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If you decide you want to quit your job and become self-employed or you're already freelancing but you haven't figured out how to do your accounting, then you've come to the right place.
How do you know if you are self-employed?
If you are freelancing or offering your services to different clients and you don't work for one specific employer under a contract or a strict schedule then chances are you are self-employed.
If that's the case for you then we are going to tell you about the pros and cons of being self-employed, the advantages and disadvantages of managing your finances, and we'll tell you a little bit about accounting too.
Managing your accounting can have great advantages for you and your business in the long run. However, if you don't learn how to do it properly or if you neglect it for a while, it can become a big problem very fast.
Accounting is probably one of the most important aspects of any business, big or small, and keeping track of the data is useful for several things.
You can learn how much your business is growing, what is your financial situation, how much profit you're making, how's the cash flow, what are your costs, and overall you'll learn what's your business's performance. All this data collection and reports help with business decisions and the organization of future projects.
That's why you should learn to manage your finances, transactions, and statements if you start freelancing.
Learn more on our self-employed accounting guide.
Advantages of managing your accounting
The number one advantage of managing your accounting when you're self-employed is that you save the money you would have to spend hiring an accountant.
Accountants can be incredibly helpful but their job is also highly valued and if you're just starting then it's probably not wise for you to invest your money in hiring an accountant.
However, if you don't have a single clue on how to account, then you're probably better off hiring someone, but more on that later.
Another great advantage of managing your accounting is that there is great software available online for anyone to download and you don't have to be an accountant to learn how to use any accounting software.
The software you get will automatically take care of the data that you input. You can check your income, expenses, balance, funds, and more. This can help you manage your performance better. Here are some software recommendations to help you do your accounting.
Finally, having the first seat to your business's finances can have many benefits.
For example, if you know the information on all of your financial reports or you have a clear idea of every tax payment, asset, fund organization, or income statement, you will be more capable of controlling your finances, income, and expenses.
If there is an external person who accounts for every cash flow then you'll probably end up lost and trusting someone else. But if you do it yourself then you will understand everything that is going on when it comes to financing.
Learning to account can be incredibly challenging but it can also have great benefits for yourself and your business as a freelancer. You can always search for a tutor right here on Superprof and learn to account right away!
It will take you a long time but in the long run, you'll be saving money because eventually, you won't need to pay for a tutor or accountants to teach you what to do, you'll be doing it yourself.
Disadvantages of managing your accounting
Accounting can get messy, especially when you didn't major in the subject and you're just starting to learn about it. There are so many things you have to pay attention to, like financial statements, tax payments, monthly and annual reports, data interpretation, and much more.
Learning all the things that encompass accounting can be challenging and if you don't have the time then it can be a disadvantage for you. That's why businesses try to hire an accountant to take care of the finances, and that's why any company in the world works with teams of accountants – this is not an easy job.
If you don't feel like you're up to the task of thoroughly learning the subject then you're probably better off just hiring an accountant who helps with everything concerning your finances.
Learning to account is not like opening an Excel sheet and trying to cheat the system, figure your way, or trying to find solutions. This is a field where you need to know what you are doing.
Another disadvantage is that these tasks can take up a lot of your time. There is software that will automatically do some of the operations, however, there is still a lot of things you'll have to organize and set up.
If you don't organize your time then you'll probably lose a lot of time and that can be bad for both business and your mental health. You can lose clients and profit if you're not managing your time right and you can also start hurting your mental health by overworking and overstressing.
But remember that a key aspect is organization and time management. If you can master those two you can succeed at managing your accounting –especially if you can tolerate staring at numbers all day.
Pros and cons of self-employment
We've got the perfect tips for you if you are considering becoming a freelancer and be self-employed.
The first thing you should know is that your time will be yours and you'll be free to arrange your days and your schedule. You won't necessarily have to do a 9-to-5 schedule when you're in business for yourself.
However, making your schedule can have negative aspects and disadvantages because you can end up working much more than 40 hours per week. You can also decide to take a break over the week but then you can be swapped during the weekend.
If you're good with time management and job/life balance then self-employment is for you, but if that's not a skill you're good at then you should first focus on learning to manage your time wisely and doing so at your current job.
Another pro of being self-employed is that you define your work environment. You can work from home, in the kitchen, from the comfort of your bed, or you can go out to libraries and cafes, for example.
Nonetheless, working by yourself in front of a computer and online all the time can be exhausting. Especially if you don't see other people because you work alone. Being self-employed can be a lonesome business!
When you're self-employed you have the benefit of choosing what projects you'd like to focus on, which contracts you'd like to pursue, and what clients you want to work with. Now, we are not saying you have to be picky because at the end of the day all you'll want is to have sources of income, but it's nice to have the freedom of choosing.
But, a common mistake done by people who are starting as freelancers is that they take up too many projects at once and after all, you're the one responsible for all the work. So yes, having clients is good, but make sure you don't overbook yourself.
One last advantage of self-employment we'd like to highlight is the learning aspect. You're about to embark on a challenge that is most likely making you step out of your comfort zone. It takes guts to do it but the benefits and lessons you'll have will make you grow both as a person and a professional.
Continue reading and learn how to manage your accounting if you’re self-employed.
The basics of accounting
Accounting and finance are a field of study used to keep track of a business's or company's financial records. The job entails summarizing, reporting, and interpreting financial transactions and having reports ready to present to oversight agencies, regulators, investors, and tax collection entities.
Accountants are responsible for documenting and reporting on the monthly expenses and income of any business. They must keep track of costs, profit, transactions, tax payments, financial statements, assets, and overall the company's financial performance.
Accountants can also give you tips on how to fund a project, create budgets, plan out the expenses of each month, pay off debt, and so on.
There are also bookkeepers, people who are trained to do basic accounting operations and managing small businesses. However, bookkeepers are not qualified to work on more complex stuff that is usually needed in big companies.
Accounting is a complex subject and there are several branches. There's financial accounting, focused on summarizing financial transactions into an income statement.
There's also managerial accounting where they use the same data used for financial accounting but it uses the information for other purposes. In managerial accounting, an accountant generates monthly reports for the business's management team, these reports are to make decisions about how the business operates.
Finally, there's cost accounting which is the field focused on helping the business's management team make cost decisions.
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