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Self-Employed

The best bookkeeping for self employed professionals is here!

Get your books handled by online bookkeeping professionals who will understand your business and the pain points of being self employed.

bookkeeping for self employed

Self-Employed Bookkeeping Resources

Understanding Bookkeeping for the Self-Employed

Bookkeeping is the systematic process of recording your business’s financial transactions, including income, expenses, assets, and liabilities. Keeping your finances organized hinges on this.

Bookkeeping for self employed individuals begins with recording income. This includes tracking all your business earnings, such as client payments, sales from products, and any other revenue streams. Tracking expenses comes next, which includes keeping a record of all your business-related costs. For example, you should track office supplies, software subscriptions, and marketing costs.

One key activity is checking bank and credit card statements regularly. They should always match up to your bookkeeping records. Self employed individuals must then reconcile any discrepancies immediately to avoid losing track of what the correct numbers are. It helps to generate financial reports regularly so you get an overview of your financial performance.

 

Importance of Bookkeeping for Self Employed Persons

Bookkeeping is so important for providing financial clarity. You’ll know exactly how much money you’re making, where your money is going, and if you’re operating at a profit or loss. Accurate bookkeeping records are also essential for filing your self-employment taxes. Having organized records helps ensure you claim all the deductions and credits you’re entitled to, potentially reducing your tax liability. Knowing your income and expenses allows you to manage your cash flow more effectively, too. 

If you ever need to secure a business loan, lenders will require solid financial statements based on proper bookkeeping records. Demonstrating financial responsibility through organized bookkeeping increases your chances of loan approval.

 

Bookkeeping for Self Employed Versus Traditional Businesses

Both self-employed individuals and traditional businesses require bookkeeping. They need to record financial transactions accurately, reconcile accounts, and generate financial reports. They both need this data to understand their financial health, manage cash flow, and make informed business decisions. Accurate records are also essential for filing taxes and claiming deductions, regardless of business type.

Now, some key differences exist in how these businesses approach bookkeeping. Mainly, the self-employed typically operate as sole proprietorships or single-member LLCs. Business and personal finances can therefore be intertwined. Traditional businesses likely have a more complex structure with multiple owners, departments, and distinctly separate business and personal finances. 

Usually, bookkeeping is simpler for self-employed individuals. It focuses on income and expenses related to a specific trade or service. Businesses have to deal with inventory management, payroll processing, accounts payable and receivable, etc. This means that the self-employed can make do with spreadsheets or basic bookkeeping software. Bigger businesses often require more robust accounting software or hire a dedicated bookkeeper or accountant.

Individuals file taxes using a Schedule C form to report business income and expenses on their personal tax return. Traditional businesses usually file separate business tax returns depending on the business structure (e.g., corporation, partnership).

Managing Income and Expenses

Tracking Income

Tracking invoices, payments, and receipts is essential for any business. It ensures you get paid for your work, avoid missed payments, and maintain accurate financial records. 

Bookkeeping for self employed individuals can be manual or aided by software. Spreadsheets are a classic option that record invoice numbers, client names, services provided, amounts due, payment dates, and payment methods. This method can be time-consuming and prone to errors, though. Physical filing systems are similar and lack the ease of digital organization.

We recommend using bookkeeping software. This simplifies everything and also adds some automation like sensing invoices, recording digital transactions, and backing up records.

 

Deductions

As a self-employed individual (sole proprietor or single-member LLC taxed as a sole proprietorship), you can deduct many “ordinary and necessary” business expenses from your taxes. These expenses must be common and accepted in your industry, and they need to be helpful and appropriate for running your business. 

Common deductible expenses include:

  • business-related travel
  • home office expenses
  • office supplies
  • equipment and software
  • marketing and advertising
  • professional fees
  • education and training
  • interest on business loans
  • employee benefits 
  • utilities and internet
  • vehicle expenses
  • health insurance premiums
 

It’s important to remember that tax laws can be complex. Familiarize yourself with allowable self-employed deductions as defined by the IRS. Hire a tax professional or check the IRS business expense resources to learn more about applicable expense deductions. A qualified tax professional can also help you understand how to manage irregular income and expenses.

Financial Reporting and Analysis

Essential Financial Reports

Profit and Loss Statement (P&L): This report summarizes your income (revenue) and expenses over a specific period. It shows you whether you made a profit (positive net income) or a loss (negative net income) during that time.

Balance Sheet: This report provides a snapshot of your business’s financial position at a specific point in time. It shows your assets (what you own), liabilities (what you owe), and owner’s equity (the difference between your assets and liabilities).

 

Analyzing Financial Reports 

Once you have your financial reports, analyze them to gain insights into your business performance. Review your P&L statement to see how much profit you’re generating. Look for trends in your income and expenses to identify areas for improvement. Analyze your current assets and liabilities to assess your ability to meet short-term financial obligations. Evaluate your overall financial health by analyzing your total assets compared to your total liabilities. This indicates your ability to meet long-term financial obligations.

