Diving into the freelancing world for the first time is a rewarding adventure. However, the ease of which you can make whopping mistakes may surprise you.
These simple freelancing mistakes can spell serious trouble down the track, so pay heed.
While it’s easy to misstep, it can be just as simple to avoid these mistakes entirely. Here’s a few major pitfalls of freelancing and what you can do to leapfrog past them without blinking.
Not separating your finances
This is a big one and a common trap that first time freelancers (and smaller businesses) fall into all the time – not separating your personal finances from your business finances.
Its all too easy to book an uber to a job with your personal card, buy various work-related equipment and supplies, or have your incoming revenue from clients sent to your own personal savings account.
This causes chaos when it comes time to pay taxes, claim expenses, and calculate your freelancing profits and cash flow.
But there’s a simple solution – from day dot, open a separate bank account, or bank accounts, that are purely for business purposes. How you do this is up to you, but think about having one for expenses, one for revenue, and one to hold your expected tax bill.
This clear separation will help you avoid the serious headache of teasing out personal from business finances down the track, especially come tax time.
Not putting aside your tax bill
Similar to the above, you need to keep abreast of your expected sole trader tax bill and place this in a separate account.
Too many freelancers accidentally dip into this pool of tax money and are struck with a large, unpayable tax bill when the ATO comes knocking. Remember, a sole trader needs to pay their own taxes through their individual tax return.
To remedy this, use proper accounting software to calculate your expected taxes and be sure to diligently transfer this to a separate tax bill account, for safe keeping.
Then when your tax comes due, you’ll have the requisite funds ready to go and can avoid any tax debt complications.
Not integrating your accounting software
Of course, you absolutely need proper accounting software to ease the burden of reporting, taxes, GST, accounts payable/receivable, and be able to accurately map your revenue, expenses, and cash flow.
But you can enhance this automation and visibility by integrating your other software tools. You can link up your POS terminal, bank accounts, ecommerce store, invoicing, and a wide variety of other financial tools.
By integrating your payment and financial solutions, you can automate so much your manual financial and bookkeeping legwork that admin becomes a much simpler and swifter affair.
You also produce much higher visibility over your entire business health and cash position in real time.
Not protecting your IP
Another easily missed task is to protect your intellectual property. This is particularly salient if you provide creative work such as photography, writing, design etc.
If you provide creative work for a client and issue them an invoice, that doesn’t get paid, protecting your IP can give you ammo.
For example, you may want to include a clause in your invoices that your work remains your intellectual property until such time as payment is received. It’s best to chat to a business advisor about this to make sure your avenues are clear.
Not invoicing properly
Many freelances invoice for their services, and this can create serious cash flow issues if your invoices are not being paid or issued correctly.
In fact, late invoices are one of the top concerns for small businesses in Australia and we’re among the worst countries in the world when it comes to paying invoices late.
Ways to remedy this:
- Make sure all payment and personal details are correct and your invoice template is clear, well branded, and professional.
- Create strict payment terms with clear penalties in your invoice terms and conditions.
- Consider requiring down payments before work commences.
- Use proper online invoicing software to send invoices and receive payment.
- Always send invoices immediately after a job to avoid payment delay.
- Use your invoicing software to set up automatic reminders for late payers.
- Regularly look at your accounts receivable and identify late invoices and chronic late payers.
- Provide several popular payment methods to make it easy for clients to pay you.
Not setting up initial brand guidelines
When you first set out on your freelancing venture, be sure you create a basic set of brand guidelines.
Your brand will evolve over time, and you don’t need it perfect to start out. But by laying down things like logos, colour, fonts, design elements and brand voice and feel, you can get a good footing and start your branding journey right.
This way, when you undertake marketing, invoicing, or website creation, you can keep your brand consistent. Consistency is key to creating brand recognition and to exude professionalism.
If you don’t at least set out some basic brand guidelines, you run the risk of creating messy ad-hoc marketing creative and you may lose consumer trust and brand recognition. Start building your freelance brand straight away!