In recent years, freelancing has been on the rise for entrepreneurs all around the globe.
This is due to a number of factors, including an improved work-life balance, the ability to be your own boss and the opportunity to do the work that you love.
Although freelancing is great and you can learn so much from it, there are of course financial risks involved that it is important to be aware of, with the main one being financial uncertainty.
Due to that, it is vital that freelancers plan their finances in order to have an increased chance of stability and success.
In this blog, we are going to discuss some tips that you can utilise as a freelancer to boost your financial security.
Understanding and Managing your Income
In freelancing, your income will often be variable.
This means that your earnings will fluctuate and sometimes be unpredictable.
Freelancers earn their income through the projects they complete and services they provide, rather than receiving a fixed salary like you would in traditional employment.
Although it may sound challenging, it is especially important to practice budgeting when receiving irregular income.
Some simple ways you can do this are by tracking all your expenses, reducing them where possible, calculating your average income and/or having an emergency fund.
Having an emergency fund will provide you with a safety net during times where you may not be earning much.
It is important to have this form of financial security for both the health of the business, and your mental health as a business owner, as running a business is challenging enough without having to worry about running out of money.
Pricing and Negotiation
When it comes to pricing, it is important that you set competitive rates.
You can do this by researching the market, assessing your expertise, defining your clients and/or calculating an hourly rate.
By looking at the pricing of other businesses in your market, you can get a rough idea of the ballpark of your pricing, and you can then adjust your rates accordingly based on your expertise, quality of service and what you would like to earn.
You can also negotiate with your clients for a chance to secure higher pay.
You can do this by emphasising your skills to them, describing exactly what you can bring to the table, explaining why you feel the rate is justified and considering alternative methods.
Alternative methods you could consider include offering additional services or extended support.
It is extremely important to value your work appropriately, as this will help to establish your credibility and professionalism.
It will also provide you with more financial stability, and accurately reflect your expertise and quality.
Expense Management & Record Keeping
In order to manage your expenses effectively, it could be worth working with an accountant who can set you up on online accounting software that will track your expenses efficiently.
This option saves a lot of time and is more accurate, as some software can link directly with your bank account and track your expenses for you.
Or you could upload pictures of your bills/receipts into the accounting software, and your accountant/bookkeeper could then categorise these on your behalf.
If you’d like to know more about what we accountants can offer to support you as a freelancer, read more about us on our website or book a free consultation with us today.
Not only can we help you manage your expenses, but we can also help you record and understand them, and much more.
By tracking your expenses, you will be able to review and adjust your budget when necessary, since your expenses will be accurate and streamlined.
Prioritising Essential Expenses
Whilst we are on the topic of expenses, it is important to note that you should always prioritise the necessary ones, such as rent and utilities.
You can cut down non-essential expenses by shopping mindfully, identifying what most of your money is going on, and being mindful of small expenses.
Tax Planning and Compliance
Since freelancers work for themselves, you will need to register for Self Assessment.
You will also have to pay Income Tax on your earnings; however, you can claim certain business expenses as deductions to reduce your taxable income.
In addition to this, if your turnover exceeds the VAT threshold (which is currently £85,000) you may need to register for VAT.
However, some freelancers decide to register for VAT before reaching the threshold to take advantage of VAT reclaims on business expenses.
To ensure that you fully understand your tax obligations as a freelancer, it is recommended to get help from a professional such as an accountant or tax specialist.
They can provide advice tailored to your specific circumstances and help you navigate the difficulties of tax regulations.
Insurance and Risk Management
As a freelancer, it is worth considering liability insurance.
There are a few different types of liability insurance, with them all providing coverage from potential legal claims and financial losses that could arise from your work.
The main types of liability insurance that freelancers go for include Public Liability Insurance and Professional Liability Insurance.
Public Liability Insurance protects you against claims made by third parties, such as clients or the public, for property damage or injuries that occur due to their business activities.
It covers legal costs, compensation and any other expenses associated with these claims.
Professional Liability Insurance is coverage that is specific to professionals who provide services, advice or expertise.
It protects against claims of breaches of professional duty, negligence, or errors. It covers both any damages awarded to the claimant and legal defence costs.
Conclusion
As we have discussed in this article, there are many steps you can take to become an expert financial planner for your freelancing business.
Although they may seem daunting at first, remember that they will help your business for the long term, and you can also get a professional such as an accountant on side for extra guidance and support.
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