 

Setting Up a Bookkeeping System

Choosing between cash basis and accrual basis accounting is a crucial decision. In cash basis accounting, you record income only when you receive cash payment, and expenses only when you pay out cash. This method is easier to understand and implement. It may also lower your tax liability in certain situations by deferring recognition of expenses until they are actually paid. However, it can misrepresent the true financial health of your business because you don’t see outstanding invoices and bills. 

With accrual accounting vs cash accounting, you record income when it’s earned and expenses when they are incurred. You see them all, regardless of when you receive and make payments. This helps you understand your future cash obligations better. It requires a more sophisticated bookkeeping system, though, and can be more challenging for beginners to manage. Consult a tax advisor to understand the potential tax implications of each method for your specific situation.

 

Choosing the Right Method

If you have a simple business with few outstanding invoices and bills, cash basis accounting will suffice. If you’re comfortable with managing accounts payable and receivable, accrual basis might be the better choice. Alternatively, you can start with cash accounting and graduate to the accrual method as your business grows.

 

Bookkeeping Software for Self-employed Individuals

We see several user-friendly bookkeeping software options available. Below are a few of our favorites. 

FreshBooks is known for its ease of use, intuitive interface, and strong invoicing features. It allows creating and sending invoices, tracking expenses, categorizing transactions, generating basic reports, and connecting with popular payment gateways. Pricing starts at $6 per month (limited features) and scales up to $50 per month for more advanced features and users. 

Wave has a completely free basic plan with invoicing and expense tracking. It offers invoicing, expense tracking, receipt scanning, bank reconciliation (limited in free plan), and some basic financial reports. Paid plans start at $12 per month for additional features and functionalities. 

Zoho Books is an affordable option with a good balance of features and ease of use. It offers mobile app connectivity, which we love. The tool includes invoicing, expense tracking, inventory management (limited), project tracking (limited), bank reconciliation, and a variety of financial reports. Pricing starts at $9 per month and scales up based on features and number of users. 

QuickBooks Solopreneur is designed specifically for the self-employed. It integrates seamlessly with other QuickBooks products, and offers tax estimate tools. This version includes invoicing, expense tracking, mileage tracking, tax categorization, estimated tax payments, and basic reporting. Pricing starts at $15 per month with a free trial period. 

Xero is powerful accounting software with a wide range of features, suitable for complex business needs. It offers strong inventory management and project management functionalities. Features include invoicing, expense tracking, inventory management, project tracking, bank reconciliation, payroll (paid add-on), and comprehensive financial reporting. Pricing starts at $30 per month and scales up based on features and number of users.

Remember to choose software that suits your comfort level and aligns with your specific bookkeeping needs. Consider future growth and possible software integrations in the future. Many software options offer free trials or demos. Take advantage of these to test the software and see if it’s a good fit for you.

 

Organizing Financial Documents

Staying on top of your financial documents is essential for both personal finance management and self-employed individuals. Dedicate some time to gather all your financial documents, including physical copies and digital statements. Categorize your documents into Income, Expenses, Financial Accounts, Insurance, Taxes, Retirement, and Other Important Legal Documents.

Use folders, binders, or a filing cabinet with clear labels for each category. Use clear and consistent naming conventions. Consider fireproof and waterproof storage solutions for critical documents like wills or passports. If you prefer physical copies, make sure you keep digital backups using the same organizational setup. Secure cloud storage services like Dropbox or Google Drive offer convenient and accessible options. Ensure proper password protection and consider two-factor authentication for added security.

Regularly review your documents and discard outdated ones following recommended retention periods. Shred or use a secure document destruction service for sensitive documents before discarding them. 

Advice on Tax Obligations and Savings

Income Smoothing and Budgeting

Set aside a portion of your income during high-earning months into a savings account dedicated to covering expenses during slower periods. This helps maintain financial stability throughout the year. Use budgeting methods like the 50/30/20 rule (50% needs, 30% wants, 20% savings/debt repayment) or zero-based budgeting (allocating every dollar of income towards specific expenses and savings goals). Adapt these methods to your income fluctuations by creating a flexible budget that adjusts based on your monthly earnings.

 

Expense Tracking and Management

Maintain meticulous records of all your business-related income and expenses. Categorize your expenses to identify areas where you can potentially cut back during leaner months. Prioritize essential business expenses and differentiate them from personal expenses. Renegotiate contracts or service fees with clients to secure more consistent income or higher rates during peak business times.

 

Tax Planning and Record-Keeping

Self-employed individuals are responsible for paying both the employer and employee portions of Social Security and Medicare taxes, which totals 15.3% of your net self-employment income (net income after deducting business expenses). You’ll pay federal income tax on your net self-employment income in addition to the self-employment tax. Depending on your location, you might also owe state and local income taxes on your self-employment income. 

