Tools for handling business finances

One part of being a free-lancer that I didn’t think about too much before I started was the financial aspect.  I knew I wouldn’t start out making a ton of money and that the income would be unpredictable.  What I didn’t think about, though, was tracking expenses and income for tax reasons.

Fortunately, I had enough sense to go and talk with an accountant before I really got going in my work.  He educated me on what kinds of thing to keep track of like mileage, mailing costs, phone bills, etc.  I realized early on that I was going to need a system to track all these numbers so that when tax time came each year, I would be organized going to his office.

I am perhaps a typical writer in that I don’t like math, so I wanted to find something easy that would require little work on my part.  Here is how I handle tracking income and expenses.  I’m not attempting to give any sort of financial advice here, just offering how I best keep track so my accountant and I don’t have major headaches come tax time.

And the other thing to note is that I’m frugal.  I didn’t want to drop a couple hundred dollars (or more!) on special software, so I started with what I had and have found it works well.

I utilize Microsoft Excel spreadsheets to track income and expenses.  If you don’t own Microsoft Excel, no need to fret.  You can actually use a Google version of virtually the same program if you have a free gmail account.  Check out Google Docs.  Another bonus to Google Docs is that you can share documents with others and they are stored online, so if your computer crashes you don’t lose anything.  I may write a whole post about Google Docs some day — it’s that great.

Anyway, my setup goes that for expenses I have a spreadsheet titled “2009Expenses” (or whatever year it is).  I have multiple worksheets.  The first is mileage.  In here, I track the date I went somewhere, where I went, how far the round-trip mileage was and why I went there.  For calculating mileage, I usually use an online mapping tool like Maps on Us or Google Maps.  I try to make sure I update this at least once a week if not the day I go places.  I also keep track of my meetings and appointments on my calendar in Microsoft Outlook.  So, if I get backed up and have a couple weeks of mileage to catch up on, then I can go through my calendar and work from there.

I have another worksheet labeled “Expenses.”  Here is where I keep track of incidental expenses like buying more ink for my printer or mailing a packet to an editor.  I track the date of the purchase, where it was made, how much it was, how I paid for it (business debit card, cash, etc.) and what it was.  The third worksheet is labeled “Utilities.”  In this worksheet, I track the month for the utility, the vendor (like my local gas company), the total amount, the deductible amount (my office is 12 percent of our total square footage, so I can deduct 12 percent of my utility costs), what utility it is (gas or electric) and how I paid for it.

My fourth worksheet is “Communication.”  This is set up just like the “Utilities” worksheet and tracks my expenses for Internet and phone service.  I can’t tell you exactly why these don’t fall into the “Utilities” category; I just know that my accountant says they have to be separate.

The final worksheet I have is “Taxes.”  Here I track when I paid my quarterly taxes.  This is more for my own records and to let my accountant know what I have already paid out for taxes.

I also keep an envelope in my filing cabinet where I store all business-related receipts in chronological order.  So far I haven’t had to have those, but if I ever get audited, I know they will come in handy.  Of course, I track my business account balance in its check register.

Income works much the same way, though with fewer worksheets required.  I have a spreadsheet titled “2009Income.”  For the most part, I just have one worksheet for income.  When I teach, I will usually make a second worksheet to track teaching income separately because some taxes are withheld from that income.  Otherwise, I track the date (usually the date on the check versus the date I received it), who it was from, how much it was for and what it was for.  I am specific in what it was for so that I know exactly which articles I’ve gotten paid for and which ones I haven’t.  I keep the check stubs or a copy of the check (for those without stubs) in an envelope as well.  If I get paid through PayPal, I print out the transaction and stick that in the envelope.

I also use a spreadsheet for publications I do multiple projects for and need to track what articles have run when and whether I’ve gotten paid for them.

The nice thing about spreadsheets is they do all the calculations for you.  At the end of the calendar year, I total up all expenses and income on each worksheet.  I then print it out or e-mail it to my accountant who takes it from there.  It takes just a few minutes at year-end to do this.  It keeps me motivated to keep on top of tracking things so I don’t wind up with a shoebox of receipts to sort all at once or anything.  It also makes sure I remember short trips to the post office or to drop something off to a client and count that mileage as a deduction.

What tools do you find helpful in handling business finances?

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