Many entrepreneurs start on the path towards small business ownership by leaving the full-time employee life behind to become independent contractors. That gives you the freedom to pick and choose the jobs you take, to negotiate a rate you feel is fair from one opportunity to another and to create your own schedule. Of course, all of that freedom also comes with a ton of responsibility. You won’t have an HR department managing your withholding, and will have to keep track of your own financial records to file your own taxes. You will receive 1099s from however many companies you work for and must organize all of those expenses so that you aren’t spending unnecessary money. Every dollar counts when you are an independent contractor, and to insure your future success, here are just some of the accounting basics you should keep in mind.
Although there are many digital methods you can employ, the easiest approach for the independent contractor is the account ledger book. This is the same way small businesses have been doing their business for generations, and is certainly the simplest option when you are just starting out. A ledger book includes pages split into easy spreadsheets, so you can break everything out by credit or debt. Just make sure you enter every single transaction, and add it up daily or weekly so you have a good idea of your balance.
You’ll want to pick up a business checkbook to go along with your ledger. Business checks come attached to a stub, so you can write the details from the check onto the stub before you send the check off. The description from each stub can be transferred to the ledger book, and that way you’ll know if you’re missing any debits. If you use a business debit card, ask the bank to give you a register for that to help you keep track of any debits that go out electronically.
When it comes to cash payments, you might want to keep track of these using paper invoices and receipts. Pick up a book of each, ideally that come with carbon copies for your files. Make sure that you invoice each of your clients for payment, and then give them a receipt when they pay you. You can handle this through computer documents and emails as well, but to start you may want to keep physical files, at least until you’re up to speed.
If you maintain inventory, you’ll need to manage that each week as well. This is incredibly important if your inventory has an expiration date. Go over each item on a regular basis and note the purchase price, the date of purchase, and the date of sale. Carrying too much inventory will sap your cash flow, and carrying too little can cost you business, so it is imperative that you keep on top of this.
You will have to put together a filing cabinet to house all of these different records, but take the time to set up online banking for all of your business accounts as well. This will help you manage savings, checking, credit card and loan accounts, so you’ll always be able to get a snapshot of your current financial situation. While you shouldn’t rely on this, it will give you a great way to double check your paper statements. As your business expands, check out contractoraccountants.com or another online resource to get recommendations for professional assistance to help you manage the growth.