, like laptops, cellphones, printers, furniture like tables, chairs, cabinets, vehicle, real property, investment, cash in bank and so on.
It will be motivating to see in the financial report that as the time goes by, as you grow your self-employment your asset also grows.
9. Helps you budget and plan your finances
Budgeting and forecasting are important in business and personal finance. It is also just as important if you are self-employed. Because as self-employed, you are responsible to your own financial future and growth.
Self-employment is an unstable source of income but if you properly review your finances and plan for it, you can try to make it more stable and sustainable. Another importance of bookkeeping for self-employed is that you can have a reliable basis on your budget and financial plan because it will be based on objective data such financial reports. When the financial report is object, it will help you make objective decisions and not just solely based on emotions or gut feel.
10. Helps you prepare and file your taxes
Last but not the least importance of bookkeeping in self-employed freelancer and professional is of course tax compliance. When you have bookkeeping in place, you can prepare, review and file your taxes on time, especially if you’re using software like MPM Accounting Software. You don’t need to worry how to do it if you use an accounting and tax software like MPM Accounting Software.
Another benefit of bookkeeping for self-employed freelancer and professional is you can plan and budget your taxes ahead of the deadline. Because as you encode your sales and expense, the tax form is also automatically updated. It will give you enough time to budget the tax due even before it’s due.
Tax filing is not as costly if you do it regularly ahead of time. It only become costly due to penalties if you filed it late or you were audited due to wrong tax filing. It’s also important to take note that not managing your taxes properly can also lead to financial trouble. You can avoid or minimize it if you do bookkeep and file tax regularly and timely.
You can save time from learning bookkeeping and tax or save cost of hiring an accountant to do bookkeeping work. Instead, you can use MPM Accounting Software to do your own bookkeeping and tax filing. You can see more information and try it by subscribing to a 30 days free in this link: www.mpm.ph/tax
I hope this article have been helpful for you to know the benefits and importance of bookkeeping for self-employed freelancer and professional. If you liked this article, feel free to share it. You may also leave a comment for any additional input or questions.