Prepay your income taxes throughout the year via quarterly estimated tax payments. This avoids a large tax bill at the end of the year and potential penalties. The IRS provides resources and worksheets to help calculate estimated tax payments

Maximize your tax deductions by understanding and taking advantage of allowable business expenses. Consider contributing to SEP IRAs or Solo 401(k) retirement accounts to set aside money for the future while reducing your taxable income. Maintain separate bank accounts for business and personal finances to simplify record-keeping, expense tracking, and tax preparation.

 

Financial Forecasting

Based on past income patterns, try to forecast future earnings to prepare for potential fluctuations. Focus on building a steady client base to secure more consistent income flow. Explore ways to attract recurring clients or retain existing ones through loyalty programs or exceptional service. Consider diversifying your income by exploring additional income streams. 

Planning for Growth and Investment

As a self-employed individual, you have the flexibility and freedom to be your own boss. But with that freedom comes the responsibility to plan and strategize for growth. Analyze your current market, identify trends, and explore potential new customer segments. Consider expanding your service offerings or product line to cater to a wider audience or address new customer needs. If your business model allows, explore expanding your reach to new geographical locations.

Set Specific, Measurable, Achievable, Relevant, and Time-bound goals to track your growth trajectory. Develop a targeted marketing and sales strategy to reach new customers and increase brand awareness. Consider online marketing strategies, networking events, or collaborating with complementary businesses. Implement efficient systems and processes for tasks like client onboarding, project management, and customer service. This streamlines your operations and allows you to scale effectively.

Bookkeeping for self employed individuals is unique...

That’s why you need an online bookkeeping service that understands how a self-employed individual works. We get to know your business then take the bookkeeping off your plate.

Why self employed professionals choose us

Self employed bookkeeping expertise

Our bookkeeping services for self employed individuals are next level! All of our bookkeepers and accountants in-house have years of experience handling finances for the self employed.

Simple, process-driven, and reliable

We're process people that like to keep things simple. We'll set your books up so that they are powered by proven processes.

Fast support and proactive

Work with a dedicated team of bookkeepers that provide fast communication and proactive insights into improving your financials.

Commitment for the long run

We work hard to be proactive for your books. Our goal is to develop a long term relationship where you know your books are in good hands.

Hey self-employed professionals!

Want a bookkeeping service that understands how self-employed individuals work? We’re here for you!

You wouldn’t hire a copywriter that doesn't understand your business, would you? So, shouldn’t your bookkeeper know about how a self-employed works as well?

Monthly financial statements

We provide you with a detailed Profit and Loss, Balance Sheet, and Cash Flow statement by the 14th of every month.

Tax filing and preparation

We prepare all of your monthly reports so that they are 100% tax compliant and ready for year end taxes.

CFO services

Planning to sell? Or just want strategic financial advice? Work directly with our financial experts for monthly advice.

Catch Up services

Behind on your bookkeeping? No worries! We'll get you caught up in no time for a reasonable price.

Inventory bookkeeping

We keep your inventory records up to date multiple times throughout the year so you can see how much you have in inventory.

Payment fees

We understand how self-employed businesses work -- and how to properly classify their fees so you know your numbers accurately.

Sales tax

We work with you to understand the sales tax obligations you have selling in different states and countries.

Custom solutions for self-employed

Have other bookkeeping services you need as a self-employed individual? Set up a call to chat with us about your unique needs.

Frequently Asked Questions

First and foremost, we’re online bookkeeping experts. We cater to self-employed individuals, dentists, influencers, freelancers, startups, agencies, software companies, coaches, consultants, course owners, creators, service providers, and anyone that is selling their products or services online.

Here’s what we focus on: 

  • You receive accurate and on time books every month 
  • Helping you fully understand your financial numbers by providing analysis with your monthly statements
  • Excellent customer support that will be there for you as you scale your business

In addition, we’re a bookkeeping company built by online entrepreneurs. Our founders, Nathan Hirsch and Connor Gillivan, were 8 figure sellers themselves and then built and sold their second business, FreeUp. 

We take the time to get to know your practice, balance the books, then provide you with monthly reports. We provide you with a monthly Profit and Loss Statement, Balance Sheet, and Cash Flow Statement.

We also offer business specific customized reports, employee payroll reports, AP & AR management, paying invoices, running payroll,  and much more. If there’s a service you need that’s not on this page, simply get started and speak with us about it. 

We offer cash basis bookkeeping. If you are an eCommerce seller, you can visit our sister company, EcomBalance, where we offer sales and COGS on an accrual basis, but everything else on cash.

To get started, all you have to do is: 

 

  1. Fill out our quick Pricing Quote form
  2. Send View Only access to your current Quickbooks Online or Xero account. 

 

With that information, we’ll dive in to truly understand your business and provide you with a custom pricing quote for working together. 

During your first month, you won’t be charged and we’ll complete the bookkeeping of your previous completed month in business. We’ll show you why working with us is high level and you’ll be able to meet your dedicated, online Bookkeeping team.

Get in touch

Speak with us

Still have questions? Schedule a call with one of our founders, Nathan Hirsch and Connor Gillivan, to learn more about AccountsBalance and how it can help you as a self-employed professional.

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