When you’re employed, you know exactly how much you’re getting every month and once your salary has landed into your bank account, you don’t have to do anything else.  It’s quite different when you’re self-employed. But it’s not as complicated as you think. It’s worth investing time to get your finances organised from the start.

Sophie Badoux has been working freelance for 4.5 years and shares her finance tips for new freelancers.

Getting paid

There are no finances if you’re not bringing in some money so this is where you should start.

Setting your prices
Do some market research and ask several potential clients how much they would expect to pay for the services you’re providing. Check how much your competitors charge. It’s helpful to talk to someone who is already a freelancer in the same field as you. It’s tempting to think that if you’re cheaper, you’ll attract more clients but that’s not always the case. If you decide to do some intro offers to get your foot in the door, don’t forget to raise your prices later.

Invoicing your first clients
If you’re using bookkeeping software, it will give you the option to generate invoices. If you want to keep it low-key, you can create your invoices in a Google or Word Doc and send them as a PDF.

Don’t hesitate to ask clients to pay upfront, especially if you don’t know them well. If they are hesitant, you can do 50% upfront and 50% when the project is finished. Send your invoice as soon as your project is finished so you don’t end up getting paid months after a project.

Set up a separate bank account
As a sole trader, you don’t legally need to have a separate bank account for your work. But this will make your life so much easier. I have a free business account with Starling, and I love it. The app allows me to have “saving spaces” so I have one set up to save for taxes (so handy).

Keeping track of your money (aka bookkeeping)

Keeping track of income and expenses
When it comes to tax return time, you’ll need to know exactly how much you earned and how much you spent. No matter how small your expenses are, keep track of them from the start. I used a spreadsheet for years and that’s fine. But software like QuickBooks (the sole trader version) are so handy. They link with your bank account and make your life much easier. They also predict how much tax you will pay so that’s useful to make sure you don’t get a nasty surprise. You’ll get a free trial month, pay £5/month for four months and then £10. It’s well worth it.

Know what expenses you can claim
You only pay taxes on your profit (what you earned minus your expenses) so the better you track your expenses, the less tax you’ll pay. Make sure you read up on what qualifies as a business expense and what doesn’t so you don’t miss out.

Save for your taxes
When you’re self-employed, you pay your taxes in two instalments, so you need to make sure you’re saving for this throughout the year. A good rule of thumb is to save 30% of your profit every month. I have a separate “saving space” on my bank account and put money in there at the end of each month. I also check my QuickBooks account each month to see how much tax it forecasts I will have to pay to make sure it matches up to what I’ve saved.

Keep an eye on your money monthly
Schedule some time in your calendar each month to look at your income and expenses and pay yourself. Get into the habit of paying yourself from the beginning, even if it’s only a small amount.

Paying taxes

Registering with HMRC
You don’t legally need to register as self-employed before you start working. But the sooner you do it, the sooner it’s out of the way. You’ll be given log-in details. Keep them secure as retrieving them sometimes requires HMRC to send them via the post, which can take time.

Completing your self-assessment
At the end of the financial year (5 April), you’ll have to complete your self-assessment. You have until the end of January the year after to complete it and pay your tax. It can be tempting to delay it, but it’s much better to do it sooner than later. If you do it early, it means that if you’re struggling to complete it yourself, you can ask for help or find an accountant to do it for you. It also means that if you’ve lost your log-in details, you have time to retrieve them (as they might be sent by post).

Depending on what kind of freelancing you do, your taxes are likely to be quite simple. But if you’re like me and you hate admin, you can use the online service Tax Scouts for £149 (get 10% off here).

Paying some of your taxes in advance
This is called “payment on account” and unfortunately, it’s not optional. You won’t have to deal with this during your first year. In July, you’ll have to pay half of your taxes for the current financial year to HMRC. What makes this a bit tricky is that you don’t know for sure how much taxes you owe until your financial year is over (as it’s a % of your profit). So HMRC charges you half of what you paid last year for your payment on account. So, if you think you’re going to make money during the current year, remember that the 2nd half of what you owe will be a bigger amount. If you’re making less money, the second half will be less.

Money mindset

Being freelance is going to get you face to face with your money mindset – What your beliefs around money are – much more than when you’re employed. You might feel anxious about not having a regular income, you might struggle to charge clients more or invest in things that would allow you to grow. It’s worth listening to some podcasts, reading blogs or books about money mindset.

It can be tempting to leave all of this to later and focus on getting clients and doing the work, but getting your finances organised will make you feel more in control and mean that you know what’s going on with your money, so you can make informed decisions.

Sophie Badoux at Marketing for Good helps good businesses reach more people and turn them into customers through better marketing, including marketing training.