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Business & Finance

Online Bookkeeping for Freelancers that Won't Cost an Arm & Leg

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If there’s one thing I’m bad at in this whole freelancing business it’s bookkeeping. I mean, I’m a writer — and frankly, one of the things that draws me to writing is that it’s not bookkeeping. If you’re a writer, a designer, or even a coder, chances are you were drawn by the possibility of putting words, images, and code together in creative ways, not by the prospect of meticulously recording financial transactions.

The bookkeeping and accounting a freelancer has to do boils down to three things:

  1. Recording invoices and payments,
  2. Recording expenses, and
  3. Computing and paying your taxes.

For the past year-and-a-half, I’ve been using LessAccounting to handle the first two, and sort of “winging it” to handle the third. I like LessAccounting, and with a little creative data entry (e.g. holding off on entering payments in months when I get several payments and entering them during slower months; the free account limits the number of payments you can enter in any given month) I’ve managed to do pretty well for myself with a free account. But that’s changing – I’m developing more clients and more steady invoicing and payments to record, and at the same time my income is growing to the point where taxes are becoming a nightmare.

When I recently discovered Outright, a whole new system came together. Instead of handling my bookkeeping separately from my tax accounting, Outright acts as a hub for an integrated accounting system, featuring:

Here’s how it works:

Freshbooks for Invoicing and Payments

Freshbooks is an online system that has become a de facto standard for freelance bookkeeping. The free account offers just about all the features of the paid account, but is limited to only 3 clients and places Freshbooks branding on your emailed invoices. $14 US a month removes the branding and allows you to track 25 clients, with higher-priced plans for more clients.

Freshbooks invoices are not as customizable as some other invoicing services’ templates (I’m thinking of BlinkSale here) but they’re attractive and functional, and offer enough branding to be clearly identifiable as your own. If you tend to work by estimating out a whole job for a flat rate, you can easily generate estimates; if you work by the hour, Freshbooks offers a pretty good time tracking system as well. One nice touch is their “snail mail” invoicing, allowing you to send printed invoices with payment stubs and return envelopes for $1.79 US or less (depending on quantity).

Freshbooks also handles expenses, but I’ve got a better solution for that:

Shoeboxed for Expense Tracking

Shoeboxed helps to minimize the work involved in tracking expenses by scanning, sorting, categorizing, summing up, and storing copies of all your receipts. The free account requires you to scan your receipts yourself; paid accounts ($9.95 US/month and up) allow you to mail an envelope full of receipts in to have them scanned, OCR’ed, and automatically categorized according to rules you set up (pretty easily, too).

The beauty of Shoeboxed is that you need only worry about keeping your receipts until the end of the month; then spend an hour or two scanning or, better yet, stuff an envelope and drop it in the mail, and you’re pretty much done. You can go to the site and add notes or categorize receipts from places you’ve made purchases at for the first time, but the heavy lifting you can leave to Shoeboxed.

So, how do you get your expense data and your income data to play together? Here’s the anchor:

Outright for Tax Accounting

The focus of Outright is helping freelancers make their estimated quarterly tax payments. What’s great about it is that it imports data from both Freshbooks and Shoeboxed on a nightly basis. Which means that it keeps a running tally of your finances as money flows in and out.

Towards the end of each fiscal quarter, Outright will send you a reminder that it’s time to make your estimated tax payment for the next quarter. Based on your income trends over the last quarter, Outright figures out what your estimated income should be for the next quarter and how much your taxes should be. At the moment it’s US-only (sorry, everyone else in the world) but they say they’re working on adding support for other countries — anyone who knows how complex tax codes can be even from year-to-year within the same country can guess what kind of an undertaking global support must be!

But even if you don’t want Outright to do your taxes for you – they themselves say that they use a conservative algorithm that may result in overpayment, given that underpayment can cause fines and even legal action — Outright is still useful for bringing your financial data together in one place. With a couple of clicks, you can generate an email invite to send to your bookkeeper or accountant allowing them access, making it a simple matter to turn your taxes over to a third-party.

Of course, you could use Outright directly, entering income and expenses as needed by hand, but Freshbooks and Shoeboxed offer so many features that it barely makes sense not to use them (such as invoicing). Outright is free, too, so there’s no added expense for simplifying such a big chore as paying taxes.

Put it all together

Together, these three services will run you as little as nothing per month (for those just getting started and with minimal clients and expenses). For better-established freelancers with a nice stable of clients and a decent amount of expenses per month, the base-level paid accounts at both Freshbooks and Shoeboxed will cost a very reasonable $25 US a month – not too shabby. Both services will scale upwards as your business grows, too, with pretty good rates.

Most importantly, with so much hassle taken out of bookkeeping, it should be a breeze to handle your finances. I know I’ve lost a significant chunk of change on expenses that should have been deductible but the receipts were lost, poorly notated, or simply too much work for the few dollars in taxes they’d save me. Stuff like that adds up, though — and with the economy the way it is, giving up a few dollars here and a few dollars there simply isn’t tenable.

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