Whether you’re freelancing full-time or are doing it on the side, managing finances are going to very much be a part of your life.
In the beginning of any business, it’s inevitable that you’ll make some mistakes. The important thing is to learn from them rather than dwell. Here are some of the most common financial mistakes that new freelancers make:
Not saving for tax
No one likes to think of tax but the less you think of it the more it’s going to cost you in the long run. You should be putting around 30% away of everything you make to cover your tax and National Insurance payments. This will depend on your circumstances and income though.
Be aware that the way we report tax is going to be changing over the next few years with Making Tax Digital. This means you’ll have to report your taxes and expenses to HMRC on a quarterly basis. This will make you less likely to forget but it’s also more strain and time you’ve got to spend on the least fun part of running a business.
Not keeping a record of expenses
Any bit of profit you make that you invest back into your business isn’t really profit. It’s an expense. Therefore when it comes time to work out your income tax if you’re not claiming expenses, you’re going to be paying more tax than you need to be. So make sure you’re claiming all the expenses you can to reduce your tax bill and keep your costs down.
If you need any advice on tax or expenses, it’s always worth talking to an accountant as they will be able to advise you on your individual circumstances.
Not charging enough
The chances are you should be charging way more than you are. This isn’t just to bump your profits but to cover you for what you’re missing out on not being an employee. If you’re just self-employed, you have no holiday entitlement. If you take time off for that or being ill, you simply lose money.
So you need to make sure that you’re earning enough to cover you when you can’t work. You will need to make sure your fee will cover things like your expenses and tax liabilities too.
Not being firm on price
If clients hint a bit of uncertainty from you over price they’re more likely to try and talk you down. New freelancers are particularly guilty of backing down because they’re afraid to lose clients. It’s understandable but not a great way to move your business forward.
Most clients wouldn’t dream of haggling with other professionals so why should you be any different? You’re running a business and that’s your price. It may be flexible to you, but you should stick to your guns when you’ve given a price to a client. Don’t get into the habit of backing down and charging less than you know you should be.
Have we left anything out? Have you ever made any of these mistakes? Let us know your thoughts.